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CS Professional · Strategic Management and Corporate Finance · Strategic Analysis and Planning

Under Porter's Five Forces, a Gujarat cement company finds that many buyers are small, fragmented retail dealers, products are differentiated by brand, and switching costs for dealers are high. Which conclusion about the force of buyer bargaining power is most appropriate?

Buyer bargaining power is low, because fragmented buyers, differentiated brands and high switching costs all limit buyers' ability to push down prices. This makes the industry relatively more attractive on this force; easy switching or concentrated buyers would raise buyer power.

  1. ABuyer power is low, making the industry relatively more attractiveCorrect
  2. BBuyer power is high, since dealers can easily switch suppliers
  3. CBuyer power is high, because fragmented buyers can bargain collectively
  4. DBuyer power is irrelevant when brands are differentiated

Explanation

Buyer power is weak when buyers are fragmented, products are differentiated and switching costs are high. These conditions reduce buyers' ability to force down prices, so the industry is more attractive on this force. Easy switching and concentrated buyers would raise the power instead.

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