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solution to the case study "matching dell" by HBR
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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 didn’t 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 don’t 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 customer’s 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.