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Bargaining Power of Buyers

While companies competing in an industry seek to maximize their return on invested capital (and earn above-average returns). buyers are interested in purchasing products at the lowest possible price (the price at which sellers will earn the lowest acceptable return). To reduce cost or maximize value; customers bargain for higher quality or greater levels of service at the lowest possibly price by encouraging competition among sellers in the industry.

Buyer groups are more powerful when:
•    buyers are important because they purchase a large portion of the seller’s total sales;
•    seller’s products represent a significant portion of the buyers’ costs;
•    buyers are able to switch to another supplier’s product at a little or not cost;
•    suppliers’ products are undifferentiated and standardized; and
•    buyers represent a credible threat to integrate backwards into the suppliers’ industry because of resources or expertise.

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