Competition in the industrial sector is determined in part by the bargaining power that customers have with the companies that produce the goods or services.
Consequently, in this article I will continue with the content outline on the external forces that affect competition in the industrial sector.
In product markets, two factors determine the strength of a company's bargaining power vis-à-vis its customers: price sensitivity and bargaining power. The main variables that define these factors are:
a) Customer concentration: Identify the number of customers who demand more sales in the sector. If the number of existing customers is not high, negotiation leverage is affected as they may demand more.
b) Volume of purchases: The higher the economic value of the purchases made by the customer, the better the conditions it can force its suppliers to accept..
c) Differentiation: The less differentiated the products or services, the greater the bargaining power of customers. Differentiated products are those that the customer identifies by their design, brand and quality superior to others.
d) Information on the supplier: If the customer has accurate information on products, quality and prices that allows him to compare them with the competition, he will have more important arguments in the bargaining power with the supplier..
e) Brand identification: This is the buyer's association with existing brands in the market.
f) Substitute products: The existence of substitute products allows the buyer to exert greater pressure on prices.
Another force is buyer power, from which the powerful obtain more value at a lower price with better quality by confronting competitors in the industry, with the objective of obtaining the greatest benefit from this, in this sense, buyers acquire more bargaining power when they are few in number and the volume of negotiations is large.
Considering the above, it can be said that customers can use their position and influence to exert pressure on the company, thus obtaining better prices for them to the detriment of the company. Therefore, organizations should expand their customer base to have a competitive advantage and reduce the risk of a sharp drop in sales when a customer decides to switch companies..