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Procurement for Porter’s 5 Forces: Part 2: Bargaining Power of Customers

Bargaining Power of Customers
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We are back with the part 2 of the series here.  So let’s begin with the group that every company wants to please the most.  The honorable customers!  If your company understands how Procurement can influence the bargaining power of its customers, then you would be pretty familiar with this.  If it doesn’t, well then you could use these arguments to make a case for the product and services strategy affecting the customer market – the well-known four Ps.  But first of all, let’s turn these four Ps around into the four Cs to help us begin with a more consumer oriented thinking – the Commodity, the Cost, the Communication and the Channel.

  • The Commodity:

Positioned at the head of the supply chain, Procurement is closely tied to the Engineering.  Making a difference to this aspect would mean adding a relevant differentiator, to the product, in line with what the Consumer wants and needs.  That’s directly tied to the strength, capability and potential of your supplier mix.  Supplier managers and category managers, hence, would become a core part of the product design strategy and help in adding a USP to the company’s offerings.

  • The Cost:

Even if your market is not all about the price wars (which are beginning to become old school strategy) the company would certainly love to increase the margins without increasing the price.  Sometimes, a high margin strategy can help the company have greater profitability per unit sales and that safeguards the business model to an extent, against the budget conscious consumer.  Every penny you save in the company becomes a penny that’s either saved by your company or by your consumer.  You either make the consumers less threatening or your price more attractive.

  • The Communication:

Your marketing teams love to splurge on initiatives and especially on those that are experimental and are to go indefinitely, well almost.  As the procurement sounding board, you can help with, say, choosing more professional design services vendors, stronger contracts and stricter delivery policies.  Hence you will be able to ensure that as marketing prepares for promotions, things don’t fall out of the plan.  Things like ensuring you got enough highway bill-board space units or newspaper pixels in the kitty for the year with best negotiated prices will greatly relieve your marketing department friends.

  • The Channel:

Channels are actually suppliers in a different garb. Efficient inventory management for your company’s chosen modes of distribution is the idea you can explore here. Whether you sell through a departmental store or a boutique, you have the glasses to look at them all as people providing services.  Performance tracking for warehouse owners, logistic services vendors and even online e-commerce sites can greatly benefit from procurement’s point-of-view.

To revisit Porters’ original work in detail and study its application for procurement, click the download button below to access the whitepaper- “Revisit Porter’s Five Forces to Unleash Procurement Innovation”

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