Bargaining power implies the relative abilities of different parties to exert influence over each other. In a perfectly competitive market, both parties involved will have equal bargaining power if they are on an equal footing in a debate. The bargaining power of the buyer, therefore, is the buyer’s ability to influence the setting of prices. We look at how strong the position of the buyers is and if they are able to work together in ordering large volumes. Monopsonistic buyers will use this influence to their advantage so that they get the best at the expense of the market. In a truly competitive market, though, the price of commodities is set by supply and demand, not by the bargaining power of the buyers. (Yuval Levi, 2005).
Buyers offer competition to the suppliers by bargaining prices down, forcing better service and higher quality from the supplying industries, and playing firms off among the firms themselves. The buyer has an even greater advantage when it comes to bargaining since he/she has full information on the commodity and the varying prices. (Michael A, Robert E, et al. 2000)
In the audio and video equipment industry, the buyers are the importers, wholesalers, and distributors. These are the people who get the electronic equipment directly from the industry and distribute them around to the potential consumers. Importers organize for the shipment of the electronic equipment from where they are manufactured to their destinations which is the market. At the market, buyers are informed, and they know the best electronic goods they want to buy in terms of the price and quality. It becomes upon the distributors and the wholesalers to advertise the electronic products that they have so as to attract a bigger market share. Since this is an industry, the buyers who are of interest are those who purchase directly from the industry; the wholesalers and the distributors.
The bargaining power of the buyers is likely to be high in an electronics industry when the customer incorporates some adjustments into the system of the distribution chain. This becomes so when; the electronic product is not of any strategic importance to the buyer. In this case, the buyer is not obliged to purchase the goods and offers very little amount of money while purchasing the electronic because it is not considered important at that particular time.
When customers buy large volumes of audio and video equipment, then there is a concentration of buyers. This will automatically translate to more buyers who will influence the price of the equipment.
When a large number of small operators are in the supplying industry, the buyers influence the bargaining power in that they will tend to purchase the audio and video equipment where the price is lowest. These several small operators will also try to keep up with the customer demands so that they can have their goods purchased speedily. They are also likely to supply cheap goods which attract buyers easily.
When the audio and video equipment are undifferentiated and are able to be replaced by substitutes, the buyers will have higher bargaining power because if the ones produced in the industry are a little bit expensive, the buyers will opt for goods that can substitute the audio and video equipment.
When the customer is aware of the cost of production of the audio and video equipment, it would be extremely difficult to convince that customer to buy the product at a price higher than the production cost known to her/him.
In an event where the supplying industry of the audio and video equipment has high fixed costs to operate with, the prices of their commodities are likely to be high. The buyers are not likely to buy when the prices are that high therefore, the supplying industries will be forced to reduce the prices of their commodities so as to accommodate their customers (Dagmar R. 2001)
Industry attractiveness is the ease and magnitude of making a profit compared to the risks involved, which are found within the industry. It depends on the number of competitors, rate of growth of demand of goods and services from the industry, the relative strength of the competitors, and their width of margins.
The high bargaining power of the buyers, in this case, addresses the issue of industry attractiveness in the opposite direction. The high bargaining powers of the buyers imply that the industry does not have the ease of making profits. They have to work extra hard so as to keep this bargaining power under check.
The threat can be changed by firms in the industry by undertaking a number of activities that overcome or are used to treat the threats. The industry should increase the customer relationship with it so that the customer gains more confidence and loyalty to the industry. When the players in the market have the same strategy, they become a threat to one another. Therefore the industry should have its specific strategies far from those of other industries producing the same products. When access to raw materials is controlled by the existing industries that use them, then the threat of high bargaining power of buyers will not occur since the industry will be the sole regulator of the raw materials.
References
Porter, E.M. Michael E. Porter on Competition (1st ED) Harvard Business School Press (1998).