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

In Michael Porter's Five Forces model, which of the following situations most clearly indicates HIGH bargaining power of buyers for a packaged-biscuit manufacturer selling through large organised retail chains?

Buyer power is high when a few large buyers account for a big share of sales and can switch to competitors easily. Large retail chains with such leverage can demand lower prices or better terms, whereas unique products, high switching costs or many small buyers reduce their power.

  1. AA few large retail chains account for a major share of the manufacturer's sales and can easily switch to rival brandsCorrect
  2. BThe manufacturer holds patents on its biscuit recipe and has no close substitute
  3. CRetail chains depend on the manufacturer for a unique product with very high switching costs
  4. DThere are thousands of small, scattered buyers each purchasing a tiny quantity

Explanation

Buyer power is high when buyers are few and large, purchase in volume, and can switch easily at low cost. Option A describes exactly this. Options B and C describe situations that reduce buyer power, and D (many small scattered buyers) also weakens buyer power.

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