Threat of backward integration is significant

Threat of backward integration is significant
A . 3 and 4 only
B. 2 and 3 only
C. 1 and 4 only
D. 2 and 4 only

View Answer

Answer: C

Explanation:

Price sensitivity is the degree to which the price of a product affects consumers’ purchasing behaviours. Buyer power will be stronger if buying organisation are price sensitive and vice versa.

Backward integration is a form of vertical integration in which a buying organisation expands its role to fulfil tasks formerly completed by businesses up the supply chain. Buyer power is strong if threat of backward integration is high.

Set-up cost is a determinant of threat of new entry. Some industries require very expensive assets in order to make products. The financial risk of entering the industry and not succeeding can deter many potential new entrants. The fewer new entrants, the fewer available substitutes, then the bar-gaining power of buyer can be negatively affected.

Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a compa-ny’s products. Threat of forward integration is a determinant of supplier’s bargaining power.

Reference: CIPS study guide page 88-91

LO 2, AC 2.2