Information Systems for Business and Beyond (2019)

choose from, you can negotiate a lower price. When a sole supplier exists, then your company is at the mercy of the supplier. For example, if only one company makes the controller chip for a car engine, that company can control the price, at least to some extent. The Internet has given companies access to more suppliers, driving down prices. • Bargaining power of customers . A customer’s bargaining power is strong when your company along with your competitors is attempting to provide the same product to this customer. In this instance the customer has many sources from which to source a product so they can approach your company and seek a price reduction. If there are few suppliers in your industry, then the customer’s bargaining power is considered low. • Barriers to entry . The easier it is to enter an industry, the more challenging it will be to make a profit in that industry. Imagine you are considering starting a lawn mowing business. The entry barrier is very low since all you need is a lawn mower. No special skills or licenses are required. However, this means your neighbor next door may decide to start mowing lawns also, resulting in increased competition. In contrast a highly technical industry such as manufacturing of medical devices has numerous barriers to entry. You would need to find numerous suppliers for various components, hire a variety of highly skilled engineers, and work closely with the Food and Drug Administration to secure approval for the sale of your products. In this example the barriers to entry are very high so you should expect few competitors. • Rivalry among existing competitors: Rivalry among existing competitors helps you evaluate your entry into the market. When rivalry is fierce, each competitor is attempting to gain additional market share from the others. This can result in aggressive pricing, increasing customer support, or other factors which might lure a customer away from a competitor. Markets in which rivalry is low may be easier to enter and become profitable sooner because all of Information Systems for Business and Beyond (2019) pg. 150

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