Case of the Profitless

PC

GROUP 1
Himanshu Jain
Rachit Jain
Sunny Kohli
Shiba Bhutani
Aparna Vora
Aditya Dutta
Shubham Agnihotri
Kunal Parmar
Shashank Pandey
Shantanu Nalanwade

Key characteristics of the PC industry

Price competitive
Standardized components and doesnt 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 vendors 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 consumers 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 - Porters five forces

model for PC industry

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
Supplier size (volume)
Switching costs

Low to medium

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 Praxims situation?

Victors

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.

Bobs strategy as pointed by Mike will not make any

significant change to their existing situation.

Hence should not be adopted

Lindas and Mikes :

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

gaining competitive advantage in highly competitive market.

for

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* ,

Lenovos 0.6%,
HP 4.8%
Dell

3.9%

Acer

35.2%

*Gartner Numbers

Thank you