1. Porter’s five forces of buyer bargaining power refers to the pressure consumers can exert on businesses
to get them to provide higher quality products,better customer service and lower prices
Powerful buyers put pressure on industry profits. Buyers are particularly powerful when:
a)Few Buyers and Large Volume:
. For example, consider the position of small farmers producing fruit and vegetables. They are
contracted to supply the large supermarkets and so commit large proportions of their produce to such
contracts. Subsequently, they risk huge losses if the resulting produce does not meet the stringent
quality criteria of the supermarkets or their customers. In this scenario, the purchasers (supermarkets)
are much larger and so can exert pressure on the suppliers.
B) Products are standardized and undifferentiated:
For example, Wall mart if wants to purchase milk ( undifferentiated product), will have high buyer
bargaining power since it will ask the supplier to reduce the price as it will buy in large quantities.
C) Few/Little switching cost:
Since there is less switching cost, buyers can switch to alternative supplier. For eg. Suppose a farmer
produces wheat and ask wall mart to sell his crop but since wall mart has a large and excellent supply
chain it can ask the farmer to reduce the price and if farmer denies to reduce wall mart can buy from
other supplier.
D) Backward Intergration:
The buyer has the potential to take over the supplier (backward integration.
If a bakery business bought a wheat farm in order to reduce the risk associated with the
dependency on flour.
A car firm buys the company who used to sell it tyres for its cars.
Price Sensitivity And Its Impact On the Bargaining Power Of The Buyer
Buyer is price sensitive if:
-A Product purchased represent a significant fraction of its cost or price/total purchase is high. For eg:
If a raw material constitute a large proportion of the buyer’s finished product, the buyer will be price
sensitive while purchasing the raw material.
-Buyer earn low profit

2. Price sensitivity can be defined as the consciousness of the customers to cost windows or range
within which they make dealings. All the customers are always cost sensitive and concentrate basically
to buy products on cheap rates. However, cost sensitivity of a customer substantially depends on
condition of the market. For example if a product becomes extraordinarily famous and demanding in
market and every company is tending towards capturing this product then it becomes necessary to
focus on technological aspects rather than focusing on the cost. If they do so then the cost sensitivity of
these customers is least. Similarly if a product becomes common in market due to emerging competitors
coming up with similar but more prominent products, then in this competition the value of the product
decreases and the companies become rarely bothered for them. In this scenario the customers have the
right to become highly cost sensitive as they know that they can negotiate with the suppliers to a
greater extent. This is when the customers are called as high cost sensitive customers.