Bargaining power of supplier
Bargaining power of supplier
Bargaining power of supplier is also known as the amount of control your suppliers have over the price of goods you purchase dictates whether this area is an opportunity or threat. This is driven by the number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier, and cost of switching from one supplier to another. In this case, Minbaochong Sdn Bhd is the supplier of Eight Eleven, the largest chain of twenty-four hour grocery stores in Malaysia. MinBao brand is one of the most popular brands of bread in Malaysia which supposed to give Minbaochong Sdn Bhd a strong bargaining power. However the tremendous mistake made by Kelvin Tan, the sales manager of Minbaochong Sdn Bhd, closed a deal with Eight Eleven by offering them a price concession and allowing them to offer a 400 gram loaf of MinBao bread for RM3.00 instead of its recommended retail price of RM3.20. This strategy causes sales of MinBao bread in supermarkets and other outlets declined significantly and resulted Eight Eleven is now accounted for one-third of Minbaochong’s sales. Further, the company already burdened by debt acquired in its recent spin off was on the edge of bankruptcy lower the bargaining power of Minbaochong Sdn Bhd. The bargaining power is now with Eight Eleven as Eight Eleven controlling one-third of Minbaochong’s sales and even Minbaochong Sdn Bhd terminate the contract and stop supplying bread to Eight Eleven, it does not affect much to Eight Eleven because they have its own house brand or there is greater presence of substitute inputs for Eight Eleven means the extent to which it is possible to switch to another supplier for an input or a close substitute, thus it results the bargaining power of suppliers, Minbaochong Sdn Bhd become lower.
The intensity of rivalry among competitors in an industry refers to the extent to which firms within an industry put pressure on one another and limit each other’s profit potential. Competitive rivalry affects the competitive environment and influences the ability of existing firms to achieve profitability. High intensity of rivalry means competitors are aggressively targeting each other’s markets and aggressively pricing products. This represents potential costs to all competitors within the industry. High intensity of competitive rivalry can make an industry more competitive and decrease profit potential for the existing firms. On the other hand, low intensity of competitive rivalry makes an industry less competitive and increases profit potential for the existing firms. In this case, the competitive rivalry is low because competitors have unequal size. Eight Eleven was the largest chain of twenty-four hour grocery stores scattered all over Malaysia. By having numerous branches of grocery store leads to the great advantages against other competitors. Besides that, Eight eleven had a strong strategy that preventing them to receive any threats from rival. “Every Day Low Price” Although the product selling by Eight Eleven is lack of differentiation and Eight Eleven have high fixed cost due to numerous branches in Malaysia, but Eight Eleven is well known among the market and able to offer a lower price compare to other grocery stores due to large number of stocks held by Eight Eleven. This will eventually enhance the brand loyalty of Eight Eleven’s customer as customer switching costs are high. Hence the competitive rivalry is low due to Eight Eleven is the main driver of the grocery stores and had established a strong market base in Malaysia.