ACCA Applied Knowledge · Business and Technology · Competitive factors
A manufacturer of smartphones faces buyers who are few, large retail chains purchasing in bulk, can easily switch between brands at low cost, and are well informed about prices. According to Porter's Five Forces, what is the most likely consequence for the manufacturer?
Buyer bargaining power is strong, which pressures prices and profitability downwards. Concentrated large buyers, low switching costs and good price knowledge let them demand discounts and better terms. Options suggesting weak buyer power or high switching costs contradict the facts given in the scenario.
- AStrong buyer bargaining power puts downward pressure on prices and profitabilityCorrect
- BLow threat of substitutes raises industry profitability
- CWeak buyer power allows the manufacturer to set premium prices
- DHigh switching costs lock buyers into the manufacturer
Explanation
Few large buyers with bulk purchases, low switching costs and good price information are all conditions that give buyers high bargaining power. This lets them push prices down and demand better terms, reducing profitability. The other options contradict the described conditions, for example low switching costs rather than high.
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