SOLUTION CASE-5

MATCHING DELL

Submitted by: Anuj Kumar Hatoneya(7) Abhinav Purohit(2) Mayank Dixit(19) Gaurav Garodia(15) Sandipani Saikia(28)

1. Why PC industry has low profitability? Ans- The nature of PC industry is highly competitive mainly because of aggressive pricing whichis a major differentiating factor. The following factors also contribute towards the competitive nature of the PC industry: Low Barriers to entry: The industry employs the assembly line which assembles the PC from its supplies of hardware. The suppliers are plenty in numbers which will ensure the supply of hardware products. Thus the entry barriers for a new firm to setup in this sector are quite low.

Low switching costs among customers: With time, the cost of a PC is decreasing rapidly. The product can easily be replaced in order to get equipped with the latest hardware and software technologies. Hence the switching costs are quite low among the customers.

Weak differentiation among rivals: The system mainly consists of an Intel microprocessor and a Windows Operating System. Thus the interface that everyone uses is almost same for the PC market. This Wintel system comprises near about 95% of the market. Thus the product differentiation among the rivals is quite low.

Vigorous Price Competition: With the increasing operational efficiencies the cost of production reduced drastically. Thus, the companies moved quite aggressively on the pricing issues to gain advantage over others and to undercut the market shares of others. Moreover the product of various PC manufacturers does not differ much in terms of hardware and performance .It makes price an important issue for differentiating the product relative to others.

Severe hold up by Intel and Microsoft: Intel x86 microprocessors are used nearly on every PC along with Microsoft Operating systems. These 2 things are the most important for any PC manufacturer. Intel and

Microsoft are the biggest player in the sector. Thus the entry to barrier for the newcomers is quite low.

2. Why dell is so profitable in the same industry? Describe and quantify the source of this? Ans- Dell was extremely profitable in the same industry because of its competitive advantages, which came from bringing changes in the primary activities of the value chain: Cost Leadership Dell used just in time manufacturing technique, as a result, the finished goods inventory was reduced which reduced its storing cost. The suppliers were also connected with the online mechanism which helped them identify real time demand for Dell. This helped suppliers reduce their inventory holding time for Dell. The reduced cost benefits were again transferred to Dell. Dell used cell system in its factories. Each cell had five workers involved in assembly of personal computers. This system improved the product quality by reducing defective products which helped them to cut their wastage cost. Dell distribution channel didnt include resellers and retail stores. They sold their product directly to the customers by using third party shippers which helped them to save dealers margin. Product Differentiation: Dell differentiated its product from its competitors by giving its customer the facility of customization. Buyers could customize both hardware and software according to their choice and dont had to buy customized products as offered by other firms in the industry. This feature gave buyers the freedom to choose the kind of configuration which matched their requirement giving more value. Dell also used to provide their customers with 24 hours a day customer support for solving any kind of problem related to their product. Dell also provided on-site service in some cases; this was a unique value proposition at that time. By decreasing their cost and increasing customers willingness to pay for their product because of features like customization and customer support, Dell was able to increase its area in which it can price its product. This gave them the room to adjust their prices according to its competitors in this highly competitive industry.