Bargaining power of suppliers
Suppliers can exert pressures by controlling supplies. A powerful supplier is in a position to influence the profitability of a whole industry by raising prices or reducing the quality of the goods it supplies. A firm that has few or only one potential supplier may exert little influence over the prices it pays for bought in materials and components. It may also experience difficulty in influencing the quality of its raw materials and resources. If it is the only purchaser and constitutes an important part of the supplier’s business, however, it can exert a great deal of influence over both prices and quality. Another form of supplier power is ‘lock-in’. This involves making it difficult or unattractive for a customer to change suppliers. It can be put into effect, for example, by offering specific services or product attributes that a competitor finds difficult to match.
Powerful suppliers can have the same adverse effects upon profitability as powerful buyers. Suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services. Powerful suppliers can thereby squeeze profitability out of an industry unable to recover cost increases in its own prices.