Competitive forces in a market are not static, they change with the changing circumstances and environment.
By NYASHA CHIZU
Price wars in a competitive environment arise from factors such as the number of firms in an industry; the rate of market growth that lies between fast and slow growing sectors; the costs associated with equipment that relates to fixed costs and storage costs and switching costs that are associated with the level of product differentiation that determine barriers to entry or exit.
These factors are equally important for the formulation of the organisational strategy, the same way it does for the procurement strategy.
As a procurement specialist, you need to understand the tactics that are used in the upstream supply chain to compete in markets. The tactics used to overcome rivals in a competitive market are around the product, distribution and customer interface.
Tactics around the product are towards pricing and differentiation. Creative channel distributions relates to logistics. Customer interface strategies are around supplier relationships and service level.
With respect to pricing tactics, one of the most popular strategy for gaining market share by suppliers is around price cuts. This strategy is not very effective since it does not require a technical assessment to understand it.
The effects are that it reduces suppliers’ revenues, thereby, limiting their ability to invest in research and promotion with profound effects of the capacity to protect the brand.
- Chamisa under fire over US$120K donation
- Mavhunga puts DeMbare into Chibuku quarterfinals
- Pension funds bet on Cabora Bassa oilfields
- Councils defy govt fire tender directive
Keep Reading
Along the same lines, competitors are then able to duplicate it in order to maintain their market share. This strategy is advantageous to the buyer in that in strengthens his bargaining power. The effect is that it resets customer expectations in terms of price.
Another product related tactic is around product differentiation. The supply market may opt to grow or main tain their market share by introducing and improving the unique features that their products offer in comparison to the market.
In such cases, the buyer’s position is weakened when the innovation on the product is such that it locks them to one supplier. The situation is different where the market is highly-innovative, offering a wide range of competing brands, the buyer’s bargaining power is, therefore, stronger in such situations.
Innovative distribution channels is a means of outwitting competitive rivalry. Organisations in the upstream supply chain need to find and make use of new distribution channels.
Some organisations innovate and introduce online distribution channels that link the customers through the use of the internet. This automatically created direct selling opportunities that are better than our traditional retail channels.
This innovation increases choice to the buyer and the more the suppliers available, the stronger the buyer’s bargaining power.
Exploitation of relationships with suppliers operate in the same manner for both the supplier and the buyer.
A large consumer can make use of their market position to gain preferential prices from the supplier. If a buyer is a large consumer of a product, they likewise have stronger bargaining power to achieve preferential prices.
A buyer can also use their influence to direct the supplier to produce branded products at the same costs as the supplier’s brand, if they are a large consumer. This practice is common in the retail sector and it gives an advantage to the buyer, where they piggyback on a supplier’s brand at no costs there by giving them additional advantage over their rivals.
The availability of on-line markets provides innovation towards improvement of service level. On-line markets provide 24-hour access to markets and provides some level of differentiation that fortifies market share.
This provides opportunities of bargaining power of a buyer resulting from availability of a wider on-line market.
In order to effectively take advantage of these opportunities, buyers need to be competent to study and understand their markets for them to craft an effective procurement strategy.
lNyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: [email protected] Skype: nyasha.chizu
