How can you decrease supplier and customer power?

2 Vertical integration

Another way to decrease supplier and customer power is to pursue vertical integration, which is the strategy of acquiring or controlling different stages of the value chain, from raw materials to distribution. Vertical integration can reduce your dependence on external suppliers and customers, lower your costs, improve your quality, and increase your market power. However, vertical integration also involves risks and challenges, such as higher capital requirements, lower flexibility, potential conflicts of interest, and regulatory issues. Therefore, you need to weigh the benefits and costs of vertical integration carefully and consider alternative options, such as strategic alliances, joint ventures, or long-term contracts.

3 Product differentiation

A third way to decrease supplier and customer power is to enhance your product differentiation, which is the extent to which your product or service is perceived as unique, valuable, and superior by your customers. Product differentiation can reduce the threat of substitutes, increase your customer loyalty, and allow you to charge premium prices. To achieve product differentiation, you can focus on aspects such as quality, design, features, functionality, performance, reliability, convenience, or customer service. You can also use branding, marketing, and innovation to communicate and reinforce your value proposition to your customers.

4 Switching costs

A fourth way to decrease supplier and customer power is to increase their switching costs, which are the expenses or inconveniences that they incur when they change from one supplier or customer to another. Switching costs can create barriers to entry and exit, reduce the price sensitivity, and enhance the retention of your suppliers and customers. To increase their switching costs, you can use tactics such as offering loyalty programs, bundling products or services, creating network effects, providing customized solutions, or establishing contractual obligations.

5 Industry structure

A fifth way to decrease supplier and customer power is to influence the industry structure, which is the configuration and dynamics of the competitive forces in your industry. Industry structure affects the relative power and attractiveness of different players and segments in the market. To influence the industry structure, you can use strategies such as consolidation, diversification, segmentation, or niche targeting. You can also lobby for favorable regulations, standards, or policies that can affect the entry barriers, the competitive rivalry, or the bargaining power of your suppliers and customers.