ACCA Strategic Professional · Strategic Business Leader · Competitive forces
Kestrel Devices assembles tablet computers. Its only source of a specialised display panel is Lumina Ltd, which holds patents on the technology. Switching to another panel would require Kestrel to redesign its product at significant cost. Which analysis best reflects the implication for Kestrel?
Supplier power is high. Lumina is the sole source of a patented, differentiated input and Kestrel faces high redesign costs to switch, so Lumina can raise prices or impose tougher terms, reducing Kestrel's margins.
- ASupplier power is low because Kestrel is a large buyer of panels
- BSupplier power is high because of a unique input and high switching costs, so Kestrel may face higher prices or tighter termsCorrect
- CBuyer power is high because Kestrel can negotiate panel prices freely
- DThe threat of substitutes is high because Kestrel can redesign its product
Explanation
A single patent-protected supplier of a differentiated input, combined with high switching costs for the buyer, gives the supplier strong power. Kestrel's size does not offset the lack of alternatives. Redesign is costly, so it does not make substitutes an easy option.
Did you get it right without looking?
One question tells you little. A timed set on Competitive forces shows your real accuracy, how long you take and where you lose marks.
More Competitive forces questions
- Marisol Foods bakes bread and buys flour from three large millers. Flour is 45% of its costs. Marisol's recipes are tied to one miller's spe…
- Brindle Foods sells a novel plant-based snack in a newly created market. Few customers know the product, production volumes are small, unit …
- Calder Rail runs intercity trains. A review shows that low-cost airlines and coach operators now offer the same journeys at lower prices, an…
- Norvik Telecom provides landline voice services. Mobile and internet calling now provide similar functionality at lower cost. A director pro…
- Lumos Streaming, an incumbent, is considering cutting prices heavily after learning a rival plans entry. Which statement best describes how …
- Orlin Systems sells enterprise payroll software. Customers who change supplier must retrain staff, re-enter data and rewrite links to other …