Fundamentals of Business

Buyer power

Example of Supplier Power Extract from Wednesday, 30 July 2008 Record rise for British Gas bills

British Gas owner Centrica says it is raising gas prices by a record 35% and electricity prices by 9%. The casualties to the hike in price will be households and small enterprises as they haven't got the bargaining power to negotiate prices due to their small consumption.

The importance of individual customers Number of buyers

Buyer power will tend to be high when there is few of them or the supplier need the buyer more than the buyer need the supplier, more weight on one side than the other. For example

A diary farm produces 1000 litres of milk per day; there are two distinct problems for this product: roblems
a) Perishable
b) storage
The farmer has got no choice than to sell the milk say to TESCO at the price TESCO want to pay else it will turn to 100% waste.

Collaboration by an enterprise customers Suppose there are many customers to an enterprises products or services. Consumer groups can effectively lobby to force prices down/up or changing the basis of operation operation.

Example Fair trade. Ease of switching if finding substitutes is ease an enterprise's customers are more likely to switch.

Differentiation
If an enterprise's product/service that is perceived as unique, it will reduce customers desire to switch.
Opportunity Example of when an opportunity arises, a large supplier needs you most

Extract from a biography, Michael O'Leary, R Ryanair chief executive: 'A life in full flight' yanair Deals of Steel
Michael O'Leary studied the business model of US airline Southwest and realised the low cost pioneer kept costs down by operating a fleet composed entirely of Boeing 737 aircraft.

This reduced spending on maintenance, streamlined pilot and crew training and simplified booking operations. O'Leary wanted new aircraft but was not prepared to be bullied by either Boeing or Airbus.
He ordered 19 new aircraft from Boeing then cancelled and announce he would seek second hand aircraft instead. Soon after September 11, 2001 terrorists attacks Boeing's order book shrank dramatically overnight.

Both Boeing and Airbus were in a weaker position to O'Leary.
Airbus agreed to sell him A320s at $30 million US USD each, nearly half the list price, using the terms and quote from Airbus, he went to Boeing and pile pressure, and eventually he bought Boeing's 737 737-800 for $28 million dollars each.