Bargaining power of buyers

Cooperatives March 07, 2011 Print Friendly and PDF

Author: John Park, Texas A&M University,

Whether the bargaining power of your customers is weak or strong can be evaluated in a similar manner as supplier bargaining power. Even if buyers do not purchase in large quantities or offer a seller important market exposure or prestige, they may still have some degree of bargaining leverage if: (1) the cost of switching to an alternative product is low, (2) they can credibly threaten to integrate backwards into the business of the seller, or (3) they have discretion as to whether or when they purchase. Buyers typically have weak bargaining power when they purchase infrequently, buy in small quantities or when they face high costs to switch brands.

Your Turn …

  • Consider your customers (they may be your owner-members!) and the importance of your business in their lives.
  • Are there ways your cooperative can play a more prominent role in their business decisions (e.g., through added services, products or loyalty initiatives)?
  • Alternatively, does your business depend on a few large customers? How can you decrease this dependence?

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  • Rural Cooperatives magazine, Rural Development, Business and Cooperative Programs, USDA - This bimonthly magazine contains articles and news items relevant to agricultural and non-agricultural cooperatives. An archive provides access to past issues of the magazine from 1998 to 2011.
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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.