Buyers Concentration Flashcards
What is Buyer concentration?
Buyer concentration refers to the degree to which a company’s sales or revenue is concentrated among a small number of customers or clients. In other words, it measures how reliant a business is on a few key customers for a significant portion of its sales or income. High buyer concentration can pose risks to a company if it loses one or more of its major customers, as this could have a substantial negative impact on its financial stability.
How can the buyer concentration help maintain pecuniary economies for itself?
By means of their bargaining position.
How do sellers maintain the economies of large scale?
By producing large quantities at lower average costs.
How does the change in prices and profits of the sellers vary depending on the size of the customers?
• sellers catering to a large base of small customers are able to charge different prices and different profits than catering a few large customers.
What is countervailing power?
The simultaneous existence of buyer with seller concentration ie;
The outcome of negotiations between a seller and a buyer where both have market power is undetermined abd depends on the relative bargaining strengths of the two parties.
On what factors do the bargaining strengths of the buyers abd the sellers depend upon?
It depends upon the
•state of demand
•aggressiveness of both the parties during negotiations
•the number and size of firms on both the sides
What is Monoposony?
A single buyer
When is there a hard bargain to be driven?
Between the monopsony abd the monopolist, when there are no alternatives available bargaining is hard to be negotiated.
What is buyer bargaining power according to the Porter’s five forces?
The pressure exerted by the consumers on the businesses to provide them with
• higher quality products
• better customer service
• lower prices
How is the industry analysis conducted while analysing the bargaining power of the buyers?
It is conducted from the perspective if the seller.
How can the buyer power shape the competitive structure of an industry according to the Porter’s 5 forces industry analysis framework?
- Since the buyer’s power affects the profitability abd the competitive environment of the sellers.
- When strong buyers pressure the sellers for
• better quality goods
• better customer service
• lower costs
these directly affect the costs to the sellers, thus there is a decrement in the profit potential for the seller.
What does a strong and a weak buyer do?
Strong buyer - more competitive industry - decrease the profit potential of the seller
Weak buyer - less competitive industry - increase the profit potential of the seller
What are the determining factors of buyer power?
- Concentrated buyers -
• few buyers more sellers = buyer 💪 is high - cost of switching from one seller’s product to another’s
• low = buyer bargain 💪 power is high - Backward integration of buyers
• when buyers begin to produce seller’s product themselves - buyer bargain 💪 power is high - Price sensitive and educated customers - buyer bargain 💪 power is high.
- Customers buying large volumes of standardised products from sellers - buyer bargain 💪 power is high
- Availability of the substitute products in the market - buyer bargain 💪 power is high
Opposite for standardised products?
Specialized products
When is the buyer power high/low?
- Buyers are more/less concentrated then sellers.
- Buyer switching costs are low/high
- Threat of backward integration is high/low.
- Buyer is/ isn’t price sensitive.
5.Buyer is/isn’t well educated about the product. - Buyer purchases products in high/low volume
- Buyers purchases comprises of larger/ smaller portion of the sellers sales.
- Product is / isn’t undifferentiated
- Substitutes are / ate not available
