5 Forces Model - Bargaining Power of Buyers

Bargaining Power of Buyers

FedEx faces significant competitive pressure from corporate buyers in the overnight delivery market. This pressure is most evident in FedEx’s relationship with large corporate clients. These buyers have a great deal of bargaining power attributable to the large volume purchases they make. Negligible switching costs also contribute to buyers bargaining ability in the market.

Buyers have a great deal of bargaining power because of the large volume of purchases they make from FedEx. Porter feels that purchasers of large volumes contribute significantly to the bottom line of businesses. For example, FedEx gained a lion’s share of the catalog business because of their ability to offer these buyers lower prices than UPS.

A buyer group is powerful if it faces few switching costs. This competitive force definitely constrains FedEx. Buyers that decide to leave the FedEx brand could do so knowing that the costs would be negligible. The buyer’s employees would not need retraining to fill in packing slips, and the buyer requires no new equipment. For example, when UPS entered the overnight delivery market in 1982 at half the price of FedEx many buyers left the company with little concern for switching costs.

Pressure from Substitute Products

Communications technologies such as Email, fax, and PDF pose significant threats as substitutes to FedEx’s overnight letter delivery business. While these technologies will erode the revenues FedEx enjoys, they will not be able to displace the market entirely. The overnight letter delivery business will survive as long as consumers have important documents to send and communications technologies do not offer 100 percent reliability. Further, the complexities and costs of networked technologies will not be able to completely replace the simplicity and inexpensiveness of a packing slip.

Bargaining Power of Suppliers

Labor and government issues in the FedEx case illustrate the power that suppliers can have in an industry. Labor has relatively little power in its relationship with FedEx as compared with UPS. FedEx has chosen wisely to screen potential employees for union links thereby negating the ability of labor to exert itself on the company. Government on the other hand has a great deal of power in its relationship with FedEx. Governments control the supply of landing rights at their airports. This presents a very serious problem