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Bargaining Power of Suppliers

The bargaining power of suppliers depends on suppliers’ economic bargaining power relative to companies competing in the industry. Suppliers are powerful when company profitability is reduced by suppliers actions. Suppliers can exert their power by raising prices or by restricting the quantity and/or quality of goods available for sale.

Suppliers are more powerful when:

•    the supplier segment of the industry is dominated by a few large companies and is more concentrated than the industry to which it sells;
•    satisfactory substitute products are not available to buyers;
•    buyers are not a significant customer group for the supplier group;
•    suppliers’ goods are critical to buyers’ marketplace success;
•    effectiveness of suppliers’ products has created high switching costs for buyers; and
•    suppliers represent a credible threat to integrate forward into the buyers’ industry, especially when suppliers have substantial resource sand proved highly differentiated products.

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