Estimating the effect of buyers’ bargaining power on Kenyan small food manufacturers’ income

Abstract

The purpose of this study is to predict the effect of buyers’ bargaining power (customers’ price sensitivity, knowledge level, union, ability to integrate backward, switching costs and resale buying) on incomes of small food manufacturers. A survey of perceptions of 132 sampled small food processors in Nairobi and Busia Counties was done. From the gradation of the perceptions on seven-point likert scale, inferences were made on buyers bargaining power influence on the larger population of small food manufacturers in Kenya. On one hand, the study revealed that every unit of buyer’s sensitivity to prices, not unionized, integrated backwards and bought for goods for resale accounted for a positive change small food processors’ income by 0.011, 0.013, 0.005 and 0.010, respectively. On the other hand, the study showed a negative change of 0.006 and 0.008 in incomes of small agro-food processors with every unit change in the level of buyer’s knowledge and shifted to alternative product, respectively. Using Ordinary Least Square (OLS) linear regression statistical inference, there was no single standalone buyers’-bargaining-power-factor that significant influenced incomes of small food manufacturers in Kenya. However, the amalgam of the buyers bargaining power cues actually did influence the incomes (t=8.294, p= 0.00, sig <0.05, 2 tailed). Given the findings, the study recommends that marketers of food products should treat buyers bargaining powers factors as a whole and not as individual components. Further studies should consider structural equation modeling to determine a model with critical buyers-bargaining-powers factors.