What is a plausible strategic response when supplier power increases?

• A. Diversify the supplier base to reduce dependency on any single supplier.
• B. Increase reliance on a single preferred supplier.
• C. Increase prices charged to customers to offset supplier power.
• D. Exit the market.

Answer: (A)

Reducing dependence on any single supplier by diversifying sources is a common strategic response to increased supplier power. By spreading purchase volume across multiple suppliers, a companyWeakens the leverage of each individual supplier, lowers risk from disruptions, and creates competitive pressure among suppliers to offer better terms, quality, and service. This flexibility also makes it easier to switch suppliers or negotiate favorable contracts, which mitigates the adverse effects of higher supplier power.

Relying on one preferred supplier concentrates risk and hands more control to that supplier, making it harder to secure favorable terms or respond to price hikes or supply issues. Attempting to offset supplier power by raising prices to customers shifts the burden rather than addressing the root cause and can dampen demand. Exiting the market is an extreme response that doesn’t address the underlying supplier dynamics and ends the business opportunity.