Matching Dell Case Analysis Essay Example
Matching Dell Case Analysis a. How and why the PC industry has such a low average profitability?
The PC industry has started to develop fast in the 80's when IBM launched its first PC series and later on when numerous small companies entered the market. PC is a new product and companies had to create the demand to it from the scratch. We shall apply the Porter's 5 Forces model to examine the PC market and see how forces of competition influence the profitability of the market players.
Entrance barriers are: The initial investment is relatively low. Brand loyalty is average to low. Switching costs of the market player are average. As the result, the threat of new competitors lowers the profitability of the market. Customers bargaining power: It is very hard for the customers to join forces and fight for their interests. According to the modern way of life the need for computer in every work place and home is high which decreases even more the power of the customers. However, the switching costs are low. In general the customer bargaining power is low and therefore it raises the potential of market's profitability. Though, most of the companies provide "buy-backs" and price protection that lessens the chance to cash on moderately strong manufacturers position. Suppliers bargaining power: Suppliers are divided into 2 major groups. One is the suppliers of core components like Intel and Microsoft to provide CPU and operating system. The other group is the suppliers of accessories like keyboard, hard drive, etc. The suppliers bargaining power is generally strong because of the big monopolies and the high importance of purchasing components and operating system, therefore it decreases the profitability of the market players. Threat of substitute products: Substitute goods are different on for different market segments. For most of the customers except individual consumers, these substitute products cannot satisfy the needs of office work covered by PC computers.
The PC industry has started to develop fast in the 80's when IBM launched its first PC series and later on when numerous small companies entered the market. PC is a new product and companies had to create the demand to it from the scratch. We shall apply the Porter's 5 Forces model to examine the PC market and see how forces of competition influence the profitability of the market players.
Entrance barriers are: The initial investment is relatively low. Brand loyalty is average to low. Switching costs of the market player are average. As the result, the threat of new competitors lowers the profitability of the market. Customers bargaining power: It is very hard for the customers to join forces and fight for their interests. According to the modern way of life the need for computer in every work place and home is high which decreases even more the power of the customers. However, the switching costs are low. In general the customer bargaining power is low and therefore it raises the potential of market's profitability. Though, most of the companies provide "buy-backs" and price protection that lessens the chance to cash on moderately strong manufacturers position. Suppliers bargaining power: Suppliers are divided into 2 major groups. One is the suppliers of core components like Intel and Microsoft to provide CPU and operating system. The other group is the suppliers of accessories like keyboard, hard drive, etc. The suppliers bargaining power is generally strong because of the big monopolies and the high importance of purchasing components and operating system, therefore it decreases the profitability of the market players. Threat of substitute products: Substitute goods are different on for different market segments. For most of the customers except individual consumers, these substitute products cannot satisfy the needs of office work covered by PC computers.