Business – 6.1 External influences – Competitors and suppliers | e-Consult

Supplier power affects a firm’s cost base and therefore its ability to set selling prices. When suppliers have strong bargaining power they can raise input prices, increase quality standards, or limit the availability of key components. This forces the manufacturer to either absorb higher costs, reducing profit margins, or pass the costs onto customers, potentially reducing demand.

Example 1: A car manufacturer reliant on a single supplier for specialised electronic control units faces a 10% price increase. To maintain margins, the carmaker raises the retail price of its new model, risking a loss of price‑sensitive buyers.

Example 2: A clothing retailer sources cotton from a region experiencing a drought. The supplier raises cotton prices, prompting the retailer to either increase the price of its garments or switch to a lower‑cost synthetic alternative, which may affect brand perception.