IB1170 Markets, Marketing and Strategy Assignment 1 (Strategy) Student no.

0716108

IB1170 Markets, Marketing and Strategy

Essay Assignment 1
Topic: Use (ii. Industry structure and dynamics (5 Forces)) to identify, analysis and
discuss Strategic issues in (2.DELL)

1.0 COMPANY OVERVIEW

Dell Inc. was named PC’s Limited when it first came to the hardware manufacturing market
and was formed by Michael Dell in 1984. It is one of the most successful stories in the
industry. It mainly produces desktop, notebook, network servers and storage products. In
2003, it started developing other area of computer hardware and changed its company name
as Dell Inc. One of the remarkable strategies which used by Dell is the concept of direct
marketing business model. The direct sales model is still used by other companies nowadays.
In addition, Dell offered customers to create products which base on their own specification
in competitive prices. Furthermore, Dell acquired an American computer hardware company
‘Alienware’ in 2006 that mainly assembles components into desktops and laptops with
custom enclosures for better graphical performance (Dell, 1999) [1]. Dell had been top
computer PC producer till the 2nd quarter of 2006, but in the 3rd quarter of 2006, HP overtook
Dell’s position as it shows from the table 1 (Indu, 2007) [2].

2.0 PORTER’S FIVE FORCES

Porter defines five forces which determine the
profitability of an industry. He argues that the aim of
competitive strategy is to cope with and ideally
change those rules in favour of the business. If five
forces are favourable, a business will be able to earn
above average rates of return on capital. Where they
are unfavourable, a business will perform into low
returns or wildly fluctuating returns (Porter, 1985)
[3]
.The five forces are:
IB1170 Markets, Marketing and Strategy Assignment 1 (Strategy) Student no.0716108

Competition Rivalry
(i. Large number of competitor): Although there are a high
number of competitors in the market, Dell occupied more
than a quarter market share in 2007 (Anno, 2007) [5]. (ii.
Strong market growth): According to table 3, the PC market
grew 16% between 2nd quarter in 2007 and 2nd quarter 2008.
This shows that the PC market has high potential of growth
(Pettey, C., 2008) [6]. (iii. Low fixed costs): a computer
hardware manufacturing company need a high fixed cost due
to high volume of electricity and spaces needed. Thus, the
fixed and storage cost should be relatively high. (iv.
Undifferentiated market): The industry has not yet been differentiated. Most of the computer
company sell the same products with same features although there might be some slightly
differences in the quality and performance. However, it can be concluded that the extent of
rivalry in the PC industry appears to be medium.

Threat of Entry
(i. High capital requirements): A large financial resource is required to set up a hardware
manufacturing company. Thus, it is not easy to enter the market. (ii. Good access to
distribution channels): Dell has an alternative distribution channel which contacts with its
customers directly (Dell, 1999) [1]. (iii. Slightly product differentiation): Dell’s products are
slightly differentiated that it offers the build-to-order service for customers (Dell, 1999) [1]. (iv.
Customer loyalty): Dell has a wide range customer base from individual customers to
retailing and corporate businesses. The table 3 is a significant evidence to prove that Dell has
the greatest volume of customer base (Pettey, C., 2008) [6]. (iv. Experience): Dell has over 35
years experience in the industry. It has been established a good image of stability and
reliability. On the whole the threat of entry is relatively low.
IB1170 Markets, Marketing and Strategy Assignment 1 (Strategy) Student no.0716108

Supplier Bargaining Power

Dell has a good network of supply chain so Dell wide choices of suppler. Moreover, Dell
purchased the computer hardware manufacturer Alienware in 2006 (Dell, 2006) [7]. However,
Dell can produce its own components that possibly minimised the supplier power. Therefore,
it is no doubt to argue that the supplier bargaining power is low.

Buyer Bargaining Power

Bargaining power of buyers is appears to be medium. Although Dell is one of the market
leaders in the industry, the main target audiences are corporate businesses rather than
individuals. It mainly provides simple and basic computers to customers for office use.
However, buyers who have high needs would go for some brands which give better computer
performance. Nevertheless, Dell offers the build-to-order service that might attract the buyers
who want to have their own specification.

Threat of Substitution
There are no direct substitutes for PC in the market. Nevertheless, it is an incontestable fact
that human life will be based on technology. There should be more electronic devices replace
PC in the foreseeable future (Yoshida, J. 2004) [9]. Moreover, Dell also purchased more than
thousand of patents which can reduce the number of potential substitutes (Dell, 2009) [8].
However, it can be concluded that the threat of substitution is low at this stage.

3.0 ANALYSIS & CONCLUSION

Although the competition rivalry is medium due to large number of competition in the
growing market, Dell might reduce the rivalry by forming cartels with other competitors or
buying up its rivals to eliminate through competition. If Dell forms a cartel with other
companies, it allows them to maintain high profitability by charging higher prices than in a
more competitive market. Meanwhile, the supplier and buyer bargaining power, they are at
low and medium respectively. As discussed that Dell has acquired with some hardware
companies, however, Dell is able to create its own hardware components that reduces the cost
of production. Moreover, Dell might also seek out more suppliers as it has a good networking
in the industry that might broaden the supply base and minimise the supplier power.
Furthermore, acquiring with competitor is possible to reduce the buyer power as fewer
choices exist in the industry.
IB1170 Markets, Marketing and Strategy Assignment 1 (Strategy) Student no.0716108

Lastly but not least, the threat of entry is relatively low. Although Dell has already achieved a
good position in the market, it might also strengthen the barriers to entry to the industry. It
might apply more patents and copyright to protect its intellectual property and avoid other
business using it. Moreover, since Dell is a strong market leader, it can spend more on
advertising that can be a deterrent because it represents a large cost to new entrant. The new
businesses usually do not have large spending on advertising. They have to take the risk of
losing the spending if they fail to success in the market. However, it could be a way to deter
new entrants. Finally, although the threat of substitution is low, Dell can also reduce the
number of potential substitutes through research and development and then patenting the
substitutes itself.

By way of conclusion, Dell has successfully achieved a great position in the industry and
gained excellent competitive advantages, but it still has high potential to be an even stronger
market leader in the foreseeable future if it can use the market strategies efficiently.

~ The end (1099 words) ~

IB1170 Markets, Marketing and Strategy Assignment 1 (Strategy) Student no.0716108

4.0 BIBLIOGRAPHY & REFERENCE

1. Dell, M. & Fredman, C., 1999, Direct from Dell: Strategies that revolutionised an
Industry, Profile Books Ltd.

2. Indu, P. 2007, Dell’s supply Chain Management Practices [online] Available at

http://www.icmrindia.org/, [Accessed at Dec 2009].

3. Porter, M. 1985, Competitive advantage: creating and sustaining superior performance

4. Dibb, S. & Simkin, L. & Pride, W.M. & Ferrell, O.C., 2001, Marketing Concepts and
Strategies, Houghton Mifflin Company, 4th edition

5. Anno, 2007, Why Apple may be too small to win. [Online] Available at
http://www.landley.net/next/28-08-2007.html [Assessed at Dec 2009]

6. Pettey, C., 2008, Gartner Says Worldwide PC Market Grew 16 Percent in Second Quarter
of 2008, GARTNER [Online] Available at http://www.gartner.com/it/page.jsp?id=724111
[Assessed at Dec 2009]

7. DELL, 2006, Dell Enhances Its Commitment to High-Performance Computing With

Planned Acquisition of Alienware Corporation, [online] available at
http://content.dell.com/us/en/corp/d/press-releases/2006-03-22-01-alienware.aspx
[Assessed at Dec 2009]

8. DELL, 2009, Patents [online] available at

http://content.dell.com/us/en/corp/about-dell.aspx?c=us&l=en&s=corp#keyword=patents
[Assessed at Dec 2009]

9. Yoshida, J. 2004, Phones replace PCs as memory trendsetters [Online] Electronic

Engineering Times,(1347), 1,14. Retrieved January 5, 2010, from ABI/INFORM Trade &
Industry. (Document ID: 745817621). Available at
http://proquest.umi.com/pqdweb?index=5&did=745817621&SrchMode=1&sid=3&Fmt=
4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1262219362&clientId=9678
[Assessed at Dec 2009]