Last Updated 08 May 2020

The Switching Costs

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Essay type Research
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It is very easy to set up a new Pc Company. This is the reason why there are a lot of such companies and the market is extremely price competitive. Each component of a PC can be sourced from outside, and the operating sytem can be either Microsoft or Linux. On the other hand is that there are high economies of scale, thus even though a company might enter the market it should start selling in very big quantities in order to make profit and will need a lot of promotion in order to compete with the market leaders.

A possible barrier to entry might be the strong brand name that Dell has, a new company will have diffuculties to take market share from them. In general, there are a couple of key manufacturers that have strong brand names and a small manufacturer might find it impossible to compete against. It will be difficult for a small firm to acquite the capital needed to compete with the giants. Moreover, Dell's brand loyalty is very high as they are doing their best to keep customers satisfied .

The Switching Costs are also very high, because the computers are made I a certain way to work with certain products- programs and switching to a different brand can cause them pay more or another product. Moreover, Dell has created a unique value proposition giving a high quality product in a lower price. Switching to a different brand will mean probably necessity to pay more. Threat Of Substitutes : Moderate PC has a very strong presence in the society, so it will be difficult to be substitituted by another product in the near future.

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On the other hand customer preferences are changing very fast and a company should be able to answer to those needs fastly. On the other hand PC and laptops are believed to be replaced by hand-held devices such as the Apple's Ipad and smartphones, but Dell is preparing as well such products in order to remain competitive. Bargaining power of Suppliers : High Intel and Microsoft are very powerful suppliers, as it is diffucult, not to say impossible to substitute the core inputs for a computer.

Microsoft supplies operating system to alost 90 % of the market, so they have a very big bargaining power as they don't have a substitute. Moreover, Intel is one of the main producer of the processor which a key component. There is very low margin for the suppliers, as companies are trying to keep prices down in order to remain competitive. In order for a supplier to understand the demand, they should collaborate with the entire supply chain network. Moreover, for Dell to stay competitive it had formed some strategic alliances with its suppliers.

These partnerships allow Dell to keep low inventory and to rely on the just in time inventory. What is more, Dell relies significantly on the information provided by its partners regarding customer's tastes and preferences. Bargaining power of Buyers: High The PC market is very price sensitive. The goal for each customer is to find the desired product at the lowest possible price. They can buy the product either through direct or indirect marketing. Moreover, users of laptops would not hesitate to change the brand if the one they are using gets more expensive.

Large companies can insist on having a lower price as they represent almost 80 % of the total customers of Dell. Rivalry amongst Competitors:High The rivalry amongst the market leaders in the PC market and the laptop market is very high, and each one of them have their own strategy. Dell is relying on their unique supply chain, Apple on the innovative products and IBM/ Lenovo on the customer satisfaction services and response. The technological requirements are increasing with each year passing and thus the competition is getting more intense. Each company wants to be the first to present a new product at the lowest price.

Since consumers are better informed for all the innovations they are putting really a pressure on computer firms to compete even more against each other. Firms are taking actions constantly to take market share and block their rivals. They are actually racing with each other to provide speed service, quality, new products, advertising and promotions. Main Competitors Dell's main competitors are Lenovo/IBM, HP and ACER. Acer Incorporated is a multinational computer technology company, naturally from Taiwan, which produces desktop and laptop computer,PDAs, display, smartphones and servers.

It is a direct competitor because it sell its products at a very low price and even in 2004-2006 grew by 155% and was the bestselling laptop manufacturer of laptops in the UK. Apple Inc. is a multinational organization that manufactures consumer electronics. Its best known for the Mac, the iPod, the I-Phone, the recently launched iPad and for software the Mac OS X, iTunes, iLife. It was established on April 1, 1976 in California. It changed its name to Apple Inc. from Apple Computer Inc. on 9th January, 2007 since it was changing its focus to consumer electronics from personal computers.

As of 2009, 35000 employees are registered with Apple. Apple is known to revolutionize the computer industry with its innovating and user-friendly devices which are powerful and look eye-candy. HP/Compaq HP provides personal computer, imaging and printing products, access devices, consulting and IT to both individuals and corporate customers. It has a presence in more than 170 countries. It is said to be setting the standards for the notebook industry, with the best combination of advanced features, fancy look and competitive prices. IBM/Lenovo

Lenovo was the largest personal manufacturer in the Asia-Pacific region until 2006. After it emerges with IBM it produces desktop, laptop, servers, handheld computer, business and computer solutions, mobile phone handsets, support services. This is a company that has a globally know brand and the notebooks it manufactures have a very competitive price. As Dell is one of the market leaders it has to adopt certain strategies to defend its competitive advantage which comes from the good relationship with suppliers, the direct connection - customer-manufacturer and the adequate customer service system.

Moreover, given the fact that Dell tries to maintain its strategy, it also tries to keep up to date with the innovations on the market in order not to loose market share. One respond from Dell to the attack of Apple launching the Ipad is the new tablet that Dell is going to present this year. SWOT Analysis Strengths Dell has a very reliable support and service system which 24 hours available to customers. It has a very efficient inventory management system - just in time delivery. The direct model for selling proved to be very successful.

Moreover, it uses latest technology in its products. It is as well known for the quality of the products provided even though at a low price. Another postivie thing is that due to the wide range of products the company offers, the website receives more than 25 million visits daily. Weaknesses The possible weakness of Dell might be the fact that it is too dependant on its suppliers, they are also not able to attract students from schools and colleges which are about 5 % of their total revenue.

In 2006 the company's financial performance was increased by the elimination of bonuses. Moreover, customization and direct model might be a problem for the home users that can not tailor their own computer but rather go to the retail store and buy it ready, due to the fact that they do not have the technological knowledge to configure the right computer. Opportunnities Through diversification Dell can introduce many new products in range and thus compete even better with other companies. As demand for laptops is growing Dell can reflect this need.

Internet is also being available to more people and they have good command of that, so many people can take advantage of Dell's website and order their own laptop or computer. In order to be more available for everybody, Dell can start selling computer directly to retailers. There are global markets that need to be covered as well - India, Pakistan, Bangladesh etc. Threats As the competition is very high there is a great danger of loosing market share. Moreover, as Dell operates globally it is subject to changes, to fluctuations in the exchange rates of the different currencies.

The problem with technology is that there are very rapid changes taking place which make the old products obsolete in a very short period of time. Also price differences are getting smaller among brands. Since Dell's main competitive advantage comes from the direct model enabling it to sell at a low cost, Dell is now threatened by the other brands that are starting to sell products at a very low price as well. Marketing Mix Product Strategy Dell provides a wide variety of both business clas and home/consumer class products and services. The company markets specific brand names to different market segments.

Some examples of products for corporate customers are Dell Power Edge servers, Power Vaults, Dell EMC storage systems and Power Connect switches. Some products for professional customers were OptiPlex desktops, Dimension desktops etc. We can say that Dell's cash cow is the PC selling. The company is known for its ability to customize its products and services In order to satisfy a wide range of customers. Dell's unique approach to manufacturing separates the different processes so that Dell is not reliant on singular production or supplier's chain for equipment production.

Though there is no segregation of the different products and services but nevertheless in separating the components enabled it to target the customers based on the regions in which the products are manufactured. By assigning each regionalized production center particular component for production not only has diversified the risk of concentration of labor and production costs but also depending on particular infrastructure. Pricing Strategy Price reasonability and the availability of support, after sales services and parts have alleviated Dell's position from others.

When Dell decides to enter a particular market, it consistently uses the Direct Model approach, pricing their product below that of their competitors. Because Dell products are so customizable, the price is largely dependent on the options and services added to the product. Businesses and individual consumers are able to tailor their products and services to meet their needs. The price increases as more options are added, but it gives the consumer the ability to customize the computer with the options that are most important to them and still get the computer within their price-range.

In addition, Dell is a direct supplier, meaning the consumers can order their computers directly from Dell instead of going through a retailer. Finally, since Dell builds computers on a just-in-time, built-to-order basis, it does not have to keep a stock of components and ready-made computers. Keeping a stock of parts and pre-built computers costs money, which ultimately gets passed on to the customer; since Dell doesn't do this, they are able to sell their computers at a lower price.

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The Switching Costs. (2018, Oct 03). Retrieved from https://phdessay.com/the-switching-costs/

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