Dell case study analysis five forces
Throughout the sass’s and sass’s, new advancements in PC performance helped drive down prices rapidly. In the United States, the personal computer industry was a $74. 6 billion industry in 1998.
About 45. 5% of households in the United States owned a personal computer in 1998 and this figure was projected to rise to 49. 5% by 2000. Household ownership was lower across the rest of the world but growth was seen In Europe and Asia. Threat of New Entrants The threat of new entrants Is low for the personal computer Industry.
This Is because of the big barriers to entry related to the Industry.
For a company to enter the industry, they require a large initial capital investment due to the nature of the lion dollar manufacturing facilities needed for producing PC’s. Also it is not easy getting the proprietary technology some PC manufacturers have. With the use of robots it is much easier to put together PC’s. For a new entrant, if this technology is not available to them, it would be very expensive to use labor to assemble PC’s.
Also if a company might be producing some of its own hardware components which put it at an advantage a new entrant cannot achieve.
Without access to some distribution channels it can be very dulcet because many established companies have contracts with key distributors who control a majority of the market. This especially applies to operating system and microprocessor distributors. Also barriers to exit are moderately high because If a firm has a faculty which produces according to consumer preferences and the firm wanting to buy this facility requires mass production, the facility would be difficult to liquidate or sell.
Another barrier to entry would the economies of scale because companies producing more PC’s are lowering their unit cost, benefiting from reduced cost.
Fast moving technology relatively short product life cycle leads consumers to look for a new product or brand every 1-3 years. If a consumer was happy with the liability of their previous PC they might go ahead and purchase the same brand again. This moderate level of brand loyalty and low switching cost might make it hard for a company to always keep the customer buying their brand because switching costs are low between PC’s.
Overall, the Initial capital Investment, economies of scale and difficult access to distribution channels keep the threat of new entrants low. Bargaining Power of Suppliers I en Darling power AT suppliers Is very null In ten personal computer Industry. In this market for software, virtually all PC’s ran on an operating system that was made y a single company.
Also this company held a preeminent position of power in regards to the so-called “office productivity applications” or word processing applications which accounted for nearly 80% of the market.
In the market for microprocessor hardware suppliers, there were only a handful of companies. One company dominated this market, supplying 80-90% of the microprocessors for Winter, Intel and Microsoft, based PC’s.
This gave Intel an extremely high bargaining power and control over prices. Bargaining Power of Buyers There are two main groups of buyers found in this industry: relationship buyers and transaction buyers. Both usually buy in large volumes relative to industry sales. Relationship buyers usually have higher switching costs and therefore low bargaining power.
In contrast transaction buyers have low switching costs but higher bargaining power of buyer. This is because they can easily change their mind anytime they want and go with viable substitutes that are present.
Threat of Substitutes When considering the personal computer industry, there are no straight substitutes for PC’s. Comparable devices are out there like Pad’s, workstations, and game systems but nothing can do the same functions that a computer can provide. So threat from substitutes is low for the PC industry.
Intensity of Rivalry The intensity of rivalry in the personal computer industry is moderately high. There are many competitors out there and not only are they competing but also engaging in price wars to increase competition which makes price competition highly unstable.
Loyalty is higher for relationship buyers whereas for transaction buyers, it is low. Product differentiation is low and also switching costs are low meaning that consumers might switch between brands more often increasing rivalry. There are also high exit barriers for a business of this nature, increasing rivalry.