Buyer Power: Total Market Power of USD 12.2 Billion

Topics: Barriers to entry, Producer, Switching barriers Pages: 2 (668 words) Published: September 26, 2007
Buyer Power: In the metal can industry there are many producers of metal cans, however, they suffer from low product differentiation. There are few product options available to the multiple buyers, which increases buyer power. In addition, the producers provide cans to only a few large-sized buyers, which have a total market power of $12.2 billion. The 10 largest buyers represent approximately 30% of the market, making the large scale buyers highly coveted by the producers. Further, buyers can purchase cans from any producer with low producer switching cost and can have relationships with multiple producers. This enables the buyers to control prices very efficiently and respond to poor producer customer service quickly. Additionally, buyers are not the end users and, therefore, have the incentive to control prices more. Finally, buyers have the ability to backwards integrate and produce their own cans, which puts additional pressure on the producers to push costs below the industry entry costs for the buyers. Overall, buyer power is very high. Supplier Power: Producers of metal cans are limited by the supply of raw materials for their cans and the location of the suppliers of the raw materials. The closer they are to the suppliers and customers, the lower the transportation costs incurred by the producers. Thus the switching costs can be high if the producer has to go to another supplier across the country. In addition, there are only 5 main producers of metal cans, thus the suppliers have only limited options. Overall, supplier power is medium. Competitor Power: All of the products from the various can producers are similar. In addition, patent protection has run out, thus it is easy to copy innovations from one company to another. Further, the producers are not engaging in noticeable innovation. Additionally, industry operating margins recently fell from 7% to 4%. Production over-capacity and a shrinking customer base has contributed to margin...
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