The Force of Bargaining Power
The Force of Bargaining Power
39How Can Information Resources Be Used Strategically?
Bargaining Power of Buyers Customers often have substantial power to affect the competitive environment. This power can take the form of easy consumer access to several retail outlets to purchase the same product or the opportunity to purchase in large volumes at superstores like Walmart. Information resources can be used to build switching costs that make it less attractive for customers to purchase from competitors. Switching costs can be any aspect of a buyer’s purchas- ing decision that decreases the likelihood of “switching” his or her purchase to a competitor. Such an approach requires a deep understanding of how a customer obtains the product or service. For example, Amazon.com’s patented One Click option encourages return purchases by making buying easier. Amazon.com stores buyer information, including a default credit card number, shipping method, and “ship‐to” address so that purchases can be made with one click, saving consumers the effort of data reentry and further repetitive choices. Similarly, Apple’s iTunes simple‐to‐use interface and proprietary software for downloading and listening to music makes it difficult for customers to use other formats and technologies, effectively reducing the power of the buyers, the customers.
Bargaining Power of Suppliers Suppliers’ bargaining power can reduce a firm’s options and ultimately its profitability. Suppliers often strive to “lock in” customers through the use of systems (and other mechanisms). For example, there are many options for individuals to back up their laptop data, including many “cloud” options. The power of any one supplier is low because there are a number of options. But Apple’s operating system enables easy creation of backups and increases Apple’s bargaining power. Millions of customers find it easy to use the iCloud, and they do.
The force of bargaining power is strongest when a firm has few suppliers from which to choose, the quality of supplier inputs is crucial to the finished product, or the volume of purchases is insignificant to the supplier. For example, steel firms lost some of their bargaining power over the automobile industry because car manufacturers developed technologically advanced quality control systems for evaluating the steel they purchase. Manufacturers can now reject steel from suppliers when it does not meet the required quality levels.
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