Question

Dell's factories can assemble a complete PC in three minutes. With a build-to-order strategy at the heart of its business model, Dell's sales staff maintains close ties with customers. This approach represents which aspect of the Porter's five forces model?

A) Rivalry among competitors
B) Bargaining power of buyers
C) Bargaining power of suppliers
D) Threat of new entrants
E) Threat of substitute products or services

Answer 1

Dell's build-to-order strategy and close customer relationships illustrate the Bargaining power of buyers in Porter's five forces model. This strategy empowers buyers and shapes Dell's production, reflecting how market dynamics can influence a company's practices.

Step-by-step explanation:

The approach Dell uses, which involves maintaining close ties with customers and employing a build-to-order strategy, corresponds to the Bargaining power of buyers aspect of Porter's five forces model. By closely collaborating with its customers to build custom PCs, Dell enhances the buyers' power, as the purchasing decisions of customers directly influence Dell's production. This model allows Dell to effectively meet customer demands while also holding a competitive edge in the market by minimizing inventories and reducing the cost of carrying excess products.

When firms like Amazon use a similar strategy to reduce prices by optimizing their production model and cost structure, they also respond to the bargaining power of buyers. In contrast, a rise in demand or shifts in the supply of products, such as the case with the computer market selling more computers at lower prices, can also be analyzed through the lens of Porter's model, focusing on the rivalry among competitors and the threat of new entrants.