We live in a time when competition is the order of the day. Every consumer expects to receive the best product or service and will not be happy until they get it. To understand the clients’ bargaining power, you should take into account some factors that will help you set limits with them and have a clear strategy to satisfy their needs.
Data-driven decision-making is what today accompanies consumers throughout their entire purchasing process. But what happens in a hyper-competitive and oversaturated world of offers? Are decisions made solely on the basis of competitive prices or does it have more to do with the Bargaining power of customers?
To find out, in this article we will tell you What is the bargaining power of customers? and how this will help your brand build loyalty without sacrificing profitability.
Ready for the journey through this very interesting topic? 🚀
What do we mean by the bargaining power of customers?
It is known as the bargaining power of customers. to the ability they have when searching for or entering into an agreement with a company to acquire a product or service at a better price.
Currently this type of situation occurs more easily and frequently because the client has access to a wide amount of information that allows him to compare and be aware of the discrepancies that exist between businesses.
But, what kind of circumstances give rise to a client wanting to start this process? Here we share four of them so you can start to have them on the radar.
- price vs. price
- buy more for less
- ability to choose
- ‘The customer is always right’
price vs. price
This is the most common of all and to which you need to be very alert. As, Although it is true that the price is a decisive factor for the client, it is also true that it is often used as a starting point for a negotiation. And although it does not apply to any industry, when it is put in your favor to enter into an agreement, it is because it grants a different value to the one that has been previously granted by the brand that sells it.
buy more for less
There are opportunities that cannot be let go, not even by the client and much less by the brand. Such is the case of sales by volume, which are usually presented as part of the bargaining power of customers. by putting on the table that there are other options that improve current conditions. Giving rise, so easily and quickly, to the decision to change provider.
ability to choose
Since there are many sectors that offer similar products, it is normal for the customer to look for a point of comparison and, even more so, for the one to want to reach an agreement different from the one that the brand itself offers. For this reason it is so important that you take into account the relevance of loyalty, as this can be a watershed for your brand. You can create a sense of belonging with . They always work!
‘The customer is always right’
For many this is a controversial statement, but we cannot fail to mention that there is a large number of consumers who use this philosophy to acquire a better offer than the one presented to the general public. Of course, there are many brands that adhere to this factor to publicize or reinforce their products.
What determines the bargaining power of customers?
Just as there are circumstances, there are also factors that determine the bargaining power of customers. The ones we present below are some of the most important and for which it is important that your brand is prepared.
- Excess supply in relation to demand
- Monopsony (or buyer’s monopoly)
- substitute products
Factor: excess supply in relation to demand
This goes hand in hand with the circumstance previously raised. Here the client can manifest a superior advantage over your competition, which can range from a better price, to a better product or better service. And why is this happening? Because there is an oversupply within the same industry before which the client himself evaluates the different options to choose the one that suits him best.
Factor: monopsony
The fact that? Don’t worry, now we explain it to you.
A monopsony, also known as a buyer’s monopoly, is a market model in which there is a single buyer and a single company.
The benefit for the buyer is that he can threaten the company with not continuing to buy if he is not offered what he wants, exactly as he expects or wants. Here, and on occasion, the company goes out of its way to please its customer.
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Factor: substitute products
What happens when there are many products similar to yours? As a brand, you know the importance of satisfying a need and highlighting the benefits, something that you definitely need to reinforce and master. when a customer uses the similarity with your competition in order to obtain a special price as a higher quality product.
This is the power of negotiation with customers, highlighting the advantages, reinforcing the purchase process and building trust.
What are Porter’s 5 forces?
To understand more about this topic, which any business should care about to stand out from its competitors, necessary , one of the most renowned economists in the United States and around the world. These are:
- Bargaining power with customers
- Bargaining power of suppliers
- Threat of new entrants
- Threat of new substitute products
- rivalry between competitors
Before going to the explanation of each one, it is important that you know more about who developed them. Porter is the author of more than 18 books on business strategy and is a professor of .
He developed an array with the aim of ensuring that companies have the necessary information to carry out a highly effective negotiation, based on a well-founded strategy.
Discover the purpose of each of them below.
1. Bargaining power with customers
If your consumers become more demanding, this can cause them to impose greater conditions at the time of your purchase. But what kind of conditions? Better services or products, higher quality and, of course, better prices.
Faced with this type of event, the client can easily opt for your competition, which reveals that there are a large number of potential suppliers.
What to do in the face of this threat?
- Offer added value through your brand.
- Go from a traditional sales channel to a digital one.
- Focus your attention on improving the quality of your product or service.
- Increase your investment in digital marketing campaigns.
2. Bargaining power of suppliers
The volatility of your suppliers happens. Sometimes they will vary their prices, perhaps at a certain time they will lower their quality level or modify their delivery times. If you want to have a greater margin of choice and greater negotiating power then you must work on certain adjustments.
What to do in the face of this threat?
- Look for other alternatives in order to increase your supplier portfolio.
- Manufacture your own raw material in case the above is not profitable.
- Establish long-term strategic alliances that give you additional benefits.
3. Threat of new entrants
If you start noticing a rise in competitors, It’s time to think about a strategy. For this point, the first and most important thing is to consider what, of what they offer, can be a threat to your brand.
It may be that your competition achieves higher levels of production, that it has more experience or that it offers a highly attractive competitive difference. Whatever the reason, The important thing is that you take action on it.
What to do in the face of this threat?
- Increase your investment in digital marketing campaigns.
- Increase your sales channels.
- Focus your efforts on reducing the price, but without sacrificing quality.
- It seeks to provide added value.
4. Threat of new substitute products
Technological changes and innovations carry a risk, especially when this means that the competition is technologically equipped to offer a better product. However, it is important that you consider that this type of digital offer, despite providing various benefits, they put a limit on the price you can charge your customers.
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What to do in the face of this threat?
- Diversify production towards a substitute product.
- Reduce the cost.
- Maintain quality.
5. Rivalry between competitors
This is one of the most important points for your brand as it is the representative of the four previous forces and the one that collects all the information you need to establish an e in your market. This is where you work and test everything that will make you stand out.
What to do in the face of this threat?
- Focus your attention on the user experience.
- Consider the possibility of partnering with another brand.
- Increase your positioning in digital media.
Bargaining power of clients: examples
One of the most tangible examples in recent times is the possibility of buying food at home (whether from restaurants or supermarkets) through mobile applications.
These apps are responsible for customers looking for several key elements: comfort, time savings and, depending on the promotions, also money savings.
Existing applications compete with each other through promotions to make their offer even more attractive. Which, to a great extent, reduces customer loyalty. However, it is a clear example of how the bargaining power of customers impacts the strategies of large companies that, in turn, drive third parties.
Summary
The bargaining power with customers it is essential because it allows you to establish healthy boundaries between your brand and its customers. And of course, it is also an essential weapon to satisfy their needs, build loyalty in their actions and achieve greater recommendations.
What do we mean by the bargaining power of customers?
To the ability they have when looking for or entering into an agreement with a company to acquire a product or service at a better price.
What determines the bargaining power of customers?
- Excess supply in relation to demand
- Monopsony
- substitute products
- price vs. price
- buy more for less
- ability to choose
- ‘The customer is always right’
What are Porter’s 5 forces?
- Bargaining power with customers
- Bargaining power of suppliers
- Threat of new entrants
- Threat of new substitute products
- rivalry between competitors
Bargaining power of clients: examples
The negotiating power that exists today on the part of customers around the use of mobile applications to request food services; either from restaurants or supermarkets.
After reading this article you may have realized…
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