PORTER'S COMPETITIVE FORCES MODEL

Assalamualaikum to Madam Ayu and all my friends... Here i want to share with you all about a product that use Porter's competitive forces model. Dell is one of an example product that achieve successfully in their business by using Porter's competitive forces model. So, let us share this information...

Personal computers have become commodity. Competition is quite furious in this sector. Lower-end computers with high-speed internet capability become the main selling factors for PC companies.

About Dell…
Dell Computer Corporation, incorporated in October 1987, is a computer systems company and a provider of computing products and services. The Company's primary product offerings include enterprise systems, notebook computers and desktop computer systems. The Dell line of high-performance computer systems includes PowerEdge servers, PowerApp server appliances, PowerVault storage products, PowerConnect networking products, Dell Precision workstations, Latitude and Inspiron notebook computers. Dell Computer became the world's largest personal computer vendor,and gain market share and post profits in an industry. Dell sells 90% of its PCs directly to the final customer, largely bypassing the reseller channel that accounts for most of the world's PC sales. This direct customer relation ships the key to Dell's business model, and provides distinct advantages over the indirect sales model like Acer, Compaq, Lenovo, and more. Dell competitors are primarily in the Personal Computers industry. Dell also competes in the Computer Networking Equipment, Computer Peripherals, and Mass Storage Systems sectors.


Dell Direct Business Model:

Advantage:
1. Lower cost: avoid dealer’s markup and pass the saving to customers.
2. Customized system: customers get exactly what they wants.
3. Save time: takes only 36 hours to manufacture, test, and ship customized products.
4. Easy for customers to order: either log on www.dell.com or call 1-800-WWW-
DELL.


Competitors in DELL PC industry:

Competitors of Dell are:

1. ACER
2. HP
3. COMPAQ
   

Porter’s Competitive Forces Model

During this rapid change, information technology must remain steadfast to compete with their competitors. In an influential book, Trompenaars and Turner (2002) stated “Michael Dell’s method of direct service helped gain an advantage in the computer industry”. The direct sales process allowed express selling to the customer without through the middleman. This study examines the computer technology field with Michael Porter’s competitive forces and creating improved productivity.
Michael Porter’s (1980) competitive forces, a reliable strategy in the business world today. Porter states that the economic and competitive forces in an industry segment are the result of five basic forces: bargaining power of suppliers, bargaining power of buyers, Threat of entry of new competitors, threat of substitute products or services, and rivalry among existing firms in the industry. So every company should have tactical plan to identify strengths, weaknesses, opportunities and threats present within the company for survival.


1) Rivalry among existing firms in the industry

Out of the five competitive forces that influence the computer technology world today is rivalry among existing firms in the industry be the biggest threat to Dell. Within the technology industry competition will arise in order to gain increased position. Dell challenges the other industry like Acer, and Compaq by providing direct service to customers, price cuts, and staying up to date with modern technology. To make things easier for the customer Dell established user-friendly relationships with the customers.

In 1996, Dell establishing the direct model. For the first time customers were able to buy a Dell computer from the Internet, while ACER, Compaq, Lenovo, and HP customer must buy from their shop and any shop can sell their product and be a dealer. Only Dell company sell the Dell notebook and be a dealer to it self without third person or middleman. It is difficult to find computer shop that sell Dell brand except for which have an approval and certificate from Dell. Dell established a key advantage by creating the direct service model and only Dell company can sell their product.

The company’s direct model consists five of tenets, “beginning with the customer and ending with the customer”. Dell’s principle’s resulted in customer satisfaction, which understanding to the needs of the customer. The company speaking directly with customers. For example when the customer had a problem they can just call Dell and dell will solve their problem only through phone. Moreover, open lines of communication with the customer created a clear concise understanding of the buyer’s exact needs. Ultimately cutting out the middleman and proving direct support to its client. Dell next established a single point of accountability, to grant customers with a direct connection to associates through proper channels. Dell also provide advanced components while like Acer it just store basic components.

Dell rivalry among existing firms in industry: HIGH

• High concentration than Compaq and ACER
  
• Decreasing profitability
• Low differentiation
• However, in sever competition, Dell can still gain market share from other competitors like ACER and COMPAQ. That proves Dell’s business strategies have been successful.

2) Bargaining power of buyers

Next, the most influential competitive force used in Dell’s industry is bargaining power of
buyers. Bargaining power of buyers exist and high when buyers compete with many industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other at the expense of industry profitability. Dell gains a competitive advantage in the industry by focusing on bargaining power of buyers. The more buyers have choice the power of buyers is high where they can choose any barand they want like Dell, Acer, Compaq, Sony and more while the bargaining power of customers low when the buyers have only few choices.

Dell provides the customer with a product to best suit their budget, while allowing the consumer a tailor made a system for their use. Dell dominates the computer industry by being a low-cost leader, a perception pleasing to the customer. In return the customer gains a desirable product at a great value.

Dell Bargaining Power of Buyer: High

• Dell is highly price sensitive and it is best in the features in terms of portability and for others areas compare to ACER and Compaq. For example the Dell notebook had the longest rated battery life with a rating of 4 to 5 hours while Compaq's notebook had a rating of 3 hours and battery life for Acer is not fantastic.
• Reliability and customer service become important factors where customer can get their service through phone and their technician will come to us while others company such ACER, Compaq we have to go by own self to get a service.
  
• Dell’s products are very reliable and customer service is outstanding. Customer easy to get service.
  
• Dell still set the prices very low. Although the prices are raised too high, customers will not hesitate to switch to other brand because Dell brand satisfied their needs and make them easy rather than other company such as Acer and Compaq.
  
  

3) Bargaining Power of Suppliers

Computer hardware company play Dell’s reputation. For instance, Dell upholds a well-trusted name brand commonly found in office, workstations and other places of businesses. Dell’s the first company to offer “computer systems on a next-day, on-site product service” to the consumer. The company also takes pride in being the first company to introduce the notebook computer system. The notebook computer designed to business professionals with busy lifestyles. Likewise, Dell reached number one in the global market share. Together with direct service, excellent customer service and fresh ideas, Dell achieved the great status in the United States for standard Intel architecture server shipment.


Dell Bargaining Power of Suppliers: HIGH

• Large number of famous suppliers for Dell components like hardware, keyboards, etc while for certain ACER and Compaq the supplier use a fake components. Dell is the one company who give us a original CD for format the notebook while others like Acer and Compaq they give a copy or genuine Cd to us that will effect our notebook system.
  
• Microsoft standard for all PC’s and Intel standard for most PC’s. Dell we can choose either
  
• High switching costs

4) Threat of entry of new competitors

For computer company it is not easy for anyone can be entered. It required high modal to have our own computer company and it is not like we open a stall like "goreng pisang stall". For example, the threat of entry into Dell is moderate because the Dell industry has few major entry barriers. For most, the Dell has a Web and it increases the threat of the company as it sharply reducing traditional barriers to entry. Threat of entry of new competitors for Dell is moderate as others company such Acer and Compaq also have their own website and compete with Dell. It is still not many PC industry in our country so Dell, Acer, Compaq, HP, industry all have to compete to be the number one PC industry.

Dell Threat of entry of new competitors: MODERATE

• Low investment for independent stores
• Low product differentiation
• Brand name may be a barrier to entry where Dell brand is known by whole world and long sale brand and it brand is good compare to Compaq which is new brand which still new in this industry.
  
• Low economies of scale
• No legal or governmental barriers
• Decreasing profitability shows that there is a threat of new entrants

5) Threats of substitute products or services

Dell believes in standards-based technology, which represents the opportunity to decide in the item of preference. Dell defeats barriers by constantly updating processes and introducing new ideas to remain successful. Dell faces constant threats of substitutes or services from other computer hardware products; such as, Hewlett-Packard and Apple which are among top competitors. Nevertheless Dell’s perseverance remains untouchable through creative technology such as, direct service, customer service and new gadgets.

Dell Threat of Substitutes or Services: LOW

Dell have their own original Cd for their notebook and have their own software and services while Acer and Compaq they do not have their own substitutes or services. Acer and Compaq industry use a copy and genuine Cd from other company. Dell have their own warranty while for Acer and Compaq they have many warranty services where the shop also have their warranty instead of the warranty from the Acer and Compaq company. For example Acer not only offers lower cost of ownership and investment protection, but also the assurance that there is an Acer office and Acer Customer service Center near us. Customers may seek assistance and advice they need in the many way; through online or over the phone with Acer Call center personnel. Acer have many warranty than Dell such as Acer local warranty and Acer Extended Warranty. Dell cannot extend their warranty that had given by the company so this show that Acer have many substitutes service in their product.

However, high price, and lack of software support prevent people from switching to Apple system. Recently Dell introduced the new Dell Pocket DJ and Dell photo printer 540, to gain a competitive advantage over Apple’s iPod mini and Hewlett-Packard photo smart 375. The new innovating idea behind the model is the price comparison. Dell climbs to the top of the market with the photo printer 540 another ground-breaking gadget for the company. The Dell photo printer retail price is $189.00 compared to Hewlett-Packard’s photo smart starting price of $200.00(USA Today, 2004). Again, Dell surpassing in price by offering a quality product at a great price. Dell outshines competitors Apple and Hewlett-Packard, by offering affordable top of the line products.

Overview!!!

Overall the company has through a long road of success for the future. Fighting against competitive rivalry in the computer hardware industry, Dell brings forth new and innovating ideas. With constant advancement and development in the computer industry, Dell realizes the obstacles it has to overcome. Dell have to plan wisely to compete with Acer , Compaq, Lenovo and HP which are now in advancement. The company must incorporate the process along with daily enforcement of Porter’s Competitive Strategy. A company that plans for success understands the threats of new competitors, power of suppliers, power of buyers, the threat of substitutes or services and rivalry competitive. By being informed of its competitors and building constant improvements in its products, Dell will gain a competitive advantage in the market. Dell’s a company that is well known for the quality of the product, service, cost and commitment to customers. Dell gained a competitive advantage by establishing new ideas in the information technology world. By focused on capturing the customer’s needs and determined for success, Dell maintains a successful record. When a company does not fully practice Porter’s Competitive Forces the company will faces a great risk. Companies need to understand the market facing them in order to accomplish the desired goals of success. Careful attention to its competitor’s developments proves to provide a competitive advantage on present and future competition.



References

Dell, Inc. (2004). Dell at a Glance. Retrieved October 8, 2004, from
http://www.us.dell.com/content/topics/global.aspx/corp/background/en/facts?

Kessler, M. (2004, October 10). Dell rides the wave to consumer gadgets. USA Today.
Retrieved October 25, 2004 from
http://www.usatoday.com/money/industries/technology


A Talk With PC King Michael Dell