Porter’s Five Forces Analysis of Dell Computers

Dell Computers Five Forces analysis:

The entire PC and Laptop industry has been on a downward spiral during last four to five years. Dell is one of the major players in the PC industry and it has also felt the bite. Dell is known for its innovative technology, excellent supply chain management and for its direct business model.  However, it has continued to lose market share. In 2017, its spotlight is on the customers. It has decided to become more customer oriented to improve its sales and brand image.

Most important thing about Dell, is its direct business model where it has eliminated the middlemen and let the customers have what they wanted and desired. It is an innovative company that is innovating continuously to grow its customer base and to keep customers happy. Here is a Porter’s five forces analysis of Dell explaining how various factors affect the competitive position of Dell in the market.

Threat of new entrants: Low

The threat of new entrants in the PC industry is low. It is because there are major barriers to entry in this business. Apart from the huge capital investment, need for technological infrastructure and highly skilled professionals  also discourage anyone from entering this market. Moreover, being successful in the PC industry also requires having a strong brand image. All these factors show that making an entry into the PC industry is difficult.

Dell has become a major player and a well-known brand name which requires several things apart from investment, skills and technological infrastructure. It also requires managing the supply chain, human resources and great customer relationships. All these things will require both time and efforts along with money.  Another important barrier to entry is that while the bigger players can manipulate prices to affect competition, the new players would not be able to do so as efficiently. There is also a lot of investment in research and development and that too discourages potential new entrants.

Bargaining power of buyers: Low to moderate

The bargaining power of buyers is weak to moderate which is because the number of large players with established brand image is low. The customers are mainly either individuals or organizations.  Customer loyalty is high because  customers would buy from a brand they consider reliable. Dell has focused on excellent customer service and these factors together reduce the bargaining power of buyers. Brand image and brand equity are important factors influencing the bargaining power of buyers and Dell is strong in both aspects.  However, the PC market has weakened recently and as such the PC makers like Dell have been forced to use innovative tactics to retain their market share which gives the customers somewhat higher bargaining power.

Bargaining power of suppliers: Low

The bargaining power of suppliers in the PC industry is weak. It is mainly because the industry is populated with suppliers whereas the number of brands to which they sell is small. So, it is the brands that are having better bargaining power and can pressurize the suppliers regarding prices and service. Whatever bargaining power a supplier might have is based on product quality and quality of services. Brands like Dell carry out regular supplier audits to ensure that they are adhering to the quality and sustainability guidelines.  

 Dell has formulated strict policy guidelines regarding suppliers’ quality assessment and facility audits. It notes, “Dell requires that our production and select services providers undergo regular social and environmental audits and close findings following the timeline laid out by the EICC. All Dell audits follow the EICC Audit Protocol and are conducted by certified third party audit firms. Suppliers that fail to take appropriate actions to correct social and environmental audit findings may lose their business with Dell. We take all violations of policies and principles very seriously. Suppliers with severe issues are reviewed by the SER Executive Review Board, which is made up of senior Dell leaders” (Dell-CSR-Supplychain, 2017). So, based on all these factors Dell’s suppliers are in a weak bargaining position.

Threat of Substitutes: (Moderate)

During the last five years, the PC industry has faced a steady decline. Even the big brands like Dell and Apple lost market share and profits. The reason is the rise of substitute products. Till some years ago while a laptop meant many things including a machine for professionals, a gaming machine, a box of entertainment; now there are better options that provide the same features. Tablets and smartphones allow people to surf, play games, listen music and watch online streaming videos.  

 So, anybody who does not need a laptop for professional work can use either a tablet or a smart phone. Gaming consoles have also hurt PC business. In this way, there are several substitutes which even if they cannot replace the Personal computer in its entirety, provide similar features and service. The new Iphone is designed to serve professional uses too. So, the threat which used to be low has grown moderate and can turn severe. It is because even now people need PCs and laptops to carry out office work and for professional use.

Level of Industry Rivalry: High

The level of rivalry in the computer industry is high. The top players include HP, Lenovo, Dell, Asus, Apple and Acer. HP and Lenovo are at the top with highest market share closely followed by Dell, Asus and Apple. Due to the consistent decline in the computer industry during the last five years the focus has shifted to price and product innovation to retain market share. All the brands are focusing on delivering innovative products with features better than their competitors. Price, Portability, design, productivity and several more factors have become increasingly important because of the growing threat from mobile computing.

In order to surpass their competitors, the industry leaders are focusing heavily on new designs with better productivity features and increased portability. The competition between these top players is particularly high because the loss of one can be the profit of the other. Hewlett Packard recently broke into two separate divisions HP and HPE, so that each of them could focus specifically on its business area. For Dell, the competitive threat is intense and product and process innovation are the only means to regain the lost market share.