Bargaining power of customers

We define the bargaining power of customers, as the superior capacity that these economic agents have when buying supplies, raw materials, goods or services from companies.

Bargaining power of customers

The bargaining power of customers is presented in the market environment, when the people who demand or buy the products made by a company, require that the products sold by the companies have better quality and price conditions.

A client company can be a company that does not necessarily consume the product it buys, but only markets it or distributes it to the final consumer. For example, the case of a supermarket.

There are also consumer client companies that use the product to use it to produce another product, in this case they consume it. As can be the case of a company that builds houses and that buys doors and windows. In any case, they are customers and they exercise their bargaining power against the companies that sell them the products.

Factors that determine the bargaining power of clients

There may be many cases where the client manifests a superior advantage over the company that sells the products, the most important cases are:

  • The case of monopsony: This case occurs when there is only one buyer for a company, in this situation the client can negotiate with the threat of not continuing to buy or cancel the contract, if he does not obtain the expected benefits. This of course gives you a lot of power against the company.
  • That there is an excess of supply in relation to demand: Which means that there are a large number of sellers in the same industry, for this reason the client can choose between the different options. Thus, you will choose the company that gives you a better product, a better service and a better price.
  • Existence of substitute products for the client: When there are many similar products that can easily satisfy the same need, the client’s bargaining power increases.
  • Large purchase volumes: In this case, the client becomes a very important agent for the survival of the company. This causes the company to see its negotiating capacity diminished.
  • Less differentiation of products from the supplier: The less differentiated the products offered by the company, the greater the capacity for the client to obtain greater benefits in the negotiation.
  • Market information and knowledge: The more informed clients are about the markets and their trends, the greater their ability to negotiate.
  • That the client can produce the same product: The client could become a competitor if he is able to produce the good and service that the company offers him, so he acquires great power when negotiating.

Importance of customers for the company

We must consider that customers are a very important factor for the success of companies, therefore, we must strive to maintain loyal customers. A loyal customer is one who buys from us on a regular basis.

Experts indicate that it is preferable, depending on which cases, to strive to have fewer loyal customers than to have a large number of customers who do not buy again. This indicates, if customers do not buy again after the useful life of the product has expired, that something did not convince them.

Although it is true that there may be cases in which the product ceases to exist, because there are products that better fulfill the function for which they were acquired. In other words, technology has advanced.

Advantages of keeping loyal customers

Among the main advantages of having loyal customers are the following:

  • It is cheaper for a company to maintain the relationship with current customers, than to be looking for new prospects of customers.
  • It allows the company to maintain a certain level of income, since loyal customers buy regularly and frequently.
  • When you have loyal customers, you have more time for company staff to dedicate themselves to other activities and not just to seek an increase in sales.
  • It makes us stronger against the competition. Since the satisfied customer communicates his good experience and that positions us better in the market.
  • It helps us to improve or innovate, since a loyal customer communicates their problems in the use of our products and that does not allow us to know that we must change.

Finally we can conclude that it is necessary to maintain customer loyalty. To achieve this, it is necessary that customers are satisfied with the quality of the products we offer, that the service is spectacular and that the prices are the best you can find in the market, taking into account the quality of the product offered.