“Who Wears the Pants in the Relationship?”, Companies Edition
Investors should care about power dynamics between suppliers and buyers
You are powerful.
Yes, I’m referring to you, dear reader. As a buyer, you exert a major influence over the profits of certain companies.
You can easily use a different airline every time you travel (mileage points be damned). That’s why airlines raced themselves to the bottom in terms of profitability to attract you through price cuts.
At the same time, you’re weak.
Even though their home/office productivity software isn’t the best, you still stick with Microsoft Office.
The news that they’re going to increase subscription prices in the near future won’t make you change your word processor. Maybe that’s why Microsoft’s profit margins are consistently above 25%.
As defined by Micheal Porter, the bargaining power of buyers and suppliers are one of the key forces that affect industry profitability.
Using some examples, I’m going to discuss these two forces as well as a strategic move that companies might take to change the influence of these forces.
