Buyer power

Buyer power is usually higher when the buyer has many alternatives to choose/buy from in terms of suppliers.  Buyer power is usually low when the buyer has only few choices or alternatives in terms of suppliers to choose/buy from.

With buyer power, buyers can bring prices down in the sense that they can use their advantage of the market and use it on the suppliers.  The suppliers will then have to sell to these buyers at a lower price mostly because they do not have an alternative.  Buyer power can come from other aspects as well.  For example if a specific buyer has some sort of advantage in terms of characteristics or strategy but not necessarily a higher market share, they still enjoy buyer power.

No concept is perfect.  Like any concept, buyer power has its advantages and disadvantages.

Some of the advantages of buyer power can include lower retail prices for customers.  This can occur when buyers are buying materials and goods from suppliers at lower prices and then in turn are giving consumers lower prices for the goods.  This occurs because now buyers have a lower cost of materials and therefore can put the selling/retail prices much lower for the customers to buy.  Another way buyer power is beneficial is when a person or company is the buyer his or herself.  A perfect example for this is the company Wal-Mart.  This is exactly the situation that is discussed in the book, The Wal-Mart Effect, written by Charles Fishman.  According to Fishman, Wal-Mart pushes the price of the sellers so low so Wal-Mart itself can keep retail prices so low for the customers.  When this happens, Wal-Mart creates profit for themselves even though it is minimal but because they sell large amounts of those products so they do create profit.

Buyer power can affect suppliers in terms of finance and profits as well.  Suppliers can face such minimal profits and many times no profits at all if a buyer buys from them at such low prices and they usually do not have any alternatives either in terms of buyers.  This is that situation that small companies making single to a few products faced.  In the same book mentioned above, Fishman explained how little companies contracted with Wal-Mart and made little to no profit over time.  Wal-Mart had so much power over these companies that they kept demanding lower prices from them.  The companies were forced to give lower prices to Wal-Mart and they really did not have any alternatives to choose from in terms of suppliers.  If they decided to sell to other retailers, no customer would buy their products from those retailers because Wal-Mart would be selling the same product for much less.

Another downside to this situation is the fact that when sellers are trying to lower their selling prices, they are jeopardizing the quality of the products.  This creates a whole other issue for Wal-Mart of quality issues that come with the low price.

As Mind Tools says on their website, if the buyer power is too strong, the buyers can command prices and terms to great extents.

Buyer power is an extremely important concept when analyzing companies and their market advantages and disadvantages.

Buyer power contrasts to the idea of supplier power.  Supplier power is high when the supplier has the control in the market.  They can dictate the price if they have the power. This power can be gained through various methods.  One method to gain power as a supplier would be through being one of the few companies to actually supply the materials.  This contrasts with buyer power because buyer power is increased through the presence of many suppliers.