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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment

A packaged-snacks company in India finds that a few large retail chains now control most shelf space and can demand lower prices and longer credit periods. Which of Porter's five forces is mainly being described?

The situation describes the bargaining power of buyers. The retail chains are customers who, because they control most shelf space, can force lower prices and longer credit terms on the snacks company, which squeezes its margins and reduces its negotiating strength.

  1. AThreat of new entrants
  2. BBargaining power of buyersCorrect
  3. CBargaining power of suppliers
  4. DThreat of substitutes

Explanation

Large retail chains are the customers of the snacks company. Their concentration and ability to push for lower prices and longer credit show strong buyer power. Supplier power would apply if the company's input providers were dictating terms.

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