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When the substitute products have these qualities then the substitute is equally
successful in the market. Thus, they become a threat to manufacturers’ suppliers.
e) IMPORTANCE OF VOLUME TO SUPPLIERS:
The suppliers should understand or realize
the importance of volume ie., bulk
orders. In other words bulk or voluminous
orders bring about a lot of chance to
negotiate,
in terms of price-offs, discounts, credit
terms, exchange risk taking and so on. This is
vital
for penetrating business.
f) IMPACT OF INPUTS ON COST OR DIFFERENTIATION:
Inputs or raw materials makes up 70% of the total cost of the product.
Hence any
change ie., reduction or increase in the cost of the input directly affects
the cost and price
of the product. Every manufacturer thus knows not to tamper with price
due to the reasons
that buyers will not be interested. However, the manufacturer should
negotiate well so that
the suppliers will not increase the price of the input, there by upsetting
the entire cycle.
Similarly, differentiation in inputs may change the product quality wise or
in any other
sense. But until the customers are convinced that the input or product
has quality, (even
when the supplier has increased the price) the products price should not
be increased.
Suppliers noting that the product is being sold well, try to increase the
cost of the
input, so that they make profits. All these have to be monitored.
The supplier just with his experience, reach or
financial worthiness may plan to
integrate forward and manufacture the product
himself. This will then cause problem to
manufacturers. Since, suppliers has raw materials
available at lesser cost than
manufacturer, their products can be sold in the
market at cheaper prices.
The other threat is if the supplier goes into backward
integration and takes over a
source of raw material. Then it has greater chances
to bargain because, it can provide large
volumes of raw material, may start to competitors,
and so. On, all these act as threats from
the suppliers.
The comparison in the cost with respect to
the total amount purchased in the whole
industry is to be taken up. If the product is
purchased by many manufacturers and the
amount of money involved in the purchase of
material in the overall industry is more. Then
the product is considered vital and suppliers
start negotiating the price of the inputs.
Thus,
fluctuating markets.
The major factors affecting this are listed as;
Industry growth
Concentration and balance
Fixed costs / value added
Intermittent over capacity
Product differences
They are discussed in detail below;
The industry growth ie., faster the industry
grows, greater will be the number of
competitors, as new entrants swarm the
industry. In other words, the growth of an
industry
makes more people to invest, start
associated companies, and also seek
employment. This
triggers a great competition as more and
more the brand name, greater will be the
investments. Thus, each company, big or
small is a competitor or riv
The number of competitors in an industry is
termed concentration. That is, the
number of alternative products or services
available for one need. Balance is that sensitive
situation where there is enough demand and
supply or may be a slight difference in the
demand and supply. If there is vast difference
then the balance collapses. Similarly, he
competitors’ should be able to provide what the
customer wants, and also, at time more
that what the customer expects. Then the
customers’ balance too is retained.
Every competitor provides a set of solutions or a
gamut of services. What a
customers requires besides these is the
availability of value added services and their
costs.
The value added services can be;
Free maintenance for the first year
Free insurance for the first year
Transportation to the premises free of cost
Replacement when required
24 hour helpline
easy availability of genuine spare parts and so
on
The competitors should be in a position to
take up over production capacity,
suddenly when there is a spurt in demand. If
this is not possible by a company, then the
competitors will take over that sudden spurt
and the company tends to lose valuable
customers.
Without differentiation, products cease to
exist in the market. Thus, differentiation
is the reason behind successful brand. Every
product must compete on some unique
selling
proposition which is the platform by or on
which a product is identified and holds value
in
the eye of the customers. Thus, in any
industry rival products should be in a position
to
differentiate itself.
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