Dell has seen a lot of growth in the last few years. Dell was the most profitable PC maker in 2001, but by 2005 they were losing money due to increased competition with rival HP. Their net income declined every year from 2002-to 2009. Dell remains one of the top companies and its future looks bright as many markets continue to see growth. The PC industry is expected to see growth through 2016 and Dell has already captured a 15.5% share of the market for this year alone. Dell recently released their own upgraded smartphones, tablets, and notebooks to keep up with Apple and other competitors in these markets as well. These new products have brought about increased competition from rivals like HP, Apple, and Samsung who have already made an impact in these markets. These competitors are more established than Dell, with products that are just as good if not better than the newly released devices from Dell. Competitors have also benefited from being first to market or integrating unique features into their products that are then copied by other companies later on creating a snowball effect. This has allowed companies like HP and Apple to remain in the top PC and smartphone markets respectively while also grabbing a significant amount of the tablet market. Today we are going over the Porter’s Five Forces analysis of the company
Dell Threat of New Entrants: Medium
Dell is the top PC manufacturer in the world and their largest rival, HP has recently seen a decline. Dell does not have to worry about new competitors entering the PC market anytime soon as there are no current companies that could match Dell’s market power or financial capabilities. There may also be legal restrictions that would prevent other players from entering this market.
Dell Bargaining Power of Suppliers: Low
Component suppliers have a large market share, allowing them to dictate prices and demand higher profit margins from other players in the supply chain. Dell has been able to maintain a constant relationship with their key suppliers as they have not threatened to take their business elsewhere over price disputes. This has helped Dell to keep prices low and remain in the market despite tight competition.
Bargaining Power of Buyers: Low
PC buyers, currently consisting primarily of consumers and small businesses, have very strong negotiating power in terms of price and quality required. Purchasing PCs is not a major high-ticket purchase for most consumers so they do not focus on components when they make their decisions. A larger issue with purchasing PCs is that many people rely on an existing PC until it breaks down or becomes unusable rather than upgrade every couple of years like professional computer users such as gamers or graphic designers. This behavior has increased replacement rates but does not necessarily impact the number of new purchases made each year since many people depend on their already purchased computers.
Dell Threat of New Entrants: High
The presence of high switching costs locks many users into the PC market. This means that customers are reluctant to switch to other brands as it would require them to purchase new software programs, learn new interfaces for each product, and go through a significant amount of time learning all the features of their new product. This is not always an issue but can cause problems in certain markets where PCs are being used by people who rely on their computers every day for work or school. These are usually gamers or graphic designers who have a strong brand preference towards companies like HP or Dell but may be forced to switch if confronted with significantly better products from other companies.
Dell Threat of Substitutes: Medium-High
There are no direct substitutes for PCs but there are other devices that do the same things. Mobile phones and tablets can be used to complete many of the tasks done on a traditional PC which has caused strong competition, especially with phones. Tablet manufacturers have also attempted to create PCs running their operating systems in an attempt to take some market share away from Dell and HP. The presence of products like tablets makes it harder for companies like Dell to sell products at lower prices as consumers may decide to use these other devices instead if they see no significant benefits coming from buying a new computer.
Dell Competitive Rivalry: High
Dell is currently the top PC manufacturer in the world and faces strong competition from other companies. The two main competitors are HP and Apple, both of which have seen success in different areas of Dell’s business. Apple has done well in the smartphone market while HP has struggled to remain relevant at all during this last decade. Dell focuses on building its brand image through advertising campaigns to make itself look like a trusted name in computing, allowing them to maintain its market position.
Dell Porter’s Five Forces Conclusion:
We can see that Dell faces medium threats from new entrants and substitute products while having low bargaining power against suppliers and buyers. This will allow them to keep prices lower than some competitors but also makes it harder for them to enter new markets as they face strong competition from already established companies.