Case of the Profitless PC

GROUP 1Himanshu Jain

Rachit JainSunny Kohli

Shiba BhutaniAparna VoraAditya Dutta

Shubham AgnihotriKunal Parmar

Shashank PandeyShantanu Nalanwade

Key characteristics of the PC industry

• Price competitive• Standardized components and doesn’t require too much expertise

• Entry barrier are low

• Low Margin selling• Market is price competitive, the vendors often sell their offerings at very low margins

• Small companies survive on post-warranty support and consulting, no profit on straight PC sales

• Rapid Price Fluctuations• The prices changes dramatically and frequently

• Prices generally decrease so already low margins get squeezed

Key characteristics of the PC industry• Vendors Keep Low Inventories

• Keeping high inventory can be detrimental

• Whenever prices drop the vendor potentially loses money on every component in inventory at the time

• Entry to PC peripheral product markets• Aggressive price competition, vendors’ focus on entering /creating new PC peripheral product markets

• The demand for new peripheral tools and technologies has introduced new opportunities for vendors

• Establishing strong relationships with suppliers• Signing exclusive long-term agreements with suppliers of PC components or peripherals

• A drop in bottom-line cost for the most expensive of PC components from purchasing in bulk quantities

• Alliances and joint ventures• Sign deals with software vendors in order to bundle their products with PC systems

• increases the perceived value of the PC vendor’s product

What should Praxim do ?

• Task of improving bottom line without loosing on sales

• Upmarket had now being stagnated and the scope for growth is little

• Segmentation based on consumer’s needs can result in market penetration

• Bundled boxes with ( software and other services) will satisfy more customers

• Investing in specialty stores, where a premium can be charged thus increase in margin

• Season offers can be introduced, by charging premium differently

• Introducing PC customization for consumers, It will reduce inventory cost as well as procurement cost as it will be JIT inventory

Strategic model - Porter’s five forces model for PC industry

Rivalry among

competitors

Force Key Determinants Strength of the force

Rivalry between competitors Concentration (number) and size of competitors

Medium to high

Brand identity

Barrier to entry Economies of scale Medium to high

Brand identity

Capital requirements

Threat of substitutes Price/Performance of substitutes Low to medium

Switching costs

Buyer Power Buyer concentration Medium to high

Buyer size (volume)

Switching costs

Supplier Power Supplier concentration Low to medium

Supplier size (volume)

Switching costs

Analysis• Major competitive threat to any vendor in this industry is the degree of price competition

• Average revenue drop has forced market vendors to aim for market share dominance, in an effort to increase their clout in negotiations with component vendors

• Threat of new entrants by global companies, that can undercut the cost structure of current market, is also an important issue

• Emergence of niche competitors has also caused companies in this industry to take note, as public demand for increasingly customized computers increases.

• Further, the steep discounts that corporate and governmental customers demand can cost PC vendors in their profitability

• Pressure to offer the most cost effective product in these volume orders places serious pressure on company profitability

• Vendor reliance on component suppliers can put an unbalanced level of power in the suppliers’ favor.

With which of the experts do you agree regarding his or her analysis of Praxim’s situation?

• Victor’s no participation strategy in consumer segment will lead to further loss of potential customers and thus reducing the revenue • Hence we disagree with this strategy.

• Bob’s strategy as pointed by Mike will not make any significant change to their existing situation.• Hence should not be adopted

Linda’s and Mike’s :

• Focus on brand value and building customer relationship

• Increase customer awareness and knowledge to develop a long term relationship.

• Reduce cost by using the same customer service as done by the commercial segment and also using some direct sales force from commercial segment in tandem with this segment.

• Also concentration should be on technological innovation for gaining competitive advantage in highly competitive market.

Relevance of Case now

Case remains relevant as PC makers face declining growth.

Issues faced today

• Price influences buying decisions of PCs since technology is no longer differentiated

• One PC that does it all is no longer an attractive preposition, rather different segments want bundled machines that can do specific tasks

• Tablets, Google Glass and other computing devices give PCs a challenge

Shrinking Market for PC makers* ,

Lenovo’s 0.6%,

HP 4.8%

Dell 3.9%

Acer 35.2%

*Gartner Numbers

Thank you