Page 5 - CIMA SCS Workbook February 2019 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

Buyer power

The customers for companies such as Vita will be the retailers who then sell product to
consumers, and then those who purchase direct from the company via online sales.

The latter group will have little purchasing power; they will not be able to negotiate on price as
they simply buy single units. Their only power is in deciding which brand to purchase.

Retailers may be able to exercise a degree of bargaining power due to bulk purchase. However,
many consumer electronics companies insist on a minimum recommended retail price for their
goods and will not be prepared to discount their own selling price by great amounts, particularly if
theirs is a leading brand which consumers demand.
There is also a third customer to consider – the corporate buyer who wants to help staff lead a
healthier lifestyle. Mention is made in the case that this happens in both the profit-seeking and
not-for-profit sectors. Large organisations will not be selling the product on; they will simply be
giving it away to employees as a benefit. The larger the business, the bigger the possible size of
transaction for the producer, and so the buyer may be able to exert a bit more buying power.

Conclusion: buyer power is low/medium

Supplier power

Vita has 3 main sources of supply: HJM and Force, which both assemble Vita products; the many
suppliers of components, which ship goods to HJM and Force; and staff, who supply their labour.

HJM and Force have supplied Vita since it began, and enjoy a good and mutually beneficial
working relationship. Vita is likely to be their best/only customer, and so this reduces the power
that they can exert over Vita in the long term. In the short term, they know that Vita is reliant on
them as their sole sources of supply and could potentially look to negotiate, but this would
damage the long term relationship.

There are many suppliers of components, located worldwide. It is unlikely that any individual
component cannot be sourced from elsewhere should that be necessary, and so they will exert
little power.
Skilled staff are a critical success factor for a technology company, particularly in terms of product
design and development (both hardware and software). The best employees will know that they
are highly marketable and can change jobs if they are not satisfied with their current position.

Conclusion: supplier power is low in respect of product, medium/high in respect of skilled staff.

Threat of substitutes

The case makes specific reference to a fitness and activity tracker producer, and so this is the
industry being examined. Historic growth has been high and is forecast to remain at double digit
rates until 2022. This would suggest that the risk of substitutes is low.
However, there is also much reference to smartwatches, which is the obvious alternative to a
fitness tracker. Global sales of smartwatches overtook those of fitness trackers for the first time in

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