What do the Philadelphia Phillies, Bryce Harper, Amazon.com, and Jeff Bezos all have in common? Purchasing power.
“Purchasing power,” or “buyer bargaining power,” as defined by Michael Porter as “…the ability customers have to drive prices down. It is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a customer to switch from one company to another” (“Bargaining,” 2019, para. 6).
Arthur A. Thompson, Margaret A. Peteraf, John E. Gamble, A.J. Strickland III, A.J. further explain in Crafting and Executing Strategy: The Quest for Competitive Advantage that, “[purchasing power] is strongest when:
- Buyer demand is weak in relation to industry supply.
- The industry’s products are standardized or undifferentiated.
- Buyer costs of switching to competing products are low.
- Buyer’s are large and few in number relative to the number of industry sellers.
- Buyers pose a credible threat of integrating backward into the business of sellers.
- Buyers are well informed about the quality, prices, and costs of sellers.
- Buyers have the ability to postpone purchases” (p. 63).
Consider Amazon for a moment. Amazon is expert in purchasing power. According to Jay Greene of The Wall Street Journal, “The limited experiment…highlights the power Amazon holds over brands on its home turf. In its quest to offer the best selection at the lowest price, Amazon has created more than a hundred in-house brands, from batteries and trash bags to nutritional supplements and furniture” (2019, para. 4).
Amazon has mastered the art of purchasing power because it has successfully diversified into many product and service lines; has established an expansive and highly integrated distribution channel through strategically placed warehouses and logistical, value chain partnerships; has promoted excellent customer service; and has implemented bleeding edge technological resources to heavily advertise and communicate its purpose to Amazon customers. Amazon sells to so many customers worldwide and represents such an enormous share of the global marketplace that it can bargain for huge deals from its suppliers. In doing so, Amazon can increase its profit margins while simultaneously decreasing its prices to customers. This strategic approach is catching on quickly in today’s global marketplace. Organizations everywhere are working to diversify into new product and service markets. Purchasing power is perhaps the most popular current trend in marketing and strategic planning.
What does this this have to do with the Philadelphia Phillies? Well, consider Philadelphia’s diversification from one year ago. In 2018, Philadelphia fell from second or third place in the national league east division to dead last by the end of the year. Motivation was low, team morale was low, and the media was interrogating manager Gabe Kapler with a meticulous slew of questions on “management style.” There didn’t appear to be any leadership inside the team.
What a difference a year has made! Philadelphia will walk into opening day of 2019 with four formidable “pickups” including veteran Andrew McCutchen (outfield), J. T. Realmuto (catcher), Jean Segura (shortstop/third base), and Bryce Harper (outfield) (“Phillies,” 2019). This is not to mention the January 29th appointment of former Philly, and world series champion, Jimmy Rollins to the 2019 Philadelphia coaching staff as “special advisor” (“Philadelphia,” 2019).
What may be even more eye-opening about the recent changes is the length of Philadelphia’s new contract with Bryce Harper. Bryce Harper made history on February 28 by signing the largest contract deal in major league baseball history—$330,000,000 for 13 years! Many were appalled by the outlay, but when further analyzed, the outlay is not near as impressive as it may appear (Lacques, 2019, para. 1).
Lacque’s article further outlined that Harper would be making something like $25,380,000 per year; but the article hasn’t necessarily taken the future value of his contract into account (2019, para. 19). With inflation alone, the value of Harper’s salary decreases substantially in 13 years! This isn’t why Bryce Harper signed with Philadelphia. It is also important to note that by the time his contract is fully realized, Harper will be 39 years old—almost retirement age.
So, what’s the point of picking up Harper? Purchasing power. This move correlates to the moves of the Miami Heat in 2010 when Lebron James decided to join Dwayne Wade and Chris Bosh to form a “super team” (“NBA,” 2019). These actions are unprecedented in the game of baseball and they represent a new era in the pastime’s history.
Philadelphia’s strategy also explains Harper’s “borderline illegal” maneuvers to tamper with close competitor Mike Trout in early March. As Harper put it on SportsRadio 94WIP, “If you don’t think I’m gonna call Mike Trout to come to Philly in 2020, you’re crazy.” (Torres, 2019, para. 3).
Another thing you will notice is that Philadelphia is doing nothing to punish Harper for the persuasion. It’s all part of the game plan. By acquiring ball players will high slugging percentages in a relatively small ball park, Philadelphia will also be able to rally the support of expert starting pitchers across the league. The determination for Trout—a New Jersey native—is whether he’s going to join is favorite childhood ball club when his contract with Los Angeles expires in 2020. Regardless of whether Philadelphia can successfully employ Mike Trout, 2019 is Harper’s turn to “put his money where his mouth is,” roll up his sleeves, get his hands dirty, and record some results.
Bargaining Power. (2019, February 20). Investopedia.com. Retrieved from https://www.investopedia.com/terms/p/porter.asp
Greene, J. (2019, March 15). Amazon Tests Pop-Up Feature Touting Its Lower-Priced Products. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/amazon-tests-pop-up-feature-touting-its-lower-priced-products-11552655614?ns=prod/accounts-wsj
Lacques, G. (2019, March 1). Mike Trout is Happy for Bryce Harper. Now He’s on The Clock. USA Today. Retrieved from https://www.usatoday.com/story/sports/mlb/columnist/gabe-lacques/2019/03/01/mike-trout-bryce-harper-angels-free-agency/3027621002/
NBA.com Staff. (2019). Top Moments: Heat form ‘super team’ in summer of 2010. NBA.com. Retrieved from https://www.nba.com/history/top-moments/miami-heat-form-super-team-2010
Philadelphia Phillies Transactions—2019. [comprehensive list of off-season and pre-season trading moves]. Chronological transaction data. Retrieved from http://www.espn.com/mlb/team/transactions/_/name/phi/philadelphia-phillies
Phillies.com (2019). Phillies.com [40-man roster]. Retrieved from http://m.mlb.com/phi/roster/40-man/
Thompson, A.A., Peteraf, M.A., Gamble, J.E., & Strickland III, A.J. (2016). Crafting and Executing Strategy: The Quest for Competitive Advantage. Retrieved from https://mbsdirect.vitalsource.com/#/books/1260376915/cfi/6/8!/4/2/2@0:0
Torres, M. (2019, March 6). Bryce Harper’s Possible Tampering with Mike Trout. Los Angeles Times. Retrieved from https://www.latimes.com/sports/angels/la-sp-mike-trout-bryce-harper-tampering-20190305-story.html