ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Veltrano Ltd makes specialised brake components and sells 70% of its output to a single car maker, which has told Veltrano it will switch to a rival unless prices fall by 8%. Using Porter's five forces, which statement best describes the position?

Buyer power is high, because one customer buys most of Veltrano's output and can credibly move to a rival. Concentrated purchasing and the ability to switch let the buyer force down prices, which is the classic indicator of strong buyer bargaining power in Porter's model.

1. ABuyer power is high because a single customer accounts for a large share of sales and can credibly switchCorrect
2. BSupplier power is high because Veltrano depends on a few input providers
3. CThe threat of new entrants is high because the car maker can easily start production
4. DThe threat of substitutes is high because brake components can be replaced by a different product type