Future Market Condition Analysis Term Paper

Dell Computer Future Market Condition: Outlook & Analysis

Market structure

At present, the current structure of the PC market is a market structure closer to one of perfect competition, with a very buyer rather than seller friendly focus. Many buyers and sellers and a high level of price volatility characterize the PC industry. However, no market is a textbook definition of any market structure. Although there are many products in the PC industry, they are not all exactly similar in nature and with many substitutes, and there are higher barriers to industry entry than in other competitive market structures -- thus this state of perfect competition is somewhat limited. (Investopedia, 2005) But overall, Forbes Magazine has said the PC market growth will moderate in 2005 due to a lack of significant new product introductions in a too-competitive marketplace. ("Market Share," 2005)

Impact of New Competitors

No new competitor has quite been able to match Dell's efficiency. Dell sells directly to their customers so their distribution channels are simple and inexpensive, with no need for the company or the consumer to absorb dealer markup. Dell builds-to-order, keeping inventories low compared to its competitors. Low inventories mean that, when its competitor Intel drops the price of its processors, Dell does not have any older, more expensive processors lying in its stores at a cost to the company.

Thus, Dell can reduce the prices on its computers faster than its competitors because the components that make up those computers are the latest and cheapest. So far, no other new PC maker has been able to match Dell's cost structure. (Bean, 2005)

Pricing

The problem faced by Dell competitors HP and Compaq is the same problem that earlier defeated Gateway and IBM, namely Dell Computer's consistent low, low, pricing.Dell has become and remains the most cost-efficient PC manufacturer in the industry. Dell will always win when HP and Compaq and Gateway and IBM compete on price. (Bean, 2005)

Productivity

Dell's levels of production thus can remain low, and by keeping inventories low, they can match productivity to immediate consumer and supplier demand in a much closer fashion than its competitor companies.

Cost Structure

For Dell's competitors, only differentiating by factors other than price can reduce the effectiveness of price competition. (Bean, 2005) Introducing new features, or emphasizing non-price features to customers can reduce the market's potential prices sensitivity, but the current relative dearth of new innovations in the PC market to motivate updating and expansion has taken away this advantage to most of Dell's competition. ("Market Share," 2005)

Price elasticity of demand

According to Forbes, from a seller's point-of-view market demand in the PC industry is becoming more and more elastic, or responsive to lower prices, to the detriment of most of the industry. Now, innovations are fewer and the market technical innovations become more entrenched, requiring less updating. ("Market Share," 2005) For individual consumers, the presence of electronic discount stores have also driven prices down and made it more difficult for the industry gains to turn a profit.

Future competitors

Forbes believes that Dell's strongest competitor will be the other low-cost, equally user-friendly software computer company Apple. While Apple for a long time was not much of a market mover in the industry, given the lack of popularity of the Macintosh for many years, the iPod's trendy image and ubiquity has lately turned the company around. ("Market Share," 2005)

Competitors

Dell may be the PC Company best positioned to gain market….....