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Under Porters Five Forces, what does the power of customers mean?

Customers will also have the potential power to drive prices in the market. The variables consist of how many customers exist within a given industry and how many customers the firm specifically has.

Additionally, the power of customers will depend on how much it would cost a firm to find new customers or markets for its output. A firm with a smaller client base generally means that each customer will have the power to negotiate lower prices and better deals.

Conversely, a firm with a variety of smaller customers will be able to dictate their own higher price points to increase their profitability.

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  • Under Porters Five Forces, what does it mean to have competition in the industry?

    Competition in the industry refers to a firm’s total amount of competitors and their ability to capture market share. Generally, the larger the amount of competition, in addition to the amount of equivalent products and services being offered, the lesser the power a firm will have. Suppliers and customers will generally seek out a company’s competition if they are able to offer a better deal or discounted prices. Conversely, when competition is low, a company will have greater power to charge higher price points and set the terms of the deal with suppliers to achieve higher sales and profits.

  • Under Porters Five Forces, what does the impact of potential new entrants mean?

    A company’s overall market share will also be affected by new entrants into the market. If a competitor has an easier time entering a firm’s market and provide the same goods or services in an effective manner the more established the company’s position can be weakened. Industries with greater barriers to entry will generally be able to charge higher price points and negotiate better terms from suppliers.

  • Under Porters Five Forces, what does the power of suppliers mean?

    This force addresses how easily suppliers can increase the cost of inputs. This will be affected by the number of suppliers of key inputs of goods or services, and how unique these inputs are as well as how much it would cost the company to change suppliers. Generally, the fewer the number of suppliers and industry, the more companies will depend on one specific supplier. Therefore, suppliers with more power will have the ability to dictate the price of input costs. Conversely, the fewer the number of suppliers the lower price of input costs which will ultimately benefit the firm.