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

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

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. (2005) The company has experienced double digit growth in the past few years, and with the growth comes increasing pressures on their manufacturing as well as customer service departments. If Dell is to remain at the forefront, they must address this issue, and bring the amount of their customer service and technical service complaints back down to reflect industry averages.
Another significant threat to Dell is the rising innovation within the computer industry. The evolution of the laptop and home PC into a complete multi-media entertainment center is moving to the forefront of home electronics. HP has introduced its "Media Center PC" which comes out of the box ready to facilitate television viewing, music storage and playing, and a host of other home and family media needs. Dell has also introduced similar products, but HP has gained the first foothold, advertising these computers to the masses via a massive television campaign. If customers gain a perception that HP or other computer manufacturers have the next generation PC's while Dell remains behind the curve, struggling with customer service and reliability issues, they company could see their position in the marketplace erode quickly.
Another product which is allowing computer manufacturers to expand their position in the marketplace is the evolution of high definition televisions. The LCD and Plasma screens which have powered laptops for a generation have leapt the great size divide. Technology now allows these high definition (HD) products to appear in 42" and 52" sizes, allowing for computer manufacturers to launch a foray against a marketplace which has been the sole residence of television manufacturers. Samsung, Panasonic and Sony are leading the field in the plasma and LCD HD television market. Yet Dell has their line of HD televisions available. This evolution in media and entertainment delivery poses the most significant threat to Dell. This product evolution has introduced a genuinely new product into the marketplace. The pressure of this shift could come to bear against Dell's position as a market leader. If they do not make crossover marketing headway into ...Show more

Summary

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