ACCA Applied Knowledge · Business and Technology · Competitive factors
A manufacturer of office chairs sells almost all its output to two large retail chains. Each chain could easily buy from other manufacturers, and the chairs are undifferentiated. Which force is most clearly strong in this situation?
Bargaining power of buyers is strong. Sales are concentrated in two large retailers, the product is undifferentiated and switching to other manufacturers is easy, so the buyers can push for lower prices or better terms. Nothing in the scenario points to supplier power or entry threats.
- ABargaining power of buyersCorrect
- BBargaining power of suppliers
- CThreat of new entrants
Explanation
Buyer power is high when few buyers account for a large share of sales, switching costs are low and products are undifferentiated. All three features apply here. The scenario gives no information about suppliers or entry barriers.
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