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Bargaining Power of Buyers

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Submitted By Sanchika
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Bargaining Power of Buyers

The existence of influential buyers lessens the profit potential in any given industry. They fuel competition by decreasing prices, bargaining for better quality or more services and playing rivalries opposed to other market giants. The consequences include diminished trade profitability.
The bargaining power of buyers involves one of Porter’s five forces which regulate the intensity of an industry. The rest includes; Barriers to entry, industry rivalry, threat of substitutes and the bargaining power of suppliers.
The influence of an industry‘s significant buyer groups are determined by: * Relatedness to market situation characteristics * The relative significance of trade from industry as measured against the overall business
Below conditions conclude the powerful nature of a buyer group: * The buyer is either concentrated or purchases large quantities * Products obtained from the industry represent a noteworthy percentage of the purchases or the costs of the buyer * Purchased products are undifferentiated or standard- substitutes are easy to find as the competition is tough * Switching costs are very low * The backward integration threat is high * Buyers are price sensitive * Buyer possess necessary information ( they are fully aware about the market prices and supplier costs)

Product differentiation is one of the conditions that affect the power of buyers. Chocolate is regarded as a standard product and buyers tend to seek for substitutes. Since there is a severe competition amongst the chocolate manufacturers, constant innovations are essential to retain the market position. Moreover, the price sensibility for chocolates is high; a small increase in price may incur a manufacturer a large market share unless they fail to improve the quality of the product.
For the chocolate industry the

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