Question

A buyer group is powerful when , the buyer faces few switching costs, poses threat of backward integration, concentrated, products it purchases are undifferentiated and it earns low profits.

In regards to it earns low profits what does this mean? what does it mean, when a buyer is powerful because it earns low profits? when the business earns low profits? please clarify

Answer 1

It earns low profit means:

The purchases (basically the product) earns low profit which means that the seller does not have much margin on the product.

So when a seller does not have too much margin on a product, it is not much advertised, and buyers can buy it from any seller who is willing to sell it at the cheapest possible price.

Thus, the seller is least powerful in such a situation where he earns low profits. And the buyer group becomes all the more powerful.