Procurement and product teams often treat supplier pricing power as a stable, comparable input in market analysis. This is a mistake. The basis for perceived pricing power is unstable, frequently shifting with competitive benchmarking practices—sometimes dramatically so.
When competitive peer sets change—through supplier exits, new entrants, or updates to comparables—what appears to be an increase or decrease in supplier pricing leverage may reflect the benchmarking shift itself rather than true market dynamics. Understanding this distortion is essential for accurate strategy and sourcing decisions.
Peer Set Selection Actively Shapes Perceived Pricing Leverage
Pricing power is context-dependent, never absolute. The set of comparables used in industry benchmarks frames the assessment: a supplier appears more or less powerful depending on who is counted as a competitor. Omitting low-cost, aggressive rivals overstates incumbent leverage. Including emerging or alternative suppliers in the peer group, even if they operate on a smaller scale, can understate the market leaders' ability to dictate terms.
In practical terms, the analyst or researcher’s choice of competitive set defines the yardstick. This is especially common in annually updated reports, which often justify benchmark changes after notable M&A, market entry, or firm exits. Without careful cross-checks, procurement teams can mistake an artifact of rescoping for a real structural shift in negotiation leverage.
Alternate Suppliers Reframe the Pricing Baseline
Pressure from alternative or substitute suppliers does not just reduce headline market concentration. Including these alternates in a benchmark creates a new baseline for pricing, even if their penetration is still modest. This reframing often appears as a subtle shift in pricing power metrics over time, predicated more on the analyst’s willingness to widen the peer frame than on actual market share disruption.
Take the example of industrial fluids: the entry of chemical recyclers and bio-based substitutes into the peer set can mask the unchanged dominance of three established suppliers. Procurement teams may read a downward trend in pricing power for the Big Three that simply reflects the inclusion of smaller, less proven alternates, rather than any erosion in incumbent ability to set price floors.
Market Exits Magnify Remaining Suppliers’ Apparent Power—But Artificially
When one or more suppliers exit a market segment, the immediate effect in competitive benchmarking is a reduction in observed rivalry. The usual result is an increase in reported supplier pricing power, even if the real underlying shift is more nuanced. If the exiting players sold at or below market average, their absence can inflate the leverage attributed to remaining firms.
Yet this often overstates true pricing power, especially if the customer base is actively seeking substitutions or alternative sourcing channels not captured in the new peer set. The reduction in supplier count exaggerates apparent pricing autonomy, particularly in segments with switching frictions or regulatory constraints.
Updated Benchmarks: A Worked Example
The following hypothetical worked example demonstrates this distortion in practice. The numbers are purely illustrative for method, not drawn from any market data.
Suppose last year’s market report on specialty adhesives compared five suppliers. Four were established multinationals, and one was a niche local player with aggressive, lower pricing. The average price index used to assess pricing power was dampened by this low-cost competitor.
This year, the local supplier has exited, and two small new entrants (with slightly higher prices than the departed player, but lower than the multinationals) appear. The analyst revises the peer set to include only the three largest multinationals and the two new entrants. The recalculated price range now omits the lowest previous figure.
- Old price index based on (Supplier A: 100, B: 102, C: 98, D: 103, E: 88) → Average: 98.2
- New price index (A: 100, B: 102, C: 98, F: 96, G: 97) → Average: 98.6
Based on this alone, a procurement professional might interpret a modest uptick in supplier pricing power. But the shift is partly (sometimes mostly) a consequence of the benchmark composition—not an underlying structural change in supplier leverage or cost pressure.
The lesson: year-to-year (or report-to-report) shifts in average or median supplier prices often conflate real market movement with arbitrary peer set updates.
What Procurement and Product Teams Should Scrutinize in Supplier Pricing Power
When reviewing market research or internal dashboards that claim to track supplier pricing leverage, teams should look for explicit documentation of:
- Changes in the peer set: Is the list of suppliers held constant across measurements, or is it revised due to exits, entries, M&A?
- The inclusion logic for alternative or substitute suppliers: Is the basis for adding them justified by actual contract volume, or simply availability?
- The treatment of price outliers: How are unusually high or low prices handled in calculating averages or index values?
- The timing and rationale for benchmark changes: Is the change flagged as a data artifact, or presented as a structural trend?
Where this transparency is missing or opaque, teams must be cautious about reading year-over-year shifts as true indicators of increasing or decreasing supplier leverage.
For those seeking further detail about methods and the treatment of benchmarking in supplier power assessments, the full archive of specialist analysis is available at Core Market Research.
Key takeaways
- Scrutinize how the supplier peer set is defined and when it changes—unexplained shifts often signal data artifacts, not market evolution.
- Calibrate contract strategies based on true supplier leverage rather than benchmarked headline figures alone; supplement with direct market engagement.
- When interpreting market reports, ask for treatment of alternate and substitute suppliers, not just incumbents—misclassification skews risk and pricing outlooks.
- Build internal dashboards to mirror consistent benchmarking rules, or track results against a fixed panel for better comparability.
- In due diligence, challenge the rationale for including or excluding specific suppliers each cycle; stability in comparison is a prerequisite for trend claims.
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