Bargaining Power of Suppliers in cigarettes industry
...owever, most larger cigarettes manufacturers had back integrated into supplier’s industry. Besides, there are also some larger tobacco companies that have integrated forward into smaller cigarettes manufacturers. Therefore, in terms of that vertical integration, bargaining power of suppliers is very low. There are still some smaller cigarettes manufacturers, which are not able to make vertical integrations. However, the effectives of suppliers’ products have not created high switching costs for cigarettes manufacturers. Hence, even for smaller cigarettes manufacturers, bargaining power of suppliers is still low. Satisfactory substitute products: There are many types of tobacco, each with their own unique properties, resulting from particular seed types, soils, growing climates, harvesting and curing techniques. American Blend, for instant, The most popular and typical type of blended cigarette, made from a mixture of flue-cured or Virginia tobaccos, burley and oriental tobaccos. No matter which type of tobacco are not able to be artificial, because there are over fifty chemical ingredients in tobacco. Therefore, in terms of satisfactory substitute products, there are no satisfactory substitute products for cigarettes manufacturers. That is also the main reason why those larger dominated cigarettes manufacturers, which had capability to integrate back into suppliers’ industry had integrated supplier already. Therefore, in terms of satisfactory substitute products, bargaining power of suppliers is very high. Significant customer for the supplier group: Most tobacco companies are not significant suppliers in terms of those dominated cigarettes manufacturers, because most dominated cigarettes manufacturers own their complete worldwide tobacco market coverage. Even for smaller cigarettes manufacturers, they can jump from tobacco companies to tobacco farmer to acquire tobacco either by contracting directly with the farmer or on the warehouse auction floors through the process of competitive bidding with other purchasers. Moreover, they also can acquire tobacco through pre-season order just like most larger tobacco companies. Therefore, in terms of significant supplier, bargaining power of suppliers is relatively low. Critical to buyer’s marketplace success: Through customer awareness research, most customer purchase cigarettes according to cigarette’s taste. That taste is based on cigarette manufacturer’s design, not on tobacco. Most cigarette companies add some additional ingredients, which permitted by regulatory authorities. These ingredients can achieve a particular aroma or flavors based on cigarette manufacturer’s design. Furthermore, most customers are shortage of knowledge about tobacco, such as quality of tobacco, different type of tobacco and so on. In terms of less differentiation, that gives the buyer more leverage in bargaining and the ability to switch to another hard drive p...