Buyer Power of Coffee Industry

Topics: Consumption, Drink, Macroeconomics Pages: 1 (297 words) Published: April 10, 2012
Buyer bargaining power refers to the pressure consumers can place on the industry, influencing companies to provide better products, service, and lower prices. One determinant of bargaining power is the number of buyer available. For the US coffee and snack industry, the large number of buyers is a big advantage. According to National Coffee Association, 54% of American adults drink coffee. Another key driver that gives buyers leverage is if they can do without the product for long durations. If so, the seller incurs losses when customers discontinue use of the product over long periods. However, coffee drinkers are high frequency buyers, purchasing the drink multiple times throughout the week, if not more often. To these people, coffee has become an integral part of their everyday lives. Because they cannot do without coffee, coffee shops can depend on repeat customers. Switching costs are another element to consider when gauging buyer bargaining. If switching costs are high, buyers are least likely to change over to a competing product. Unfortunately for the US coffee and snack industries, there are absolutely zero costs associated with changing to a different product. Similarly, no cost is incurring when switching to another company. Thus, this makes coffee shops have to constantly improve their product lines, drive down costs, improve service, and other aspects to keep customers choosing their shops over someone else’s. The buyer’s per capita consumption also players a role in determining attractiveness of an industry. During recessions, disposable income generally becomes lower and spending of consumption is cut. When consumer spending is lower, people are less likely to spend on snacks and coffee. Overall, due to the high number of users and the high volume of purchases, from the buyer perspective the coffee and snack industry can be considered attractive.
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