Bargaining Power of Buyers------Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum price as possible. This put pressure on Electronic Arts Inc. profitability in the long run. The smaller and more powerful the customer base is of Electronic Arts Inc. the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers.
Buyers enjoys strong bargaining power as they can demand better quality products from the company, which in effect increases production costs of developing games and software. Considering the high competition amongst the suppliers, the buyers gain a strong negotiating power as they get an option of turning to the firms with products that meet their specific needs .
The products are well differentiated though brand loyalty is relatively low. Despite this, leading manufacturers such as Activision Blizzard were still able to achieve a degree of product differentiation through established game lines.
Further, the success of individual title is achieved through critical review to ensure that it always remain more appealing to the clients. This industry is susceptible to low profits since buyers easily collude to demand good quality products from the suppliers who in turn pass these costs to the buyers thus cutting on their margin.
Bargaining Power of Suppliers-----All most all the companies in the Multimedia & Graphics Software industry buy their raw material from numerous suppliers. Suppliers in dominant position can decrease the margins Electronic Arts Inc. can earn in the market. Powerful suppliers in Technology sector use their negotiating power to extract higher prices from the firms in Multimedia & Graphics Software field. The overall impact of higher supplier bargaining power is that it lowers the overall profitability of Multimedia & Graphics Software. Each firm employs superior production methods and hires talented work force in a bid to produce superior products that are appealing to the customers. Therefore, these gaming companies cannot collude to exert collective bargaining powers in this industry.
The profitability of these gaming companies lies on the quantity of sales achieved. Therefore, the suppliers will strive to retain a customer base and also work harder to ensure that they still get more customers to boost their sales levels.To diversify against the risk faced due to low bargaining powers, the supplier has various classes of clients; one being those who acquire the products for use in production of final products and also those who purchase for final use.Game software publishing is regarded as labor intensive and requires the input of talented software developers. In this case, it increases supplier’s power. Intellectual property rights are used to differentiate various suppliers’ products. However, the supplier can increasingly become dominant in the industry by differentiating products from those of other suppliers, thus increasing switching costs and decreasing availability of substitutes
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