NISM Series XV : Research Analyst Certification Exam Notes
Page 37 Of 62
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Vertical Forces: 1. Bargaining Power of Suppliers, 2. Bargaining Power of Customers
Industry Rivalry - An industry where rivalry is high, like the aviation and telecom space, the end result will be lower pricing power and lower incomes for the industry participants. Innovation in products and customer service and engagement initiatives become essential in such an industry. A strong competitor with deep pockets can easily adopt the tactics such as continuously dumping products/services at prices lower than the cost to drive others out of the industry.
Threat of Substitutes - Industries go through significant changes from time to time. Telegram does not exist anymore as Short Messaging Service (SMS) emerged as cheaper and easier alternative with significant accessibility. Cement pipes industry lost its relevance to steel and plastic pipes. Typewriters got substituted by computers totally. IPods, mobiles etc. have rendered radio and two-in-ones a thing of the past.
Bargaining Power of Buyers - Buyers can exert a lot of pressure and dictate prices, if there are a large number of sellers with similar products/services. On the contrary, they may not be such a big influencer in case there are few sellers for a product/service. In nutshell, it is the function of number of buyers and sellers and differentiation in their products/services, which may determine buyers' bargaining power in an industry.
Bargaining Power of Suppliers - A consumer will rarely bargain over the fees charged by hospitals or schools? But, the same consumer will bargain with the vegetable or fruits vender all the time. In the first case, the bargaining power of suppliers is absolute and in the second case, bargaining power of suppliers is nil (until he/she is the only vendor and close substitute is pretty far)
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