Bargaining power is a phrase used to refer to the comparative capacity of every party to a negotiation or argument to coerce or attain an agreement on its specific terms (Berman, 2015). The Costco's suppliers bargaining force is low due to a number of factors that favors Costco Company. This essay illustrates the factors that contribute to the low force bargaining power of Costco's company including the population of the suppliers, Costco's independence on the suppliers and the company's ability to make its own products.
A large population of suppliers is one of the main factors contributing to the low bargaining power of suppliers. The large pool of suppliers comes with a range of prices and for large Wholesale clubs like Costco will obviously settle on the lowest price (Fabbri, 2016). This makes it very difficult for any single supplier to pressure its demands on the company. This makes Costco to have an upper hand in dictating the price for the suppliers.
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Costco is not dependent on any of the suppliers for their products. The products of the different suppliers are not differentiated and therefore Costco can attain products from any supplier (Katz, 2014). So no supplier can pressure their demands on the company since Costco can obtain similar products from other suppliers and sell.
Costco ability to make its own products also reduces the suppliers bargaining power. Costco makes its own products through the Costco's Kirkland brand which is known for producing quality products and at a low price. Therefore the company has never experienced any difficulty in obtaining products. The company has a choice of making its own products or obtains them from the suppliers and this makes the suppliers vulnerable in accepting any price offered by the company.
References
Berman, B. (2015). How to compete effectively against low-cost competitors. New York: Business Horizons.
Fabbri, D. &. (2016). Bergaining power and trade credit. Washington: Journal of Corporate Finance.
Katz, A. (2014). The First Sale Doctrine and the Economics of Post-Sale Restraints. New York: BYUL.
