Business Strategy Monday

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Today’s

Vocabulary

(1) To bargain: To negotiate, to try and change the price.

I bargained with the car dealer for two weeks before he gave me a good price.

(2) Supplier: A company that gives you items you need for your business.

Toyota has hundreds of suppliers for all their car parts.

(3) Force: Power, energy, strength.

Porter’s five forces explain what causes companies to fail or succeed.

Today’s

Questions

1. Who is Michael Porter?

a. A manager at Pandora.

b. A professor at Harvard.

c. An investment banker at Goldman Sachs.

2. What’s an example of a supplier with low bargaining power?

a. A candy supplier with lots of stores who want the candy

b. A musician

c. Toyota buying from many suppliers

3. Who are the suppliers for internet radio stations?

a. Google Ads

b. Musicians

c. Michael Porter

7 ________________________

BUSINESS STRATEGY MONDAY

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Porters_five_forces

By Jeremy Schaar

Do you know who Michael Porter is? He teaches at Harvard and is one of the most famous business school professors in the world. MBA students around the world study his articles. And business leaders use his ideas to grow their companies.

Porter’s big idea is called “Five Forces”. These are the five things that affect your business. They are:

  • Threat of New Entrants
  • Threat of Substitute Products and Services
  • Bargaining Power of Suppliers
  • Bargaining Power of Buyers
  • Intensity of Competitive Rivalry

Today, let’s just look at the Bargaining Power of Suppliers. It says that if suppliers are really important to your industry, then they can charge you a lot of money. This hurts your business.

For example, imagine a city with only one candy store. They ask the candy supplier for low prices. The candy supplier has no choice because they only have one store that will buy their candy supply. The bargaining power of the supplier is low.

On the other hand, if there are lots of candy stores and just one supplier, then the supplier is in a good situation. They can choose a high price. If a store won’t buy, that’s OK. Another store will. The bargaining power of the supplier is high.

Here’s a real life example. This is an article about how musicians don’t get paid very much money. Musicians are the suppliers here. The problem for them is that there are many musicians and few buyers. This is especially true these days. People are listening to music for free using services like Pandora. (Pandora is an internet radio station.)

Everyone feels bad for the musicians, but big companies usually don’t pay them a lot of money. One of the reasons is that the bargaining power of suppliers is so low.

Got questions or comments? How about practicing some new vocabulary and posting your thoughts on the blog, Facebook, or Twitter?

CHECK YOUR ANSWERS!

Answers To Today’s Questions

B, B, B

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You Can Do It All Yourself But You Dont Have To

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