CFA Level I · CFA Level I Exam · Industry and Competitive Analysis
A software firm's customers store years of data in its proprietary format, and moving to a rival would require expensive retraining and data conversion. Which effect on Porter's forces is most likely?
Lower buyer bargaining power is most likely. Costly retraining and data conversion make it expensive for customers to move to a rival, so they have less leverage to demand lower prices or better terms from the firm.
- AHigher supplier power because the firm relies on data inputs
- BLower buyer bargaining power because of high switching costsCorrect
- CHigher threat of substitutes because the format is proprietary
Explanation
High switching costs lock customers in, which reduces their ability to negotiate prices or threaten to defect. This lowers buyer power. A proprietary format does not raise substitute threat, and the data belongs to customers, not suppliers.
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