Bargaining Strength(Power) of buyers refers to the relative power and influence that buyers have in a specific market or industry.

What is the Bargaining strength(power) of Buyers?

The bargaining strength(power) of buyers refers to the ability of buyers to exert influence and negotiate more favorable terms, prices, or conditions from sellers in a market. It is a measure of the relative strength and leverage that buyers have in their interactions with sellers. When buyers possess significant bargaining power, they can demand concessions, discounts, or other advantages, potentially leading to more favorable outcomes for themselves.

It is determined by several factors that impact their ability to negotiate favorable terms and conditions with sellers. Here are some key factors that contribute to the bargaining strength of buyers:

Concentration of buyers :

If the buyer market is highly concentrated, with a few dominant buyers, they tend to have more bargaining power. Large buyers can demand lower prices, favorable payment terms, or customized products/services due to their significant purchasing volumes.

Availability of alternatives :

Buyers' bargaining power increases when there are multiple sellers offering similar products or services. Buyers can easily switch to alternatives if they are dissatisfied with the terms offered by a particular seller, giving them more negotiating leverage.

Price sensitivity :

If buyers are highly price-sensitive, meaning they are very conscious of costs and actively seek the lowest prices, they have stronger bargaining power. Suppliers will be more willing to offer discounts or competitive pricing to retain price-sensitive buyers.

Information availability :

Buyers with access to comprehensive market information, including prices, quality standards, and supplier performance, have an advantage in negotiations. When buyers are well-informed, they can compare offers and exert pressure on sellers to match or improve upon competitors' terms.

Switching costs :

High switching costs can weaken the bargaining power of buyers. If it is expensive, time-consuming, or complicated for buyers to switch suppliers, they may have limited ability to negotiate better terms. Sellers can take advantage of this situation and offer less favorable conditions.

Buyer volume and importance :

Buyers who purchase in large volumes or play a crucial role in the seller's business can negotiate better deals. Sellers may be more inclined to offer preferential terms to retain or secure important buyers to maintain their own business stability.

Threat of backward integration :

If buyers have the potential to integrate backward into the supply chain by producing the product or service themselves, it can increase their bargaining power. The threat of self-production allows buyers to exert pressure on sellers to offer more favorable terms to maintain the business relationship.

Industry dynamics :

Overall industry conditions and market trends can influence buyers' bargaining power. For example, in a slow-growing or saturated market, buyers may have stronger bargaining power as sellers compete for a limited number of customers.

Purpose of Buyer Power Industry Analysis :

The bargaining power of buyers, used in conjunction with the other forces (threat of new entrants, rivalry among existing competitors, bargaining power of suppliers, and threat of substitute products or services), provides an external analysis of an industry and allows companies to:


Buyer power is important in an external analysis of an industry, as it provides an understanding of the profit potential in an industry. High buyer power diminishes the industry’s profitability and lowers the attractiveness of an industry. This may deter new entrants or cause existing firms to make more strategic decisions to improve the profitability of their business.

When is Bargaining Power of Buyers High/Strong?

* There are fewer buyers relative to that of suppliers
* The switching costs of the buyer are low
* If the buyer is able to backward integrate
* The buyer purchases product in bulk (high volume)
* The buyer is able to get similar product/services from other suppliers
* The buyer purchases the majority of the seller’s products
* Several substitutes are available on the market
* Product is not differentiated

When is Bargaining Power of Buyers Low/Weak?

* There are a significant amount of buyers relative to that of suppliers
* The switching costs of the buyer are high
* If the buyer is not able to backward integrate effectively
* The buyer is unable to get similar product/services from other suppliers
* Substitutes are not available on the market
* Product is heavily differentiated

Strategies to Reduce the Buyer Bargaining Power of Customers

Strategies to reduce the bargaining power of buyers that are customers include:

* Increase product differentiation
* Use backward integration M&A to buy or merge with suppliers or their product lines
* Acquire companies through horizontal integration to gain size and reduce the relative bargaining power of large customers
* Increase your company’s internal growth rate and financial strength
* Consider using contribution margin pricing analysis as an incentive to increase sales when necessary or negotiate better

Companies with differentiated products or services that aren’t commodities encounter buyers with less bargaining power. These supplier businesses may charge premium prices for their products or services. Buyers may be unable to substitute comparable products. Therefore, most buyers have less negotiating power to get price reductions.