which of the following reduces buyer power by creating a disincentive to do business with a competitor?
Which of the following reduces buyer power by creating a disincentive to do business with a competitor?
Answer:
In business strategy, reducing buyer power is essential for maintaining competitive advantages. One effective way to reduce buyer power is by implementing “Switching Costs.”
Explanation:
- Switching Costs:
- Definition: These are costs that a buyer incurs as a result of changing suppliers, products, or systems. They can be financial, psychological, time-related, or resource-related.
- Effect: High switching costs discourage customers from moving to a competitor because they add a level of inconvenience or expense. This creates a disincentive to switch and increases customer loyalty.
Examples of Switching Costs:
- Financial Costs: Termination fees, purchase of new equipment, or software licenses.
- Time Costs: The time required to learn a new system or to transfer data.
- Psychological Costs: Customer attachment or familiarity with the existing brand.
- Resource Costs: Costs associated with training employees on new systems.
By increasing these costs, companies can reduce the buyer’s incentive to switch to a competitor, thus effectively reducing buyer power.