1. Should Dell enter the printer business? Before you go into deep analysis, we need to look at several things.

Who are the main competitors? HP, Lexmark, Xerox, Epson, Brother and Minolta-QMS HHI index for the U.S. See Exhibit C What are the resources of Dell? How profitable the industry is? How this move is going to impact Dells business model? In the era of 1999 through 2001, there were a number of changes in the overall revenue structure. HP and Lexmark prominently took the market share. Although the industry is highly concentrated (Exhibit C), the printer industry is an attractive industry (Exhibit 1). It started from inkjet printers and has grown through innovation and now offers color and laser technologies. It is a type of The technology innovation in this area also that has a huge enormous potential. Although HP is dominating the market in terms of sales, retail distribution and with technology and patents, Dell must consider the alliance with another firm. This will not only help Dell gain access to important retail distribution channels, entering market but this will also it will help benefit the alliance ally company in leveragingby granting them access to Dells direct to consumer and direct to business supply chain and distribution efficiencies. target company in leveraging Dells supply chain efficiencies and streamline overhead costs. With the recent transaction between HP and Compaq, Dells primary competitors, Dell needs to come up with a solution to entice both new and return customers. Even though HP sells printers through Dells channels there is no guarantee that HP will continue to be as friendly in the future, potentially resulting in coordination issues or even hold-up scenarios.

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Comment [WU1]: We have the answer. See Anils exhibit A Comment [WU2]: I agree with you Kijae. I think that we should have a discussion about this and add more content in question 1 focusing on these questions. Comment [WU3]: We are currently at about 1,400 words. I will need about 200 more on my section and then we can discuss how to divide up the rest Comment [WU4]: See my comments on Exhibit 1 and lets have a discussion about this. Comment [WU5]: Are there any key points from this that we could briefly elaborate on to strengthen our argument? Formatted: Indent: First line: 0.5"

Comment [WU6]: What is this sentence referring to? Comment [WU7]: I think that this section belongs more to question 2, WHAT SHOULD DELLS ENTRY STRATEGY BE? Comment [WU8]: I would postpone this topic until later in the document

In conclusion, Dell should enter the market since they will be able to establish a sustainable cost advantage and since market demand growth has leveled off allowing them to keep up with demand. 2. Kijaes suggested consideration for Dells Entry strategy? Product Line Target customer segment Resources needed Entry Strategy Distribution Strategy 2. Recommend an entry strategy for Dell into the printing business (i.e., what products, what customers, what distribution strategy, what technology, etc).

Comment [WU9]: I LIKE THIS! Can we elaborate on this point?

Dell is already selling printers from HP, canon, Lexmark and other manufactures but it is not able to get a pie in more lucrative cartridges business. Already on an expansion spree in several different areas, Dell is looking to enter into printing business in which HP has a strong hold. Referring to exhibit A, VRIS analysis of Dells resources suggests that Dell will have the possible competitive advantage if it enters the printer market. Below are some of the options that would be suitable for Dells entry into printing business. Dell is big name in PC market and has huge R&D and infrastructural investments in that sector. However, it doesnt have any expertise and or manufacturing ability in the printer business. This gives us three possible options for manufacturing of printers: 1: Complete In house manufacturing: not a very lucrative option as Dell doesnt have the required expertise and R&D. The whole setup will require time and huge investment. (HP has R&D expenditure of 5% of Imaging and printing revenues (USD 1 billion) with 17,000 outstanding patents, Lexmark had R&D expenditure of 6% of revenues( USD 250 million) with 900 outstanding patents) 2: Acquire small player in the market: Acquisitions has never been Dells way of working. Also it would require a huge investment. 3: Outsource manufacturing: Dell can outsource manufacturing and sell the printers and cartridges under Dell brand. It would require least amount of investment. In all of the above options we would recommend outsourcing manufacturing (OEM) , which will enable an fast entry into the market, require low initial investment and give them time to setup their own R&D unit. Only drawback with this option is that they would not be able to capture the whole value of the product. If Dell decides to go for the OEM option then it would be easy for them to launch a broad product line instead of a narrow one. Referring to exhibit 1&3 from case, Laser constitutes small share in terms of number of shipments but almost 2/3rd share in terms of value and HP is market leader (in terms of market share. Dell should focus on a broad range of Laser printers that have more value and better future prospects. Considering Dell has a big Home PC segment, which is a big customer of inkjet printers, Dell should also considering launching a narrow inkjet line. For example: Multifunctional Inkjets is a product segementsegment that is growing rapidly (Exhibit 5 from case). Dell has always followed the aggressive pricing strategy in the PC market that has enabled them to gain significant market share in short time. They should follow the same strategy in printer market also with addition to provide printers at better speed (VPC framework). This aggressive pricing would have two effects: 1: Tap into the HPs market share: Referring to exhibit 3 in the case, HP has the one of the highest average selling price for printers among top competitors. If Dell can price its product well below HPs price point then it will be able to gain significant market share. Referring to exhibit 18, 65 % customers purchase specific brand of printer because of standardization and price. Since many customers currently own Dell computers, nearly half of current Dell PC customers could potentially be persuaded to purchase a Dell printer since they want a printer with the same brand as their PC; another 17% of these customers would be persuaded to buy a Dell printer because of price. This supports the above aggressive pricing strategy.

2: Hit on the HPs PC market: It is a well-known fact that HPs PC business is in a bad shape. They are using profits from printers and cartridges business to support PC business. If Dell lowers prices for printers, HP will have to lower prices to remain competitive. This will result in less support for their PC business. The biggest problem with Dell while entering the printer business is their lack of distribution network in printer market which is also one of the biggest strength of their competitors HP. Dell has been flourishing in PC business because of it direct sales to customers and highly efficient supply chain. They can use the same business model to sell their printers but for the lucrative cartridges they have to have a distribution network. Having efficient distribution network would enable more market share and fast growth. Dell can try to partner with other competitors such as Lexmark or Canon and use their distribution network. Inkjet :All in one with high growth-home consumer Laser Monochrome Laser Color Biz, high ppm, output printers, high growth segment Focus on monochrome laser for now and and later on colors Exhibit 9 page 49-69 increase

3. How should HP respond to an entry move? Outline: Nearly 70% of HPs positive earnings come from the printer and cartridge segment-$3 Billion in 2002 out of HPs $3.1 Billion, see Exhibit 10 o Nearly half of HPs operating margin comes from Inkjet (32%) and Laserjet (12%) Supplies (Cartridges and Ink). If Dell enters HPs printer supplies market the response from HP will likely be as follows: Predatory pricing by HP to drive Dell out of the market: HP can afford to lower prices on ink consumable since that is where it makes most of its margins anyway. Patent prosecution by HP in defense of their many proprietary technologies in this area. If Dell enters HP printing market, They may also attempt to leverage their relationship with their vast retailer network to negotiate agreements to agree to not sell Dell ink cartridges or to sell exclusively HP Ink Cartridges It should be noted that when HP made the announcement that it would no longer allow Dell to resell HP printers, HP had already played one of its cards which hurt both HP and Dell, but may have hurt HP the most. HP lost about $300 million of its imaging hardware sales whereas Dell lost $192 million in sales (see exhibit 17). o This was an aggressive entry deterring strategy by HP. o However, this may have been too early to play this card since this may have been one of HPs most important cards to play. HP has some structural entry barriers over Dell which will make it inherently difficult for HP to enter the market. o First of all, HP has a broad portfolio of printing and imaging related patents; HP filed 1,000 patents in this area in 2002. To deter HPs entry, HP must effort in to aggressively looking for ways in which HP may prosecute Dell for any possible infringement. o The investment which a new entrant must make to enter the printing market is significant not only from a cost of capital equipment standpoint, but because Dell must build, mostly likely at a loss, an installed base of printers that would allow generation of sufficient ink margins (page 3, paragraph 3 of the case).

Exhibit A:

VRIS Analysis of Dell's Resources

Resources/ capabilities
Formatted Table

Customer Base

Brand Name

Valuable Yes; Dell has a large customer base in PC market and end users. there There are many users for printers also so Its an quite valuable asset for themwhich Dell could leverage when launching their printer line Yes; Dell has a quite a reputation in PC market as a brand which provides great value for money

Rare

Costly to Imitate

Non Substitutable Yes; There can be no substitute for customers

No; Its not rare as HP has a big customer base in printer market and PC market No; HP is an established brand name in printer and PC market

Yes; To make such a large customer base a company needs huge investments which cannot be made in a days timeshort time Yes; Its takes lot of time and money to make a brand

Conclusion Possible Sustainable competitive advantage

Yes; Brand name and awareness is required for good sales

Possible Sustainable competitive advantage

Comment [WU10]: I think that we should recommend that Dell begin selling its printers first to their existing PC owners or to new Dell PC purchases. They could offer them in a bundle.

Supply Chain Model

Yes; Dell has one the best supply chain models in PC market which enables them to cost cut costs efficiently this will hold for printers too

Yes; Not many companies can boast of of such an efficient SC model. HP has very good distribution though

Yes; It requires a lot of expertise and time to create such an effective SC model

Yes; It is required for Possible efficient operation Sustainable competitive advantage

Comment [WU11]: redundant

Exhibit B: Type of Printers

US market Revenues(2006E)

Worldwide Revenues(2006E)

HP US market share(in%)

HP Worldwide market Share(in %) 36.9 51.1 38

Inkjet

$1620( 24.8%of total)

Lazer,Monochrome $2065(31.6%of total) Lazer, Color Total Exhibit C: $2848(43.6%of total) $6,533

$7851( 41.9%of total) $8220(43.9%of total) $2672(14.3%of total) $18,743

59.3 59.2 48.5

2001 US HHI Indexes US Inkjet Printers US Monochrome Laser HP 49.30% HP 66.30% Lexmark 13.60% Lexmark 9.00% Epson 17.10% Xerox 10.70%

Canon Compaq Other TOTAL HHI Index Threshold to be considered highly concentrated Conclusion

12.70% 5.40% 1.90% 100.00% 3,102

1,800 Highly Concentrated

Brother Okidata Other TOTAL HHI Index Threshold to be considered highly concentrated Conclusion

1.60% 0.90% 11.50% 100.00% 4,727

1,800 Highly Concentrated

Exhibit 3. U.S. Printer Revenues by Firm Revenue Share

Exhibit 6. U.S. Printer Cartridge Revenues

[Unit :

Exhibit 7. U.S. Inkjet Printer and Inkjet Cartridge Sales and Installed Base

Exhibit 8. U.S. Monochrome Laser Printer and Cartridge Sales and Installed Base (units in thousands, dollars in millions)

Exhibit 9. U.S. Color Laser Printer and Cartridge Sales and Installed Base

Exhibit 19. Worldwide Unit Revenues and Shares in PC Desktops

- High R&D cost is needed - Distribution channel is dominated by HP - Low switching cost - Not much government restriction - Incumbents have high marketing advantage -The market is highly concentrated (See Exhibit C) - High learning curve - Business model requires building a sufficient installed base at a loss prior to generating profit from ink sales

Threat of Potential Entrants (LowHigh)

Comment [WU12]: I would argue that this is one of the main reasons that there are so few competitors in this industry Comment [WU13]: Switching cost for who? I dont understand your point

Conclusion: Moderately attractive industry with high barriers to entry.

Comment [WU14]: Do you agree

Supplier Power (Low)

- Switching costs of firms in industry is low - Differentiation of input is low - Purchasing cost is high - Importance of input to industry is low

Rivalry Between Competitors (High)

HP, Lexmark, Epson, Xerox, Cannon, Samsung - HP has predominant market position (64%) - High Gross Margin - Patents and technology is necessary to compete in the market - Even though overall market is not growing, it is highly profitable in ink sales - Overall attractive market - Hi Brand awareness -

Buyer Power (High)

Product differentiation is medium Buyers switching costs is low Buyers information on price is low Medium Price sensitivity
Comment [WU15]: In which market segment?

Treat of Substitutes (Low)

Complements

- Substitution for entire printer industry does not exist - Less demand due to tablet hardware and environment campaign (Minor)