Research Paper on "What Are the Major Methods of Product Differentiation Among the Three PC Makers?"

Research Paper 4 pages (1774 words) Sources: 4

[EXCERPT] . . . .

Product Differentiation: Personal Computer Makers

If one has gone computer shopping in the last ten years, one would have seen two computer brands present in the computer aisles in every computer store. Hewlett-Packard and Dell were the leaders in laptops, notebooks and desktop PCs Both of these companies have consistently delivered differentiated netbooks, laptop and desktop systems, with Lenovo entering the market within the last decade . when it comes to notebooks and personal computers. Both brands offer high quality PC's at a reasonable price tag and use the Windows operating system on an Intel processor. While there are similarities among these three personal computers, differences in products exist. Lenovo, one of China's largest and most diversified electronic manufacturers, entered the global PC market in late 2004 via the acquisition of IBM's PC business for $1.75B (Dickie, Guerrera, Lau, London, et.al.). To fully appreciate just how different Dell, HP and Lenovo are, it's useful to evaluate the competitive dynamics and rivalry in this industry. Figure 1, Fives Forces Model of PCs defines how each aspect of the Porter Model is driving a very high level of competitive rivalry throughout this industry.

Figure 1:

Five Forces Model of PCs

Sources: Based on the Porter Five Forces Model

(Porter, et.al)

(Dell Investor Relations) (Gunasekaran, Angappa, Ngai, 319)

Hewlett-Packard

Hewlett-Packard (HP) otherwise known has HP, has firmly established its brand as a favorite with younger, computer-literate consumers who are looking for a stylish system that can also deliver high performance in gaming, imaging, and other software-intensive tasks. An example of this positioning is their "The Computer Is Personal" campaign that features a variety of celebrities using their HP systems to create music and collaborate with each other. HP's legacy as a high tech manufacturer is heavily based on their ability to continually innovate while reducing costs and increasing performance (Patell, 809). HP strives to design-in differentiation at the product level, taking the time to work with suppliers to develop state-of-the-art product and software configurations well ahead of the actual production process (Daniel, Guide, Muyldermans, Van Wassenhove, 282). By taking this approach to differentiation, HP can quickly move through product introductions of dozens of laptop, netbooks, and desktop PCs that all align to their core messaging and unique value. Because of this, HP has been able to create entire product lines of tablet PCs, laptops and desktops that are precisely aligned to their brand faster than any other competitor, capturing new customers and getting existing customers to trade in their existing PCs for new ones.

As can be seen from Figure 1, the PC market is consolidating quickly based on the cannibalization being brought on by tablet PCs and network-ready netbooks and notebooks. The ability to connect to any Wi-Fi network at any time, and in the case of HP's advanced tablet PC, netbook and laptop business, the addition of EV-DO chipset that allows any device to connect to the Internet anywhere and at any time (Daniel, Guide, Muyldermans, Van Wassenhove, 285). HP continues to differentiate their product line with broad product and services offerings across their tablet PCs, netbooks and laptops. HP is striving to continually differentiate on these innovative new products while also positioning itself as a provider of cloud computing services for consumers, small businesses, and enterprises. HP will continue to differentiate with technically elegant systems that can connect to the Internet from anywhere, anytime and provide customers with the chance to share updates across the many social network sites they are members of. HP's ability to quickly move from product concept to product introduction and quickly ramp sales is predicated on how well the company is managing its suppliers, all aligned at delivering high performance systems to customers. They differentiate on a unique brand backed up with strong supply chain and production expertise.

Dell

Dell Computer began in the dorm room of founder and CEO Michael Dell while he was attending the University of Texas. He quickly realized that create build-to-order PCs at affordable prices for students was a sizable and highly profitable business to be in (Dell Investor Relations). Over the next two decades the rise of e-commerce as a viable selling channel would propel Dell Computer into a global business generating sales in excesss of $1B a year primarily through their innovative build-to-order selling strategies supported by online product configurators (Dell Investor Relations). Dell was often considered a primary disintermediator of the channel structures of the PC market as a result, with many e-commerce experts saying their model was the future of merchandising and channel management (Gunasekaran, Ngai, 425). Today Dell sells through both its massive direct channels including its global series of e-commerce websites that on high volume days can generate over $250M in sales alone, which is a significant soruce of revenue for this $50B+ business (Dell Investor Relations). Its indirect sales channels include Best Buy, Costco, Walmart and others, and this channel also generates a signficant proportion of revenue as well.

All of these lessons learned have made Dell a formidable competitor in the global PC market. Their primary differentiation is based on the ability to customize a PC for any customer, anywhere in the world, and deliver it within 72 hours providing overnight delivery is available (Dell Investor Relations). Dell differentiates on the ability to quickly take orders and send out customized PCs regardless of the complexity of the given configuration as well, which is a strength based on their intensive supply chain integration expertise (Gunasekaran, Angappa, Ngai, 319). Dell can make commitments to customers and meet or exceed them based on how well integrated their supply chyains are to each of the product configuraiton strategies they have. Figure 2 is derived from an analysis of the Dell Annual Reports and filings with the Securities and Exchange Commission (SEC). Depending on the level of customization, Dell uses a different selling strategy. Assemble-to-order products take the least customization and engineer-to-order, the most. Dell has found differentiating selling strategies can help them to capture more sales and attreact the right kind of customers for the best possible products.

Figure 2: Comparing the Differentiated Selling Strategies of Dell Corporation

Source: (Dell Investor Relations)

In conclusion, Dell differentiates through the use of a very rapid tablet, netbook and laptop product introductions and a continual stream of new products across its many product divisions. In conjunction, this differentiaiton strategy has the goal of providing customers with greater flexibility than any other tablet, netbook, laptop or PC manufacturer in terms of product configuration and customization (Gunasekaran, Ngai, 426). Of the three companies in this analysis Dell competes best on accuracy of custom configurations and speed of their new product development and time-to-market strategies. They are also the quickest at adopting new technoplogies from Intel and other suppliers, which translates into exceptional price/performance for their consumer and corporate customers.

Lenovo

Lenovo is the world's second-largest PC vendor. Its popularity stems from its ThinkPad line of notebooks, which have become almost a standard among business professionals as many companies were offering them as complimentary machines for work. Lenovo had previously been one of the world leaders in electronics component production and research, and today is considered one of the leading high technology manufacturers in China. Their acquisition of the IBM PC business including the flagship ThinkPad Series began in 2004 and was completed in 2005 for $1.75B (Dickie, Guerrera, Lau, London, et.al.). Lenovo is known as a far more risk-taking culture than IBM, and promtply began morphing the ThinkPad product design into tablet and netbook PCs, often displaying them at the Consumer Electronics Show every January in Las Vegas, Nevada. Lenovo senior management wanted to add some vitality and energy to the brand of the ThinkPad and also quickly began showing advaned graphics processes and the ability to have a disconnected tablet -- which was far ahead of the current Google Android-powered devices so prevalent in 2013. This paradoxically has helped Lenovo with its core differentiation strategy around being the de facto PC for enteprise customers.

IBM had allowed the ThinkPad to become boring, and fall behind competitors in terms of features. Despite the Thinkpad being one of the best-selling PCs for enterprises, more companies were looking to Dell for greater customizable flexibility and HP for higher performance. Consumers were bored with Lenovo, seeing their systems as being ideal for large business or the enteprirse yet lacking in what they needed. Lenovo quickly differentiated their PCs with netbooks and laptops with advanced graphics displays and more control over the performance parameters, going so far as to create a product configurator consumers could use to design their own high performance systems (Xie, Wei, and Steven White, 413). Lenovo also started differentiating through EV-DO chipsets that made it possible to connect to the Internet from any of their devices at any time. The combination of their emerging tablet PCs and netbooks with the combination of EV-DO-based systems rejuvenated Lenovo and made it more competitive. Lenovo has a commanding market share in China, and is… READ MORE

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