SWOT Analysis: Bargaining Power of Suppliers and Buyers - dummies

SWOT Analysis: Bargaining Power of Suppliers and Buyers

By Erica Olsen

The amount of control your suppliers have over the price of goods you purchase dictates whether this area is an opportunity or threat. Suppliers or vendors are any companies that provide raw materials, components, or services into your industry. The more suppliers, the less control any one company can have over controlling your costs. The power of your suppliers is high when any of the following factors exist:

  • Few suppliers and many buyers

  • Similar products or services but with higher value or cost

  • Suppliers or vendors threaten to integrate forward (like Nike opening its own retail stores called Niketown)

  • Your industry isn’t a key customer group for the supplier

AT&T sells many of its telecommunication services through independent sales agents. This distribution channel has facilitated the growth of many small telecommunications consulting companies that resell AT&T products. The commission earned off these products was a primary source of revenue for these agents’ businesses.

AT&T is one of only a few suppliers of telephony. Because of this fact, losing one of the only suppliers was a huge threat to these companies. And AT&T took advantage of that power by terminating many agent contracts and bringing the accounts in-house. This action was completely legal but destroyed many agents’ businesses.

The power of buyers can be summed up in one word: Wal-Mart. Because 10 cents of every consumer dollar is spent at Wal-Mart, any company in the consumer goods industry must contend with the force of its buying power. Buyers in this analysis are people who create demand in your industry. The power of buyers is great with any of the following factors:

  • Many sellers, few buyers

  • Buyers threaten to integrate backwards (a computer manufacturer deciding to produce semiconductors or another component they would normally purchase)

  • Your industry’s products are standardized with little differentiation between competing products

  • Your industry isn’t a key supplying group for the buyers