Mr. Rupesh Krishna Shrestha
Facilitator, Marketing Management
Kathmandu University School of Management
The case “Matching Dell” basically describes the history, market structure and environment of computer and peripherals industry especially emphasizing the success story of Dell Computer Corporation. Despite the fierce competition from the IBM giants and the IBM clones, Dell stood out as a successful name by focusing exceptionally on operations and manufacturing, measuring performance through several performance metrics and ...view middle of the document...
Despite of the high margins in the price that the PC manufacturers charged in the early days, we notice that the PC industry’s profitability has been lowering gradually. To analyze the reasons behind such diminishing returns, we use the Porter’s Five Forces Model.
Figure 1: Porter's 5 Forces Model for Industry Analysis
Analyzing the competitive environment of the PC industry, we can definitely say that the low profitability of this industry to a large extend is because of high competition. PCs are usually made of standard components and so have very less substantial uniqueness. This feature makes it easy for all the PC manufacturers to resemble the products of the competitors and thus is very hard for any firm to maintain a competitive advantage based on its product features.
We can also see this problem from the barrier to entry point of view. The capital requirements to set up an assembly line for manufacturing PCs are relatively low as compared to other industries. This means that it is easy for virtually any firm to enter the PC industry and if it performs well, to capture some reasonable amount of share to pose threat to other firms in the industry. Thus, despite the booming demands of PCs, the producers are not being able to capitalize as a result of high competition.
The bargaining power of the customers can also be taken as one of the reasons here. The presence of a variety of products with very little differentiation provides them with an array of choices. The fact that there is relatively zero switching cost between brands has also lead to very low level of brand loyalty thus making the buyers more powerful and the producers losing their profitability.
One of the other main reasons for low profitability can be the price fluctuations of the major components. We have witnessed constant innovation in the technology field than any other industry. As new technology emerges, the old ones become obsolete and so does the price of those PCs with those obsolete technologies. So, a producer who is stuck with those PCs in stock will suffer from a huge loss. But then, those producers who would want to avoid this loss and maintain only minimum level of inventory may not be able to enjoy reduced cost gains from economies of scale in both bulk purchasing and production.
Thus, the existence of high competition, low barriers to entry the industry, the ease of replication leads to limited product differentiation and reduced chances of competitive advantage and thus results in low profitability of the overall industry.
Having stated the situation of PC industry and the various factors that resulted in such a situation, we can still see Dell standing tall despite the low average profitability of the industry. We have done a SWOT analysis of Dell Computers to analyze where the firm stands relative to its competitors.
Dell through its direct selling strategy could directly sell customized product to customers. This...