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Case of the Profitless PC

Himanshu Jain Rachit Jain Sunny Kohli Shiba Bhutani Aparna Vora Aditya Dutta Shubham Agnihotri Kunal Parmar Shashank Pandey Shantanu Nalanwade

Key characteristics of the PC industry

Price competitive
Standardized components and doesnt require too much expertise Entry barrier are low

Low Margin selling

Market is price competitive, the vendors often sell their offerings at very low margins
Small companies survive on post-warranty support and consulting, no profit on

straight PC sales

Rapid Price Fluctuations

The prices changes dramatically and frequently Prices generally decrease so already low margins get squeezed

Key characteristics of the PC industry

Vendors Keep Low Inventories
Keeping high inventory can be detrimental Whenever prices drop the vendor potentially loses money on every component in inventory at the


Entry to PC peripheral product markets

Aggressive price competition, vendors focus on entering /creating new PC peripheral product


The demand for new peripheral tools and technologies has introduced new opportunities for vendors

Establishing strong relationships with suppliers

Signing exclusive long-term agreements with suppliers of PC components or peripherals A drop in bottom-line cost for the most expensive of PC components from purchasing in bulk


Alliances and joint ventures

Sign deals with software vendors in order to bundle their products with PC systems increases the perceived value of the PC vendors product

What should Praxim do ?

Task of improving bottom line without loosing on sales
Upmarket had now being stagnated and the scope for growth is little Segmentation based on consumers needs can result in market penetration Bundled boxes with ( software and other services) will satisfy more customers Investing in specialty stores, where a premium can be charged thus increase in


Season offers can be introduced, by charging premium differently

Introducing PC customization for consumers, It will reduce inventory cost as

well as procurement cost as it will be JIT inventory

Strategic model - Porters five forces model for PC industry

Bargaining power of buyers

Threat of new Entrants

Rivalry among competitors

Threat of substitute products or services

Bargaining power of suppliers


Key Determinants

Strength of the force

Rivalry between competitors

Concentration (number) and size of competitors

Medium to high

Brand identity

Barrier to entry

Economies of scale Brand identity Capital requirements

Medium to high

Threat of substitutes

Price/Performance of substitutes

Low to medium

Switching costs Buyer Power Buyer concentration Buyer size (volume) Switching costs Supplier Power Supplier concentration Supplier size (volume) Switching costs Low to medium Medium to high

Major competitive threat to any vendor in this industry is the degree of price


Average revenue drop has forced market vendors to aim for market share dominance,

in an effort to increase their clout in negotiations with component vendors

Threat of new entrants by global companies, that can undercut the cost structure of

current market, is also an important issue

Emergence of niche competitors has also caused companies in this industry to take

note, as public demand for increasingly customized computers increases.

Further, the steep discounts that corporate and governmental customers demand can

cost PC vendors in their profitability

pressure on company profitability suppliers favor.

Pressure to offer the most cost effective product in these volume orders places serious
Vendor reliance on component suppliers can put an unbalanced level of power in the

With which of the experts do you agree regarding his or her analysis of Praxims situation?
Victors no participation strategy in consumer segment will

lead to further loss of potential customers and thus reducing the revenue
Hence we disagree with this strategy.

Bobs strategy as pointed by Mike will not make any significant

change to their existing situation.

Hence should not be adopted

Lindas and Mikes :

Focus on brand value and building customer relationship Increase customer awareness and knowledge


to develop a long term

Reduce cost

by using the same customer service as done by the commercial segment and also using some direct sales force from commercial segment in tandem with this segment. competitive advantage in highly competitive market.

Also concentration should be on technological innovation

for gaining

Relevance of Case now

Case remains relevant as PC makers face declining growth. Issues faced today
Price influences buying decisions of PCs since technology is no longer differentiated

One PC that does it all is no longer an attractive preposition, rather different segments want

bundled machines that can do specific tasks

Tablets, Google Glass and other computing devices give PCs a challenge

Shrinking Market for PC makers* , Lenovos 0.6%, HP Dell Acer 4.8% 3.9% 35.2%

*Gartner Numbers

Thank you