The third force in Porter’s model is the threat of substitute products. Substitute products can be any products that companies offer to consumers. These substitutes provide needs to the consumer that are similar to the needs served by the industry being analyzed. The existence of close substitutes presents a strong competitive threat to a company. This in turn limits the price that the company can charge for their product and thus profitability is also negatively affected.
On the other hand, if a company’s products have few close substitutes, then this company has a better opportunity of gaining more profits due to the ability of raising prices. The company does not have to worry about customers switching to other products. Companies that are not threatened by substitutes should indeed take advantage of such a situation (Hill & Jones, 2001). In the case of IBM’s laptop computers, the threat of substitute products is extremely minimal.
Since laptops provide an efficient means for mobile computing, there is no other true mechanism that poses as a substitute except for possibly a palm pilot or even nowadays cell phones. Newer technologies are enabling products such as these to perform certain jobs that laptops do. Examples are containing
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Typewriters, Word Processors, and Personal Computers are the closest substitutes to laptop computers regardless of their portable inabilities. With typewriters, the printing is done through an inked ribbon that is fitted on spools, and travels with the operation of the machine. It then reverses automatically when one spool becomes completely unwound. Electronic typewriters are basically manual typewriters with the typing strokes powered by an electronic motor drive (www. britannica.
com). Word processors use application programs for manipulating text-based documents. They are the electronic equivalent of the paper, pen, typewriter, eraser, dictionary and thesaurus. Depending on the program and the equipment in use, word processors can display documents either in text mode using highlighting, underlining, and color to represent italics, or boldfacing and other such formatting. In the graphics mode, fonts can appear on the screen as they will on the printed page.
Some word processors can also check spelling, find synonyms, incorporate graphics created with another program, correctly align mathematical formulas, create and print letters, perform calculations, display documents in multiple on-screen windows, and also enable users to record macros that simplify difficult operations (www. msn. encarta. com). One major manufacturer of typewriters and word processors is Brother. The Personal Computer (PC) or desktop is a machine capable of repetitively and quickly performing calculations and instructions.
Its Design is to be used by a single person; a PC is smaller, less expensive and easier to use than other classes of computers, such as supercomputers, mainframe computers, or workstations. However, it usually has less computational power (www. msn. encarta. com). PC’s can most likely be found within office environments, schools, and homes. Along with typewriters and word processors, their prices are far less than laptops as well. As stated earlier, these products can be considered substitutes for laptop computers if a consumer is no longer striving for the portable qualities of laptops.
The word processor, typewriter, and PC can all perform similar functions of a laptop, but for traveling, they are surely not recommended. The fourth force of Porter’s model is bargaining power of buyers. There are many different levels of buyers. Two different levels would be the store that you sell your product to and the other level would be the ultimate consumer. When a buyer can demand certain things from the company then that would give them power. This is a threat to the company’s profits when they have achieved a great amount of power. IBM has limited the buyers’ power by reducing the amount of levels of buyers.
IBM sells a majority of their notebook computers off their corporate website. The buyers of notebook computers are becoming more empowered because of the use of the Internet. There have been several companies that have entered the notebook computer business by offering custom-built computers over the Internet. These companies offer that they will make a custom computer to the specifics that you need. IBM did not choose to pursue this route. Instead of making their notebook computer custom built to the customer order IBM has chosen to just make a wide variety of computers.
IBM has about 190 different notebook computers and one of them has to fit the customers’ requirements. Therefore this shows that IBM does not have as much influence by the buyer as does many of its competitors. This reduces the cost for IBM because they do not need someone always figuring out the specific needs of a customer and putting a computer together at that point in time that will fit those needs. IBM only has to ship the notebook computer that the customer ordered. Nobody knows the customer better then the customer and he is the one that picks out the computer he wants.