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Bargaining power of customers

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer’s sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers’ power is high if buyers have many alternatives. It is low if they have few choices.

Potential factors:

  • Buyer concentration to firm concentration ratio
  • Degree of dependency upon existing channels of distribution
  • Bargaining leverage, particularly in industries with high fixed costs
  • Buyer switching costs
  • Buyer information availability
  • Availability of existing substitute products
  • Buyer price sensitivity
  • Differential advantage (uniqueness) of industry products
  • RFM (customer value) Analysis