Porters Five Forces: Threat of Substitutes as applied to Dell Computers

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The personal computer industry is likely to remain one of the most contested sectors of the marketplace for the foreseeable future. Profitability is high as the companies reach new levels of economy of scale. As the demand continues to grow, both for new customers entering the marketplace and for existing customers to upgrade to newer, faster technology, manufacturing companies such as Dell Computers, will able to maintain a sales level which should finance both current company needs and future growth.

Introduction

In Porter's model, the threat of substitute products specifically refers to products in other industries. Therefore in Dell's case, this threat does not refer to other PC products, as produced by IBM, or HP, etc. According to Porter's force definition (Porter, 1980) a threat of substitute products exists when a product's demand is affected not by the price change in a competitor's product, but by the price change of a substitute product. According to QuickMBA the "competition engendered by a Threat of Substitute comes from products outside the industry. The price of aluminum beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These containers are substitutes, yet they are not rivals in the aluminum can industry."
One of the first issues Dell should address in order to keep customers loyal, and not looking for substitute products are its customer service and product reliability records. According to ConsumerAffairs.com, Dell is the highest among domestic computer makers in customer complaints. ...
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