Buyer-Supplier Strategy Flashcards
Why is Buyer Selection an important Strategic Consideration?
Buyers are usually heterogenous. As such, some Buyer Groups will be more profitable than others.
Porter, Competitive Strategy — P. 150-151.
Buyers largely differ according to purchasing needs, capabilities, structural position, growth prospects, and cost of servicing.
What are the Criteria for Evaluating Buyer Quality?
- Cost of Servicing.
- Growth Potential.
- Buyer Bargaining Power.
- Purchasing Needs vis-à-vis Firm Capabilities.
Porter, Competitive Strategy — P. 151.
These criteria do not necessarily move in the same direction, so the evaluation must weigh each against the others.
What does the Buyer’s Cost of Servicing evalute?
All fixed and variable costs associated with servicing a particular Buyer.
Porter, Competitive Strategy — P. 160.
How is the Buyer’s Cost of Servicing evaluted?
- Order size.
- Selling cost.
- Shipping cost.
- Regulatory cost.
- Required lead time.
- Need for customization or modification.
- Need for distributors or other third parties.
- Steadiness of order flow for purposes of planning and logistics.
Porter, Competitive Strategy — P. 160.
What does the Buyer’s Growth Potential evalute?
Its likelihood of success in its Industry, which would prompt greater demand for the Firm’s product over time.
Porter, Competitive Strategy — P. 151.
How is the Buyer’s Growth Potential evaluted?
By analysing the growth trends in the Buyer’s:
- Industry.
- Market share.
- Inventory turnover.
- Taget demographics.
- Primary market segments.
Porter, Competitive Strategy — P. 153-154.
What does the Buyer’s Structural Position evaluate?
The Buyer’s intrinsic bargaining power and its propensity to exercise it, i.e. price sensitivity.
Porter, Competitive Strategy — P. 151.
When will a Buyer lack Instrinsic Bargaining Power?
- It faces high switching costs.
- Its Seller has low fixed costs.
- It lacks qualified alternative sources
- It purchases relatively small quantities.
- It lacks a credible threat of backward integration.
Porter, Competitive Strategy — P. 154.
What are the Main Sources of Swtiching Costs for Buyers?
- Retraining employees.
- Certifying the new product.
- Customizing the new product.
- Establishing new logistical arrangements.
- Purchasing necessary ancillary equipment.
- Emotional impact of severing a relationship.
Porter, Competitive Strategy — P. 155.
When will a Buyer lack Price Sensitivity?
- It is poorly informed.
- It competes on quality.
- It requires customization.
- It needs the product for its operation.
- It can readily pass on the cost of inputs.
- Its decision-maker’s priorities supersede cost.
- It perceives the product as inexpensive relative to its budget.
- It perceives the product will increase cost efficiency or performance.
Porter, Competitive Strategy — P. 156.
This illustrates that the largest Buyer is not necessarily the most price sensitive.
What does the Buyer’s Purchasing Needs vis-à-vis the Firm Capabilities evaluate?
The Firm’s ability to optimally satisfy the Buyer’s particular purchasing needs, usually based on differentiation and cost minimisation.
Porter, Competitive Strategy — P. 152.
Accordingly, which Buyers are the best largely depends on the individual Firm.
How can a Firm influence the Quality of a Buyer?
Increasing switching costs and decreasing price sensitivity.
Porter, Competitive Strategy — P. 161.
How can a Firm increase the Buyer’s Switching Costs?
- Maximizing product integration.
- Incentivising long-term contracts.
- Making products interdependent.
- Leveraging differentiation, usually through customization or proprietary features.
Porter, Competitive Strategy — P. 162.
How can a Firm decrease the Buyer’s Price Sensitivity?
Increasing value added, namely through:
- New features.
- Prompt delivery.
- Regular updates.
- Customer service.
- Technical training.
- Engineering assistance.
Expanding the Buyer’s view of the product’s value to include:
- Fuel cost.
- Resale value.
- Installation cost.
- Maintenance cost.
- Aggregate downtime.
- Independent revenue generation.
Porter, Competitive Strategy — P. 162.
How does a Firm formulate a Supplier Strategy?
Through a reverse-application of the principles of Buyer selection.
Porter, Competitive Strategy — P. 165.
