Five Forces Analysis of Hewlett Packard (HP)

HP is among the most well known brands of PCs, laptops and printers. Based on annual shipments, it is the second largest PC brand. Founded in 1939 by Bill Hewlett and Dave Packard in a garage in Palo Alto, California, Hewlett Packard is an iconic American technology company. HP split into two companies - Hewlett Packard and Hewlett Packard Enterprises (HPE) - in 2015. Hewlett Packard (HP) focuses on personal computer and printing solutions while HPE focuses on enterprise solutions including servers, cloud solutions and networking technology.

HP offers a diverse product range that caters to the needs of both individual consumers and businesses. The company deals in a large range of products that include PCs and laptops, monitors and accessories, workstations and printing solutions as well as enterprise solutions. Its key models of laptops include HP Spectre, HP Envy and HP Pavilion. However, the company also offers HP Omen which is targeted at gamers.

In this post, we will analyze the competitiveness of HP through the lens of Porter’s five forces model.

Bargaining power of suppliers: Low

There are several factors that affect the bargaining power of suppliers in the PC and printer industries. HP is a significant player in these industry sectors. HP’s suppliers are mostly smaller firms that offer components and raw materials. Apart from a few players like Intel, LG or Samsung, there are mostly smaller players in HP’s supplier network that depend on HP for business volume.

The suppliers of HP are not concentrated in one place or one sector. Most of them also lack the ability of forward integration and do not pose any threat to HP’s business. HP is a leading player in the PC sector and in a financially strong position. Moreover, HP does not depend on a single supplier for any particular component or raw material. The company can always switch to a new supplier if an existing supplier is unable to provide good quality raw materials at the right prices. Overall, the bargaining power of HP suppliers is low. HP is an established brand and its leading market position and financial strength have helped the company moderate the bargaining power of suppliers.

Bargaining power of buyers: Moderate

The bargaining power of buyers has increased significantly due to several factors. Apart from an increase in the number of substitutes, higher competition in the industry has also led to an increase in the bargaining power of buyers. HP’s customers include individuals as well as businesses of diverse sizes. Businesses may hold somewhat significant bargaining power compared to individual customers due to the size of their purchases. However, even individual customers are important since the company spends a lot on marketing and building customer loyalty among individual customers. When buying a printer or a pc, customers carefully weigh their options in terms of price, performance and quality before making a purchase.

However, there are several factors that have helped HP moderate the bargaining power of customers. HP has always placed a significant focus on quality, performance and innovation. Due to these factors, its products enjoy higher demand and popularity. The company has maintained a strong brand image and enjoys strong customer loyalty. It offers a vast product range to cater to the different needs of different customer segments. All these factors have helped the company moderate the bargaining power of customers. Overall, the bargaining power of customers in the case of HP is moderate.

Threat of substitutes: Moderate

The threat of substitute products for HP mainly comes from the products made by rival brands. HP’s rivals include Dell, Lenovo, Apple, Acer, Asus and others. There are a large number of brands in the market that offer similar products. Moderate switching costs also increase the threat from substitute products. Canon and Epson are the leading competitors of the company in the printer industry. The presence of a significant number of players offering similar products increases the threat of substitute products for HP. Most of these players like Lenovo and Dell deal in a large product range catering to the diverse needs of different customer segments.

However, there are some factors that have helped HP deal with the threat of substitute products. It is a highly competitive brand that places a strong focus on innovation and spends a significant sum each year on research and development. HP has also maintained a strong brand image and enjoys solid customer loyalty. It deals in a large product range that caters to the different needs of diverse customer segments. Overall, the threat of substitute products is moderate for HP.

Threat of new entrants: Low

The threat of new entrants in the PC and printing sectors is low because of the large entry barriers. Any new player trying to enter the market will need to make a major financial investment in infrastructure, research and development and supply chains. New entrants need to spend heavily on setting up production facilities and acquiring technology, making it difficult to enter the market. Established players like HP, Dell, Lenovo, and Apple benefit from economies of scale. It allows them to produce PCs at lower costs. New companies lack the scale to compete on price, due to which they are at a cost disadvantage.

Customers prefer to buy PCs from trusted brands. They focus on brand image and brand recognition when purchasing PCs. It is hard for new players to build a strong brand since they need to make a major investment in marketing. Established brands like HP have a significant advantage in terms of marketing and branding. Due to their strong brand recognition, established players also enjoy stronger customer loyalty. The incumbent players are also highly aggressive about protecting their market share and invest heavily in research and development as well as marketing. New entrants lack all the necessary capabilities to compete with the established players and therefore the threat from new players for HP is low.

Intensity of competitive rivalry: High

The intensity of competitive rivalry in the PC sector is very high. There are several established players including HP, Lenovo, Dell and Apple battling for market share in this sector. These players are highly aggressive about protecting their market shares. Therefore, they place a strong focus on innovation, quality and marketing. They invest heavily in marketing and building customer loyalty. The moderate switching costs also make the rivalry among the established players fierce. HP is the second largest player in the PC sector based on the number of annual shipments. Lenovo is currently the largest player in the PC sector and there is fierce rivalry between the two leading players.

HP is a highly competitive brand and has continued to retain its position of number two in the PC sector. It invests heavily in innovation which is a core focus area for the company. It has also maintained a strong brand image in the market which has led to higher customer loyalty. Despite these factors, the presence of powerful players makes the competitive rivalry among the market leaders intense.

Conclusion:

HP is a world renowned IT brand that has maintained a strong position in the PC sector through its focus on innovation. The company deals in a large product range that includes both PCs and printers. HP is operating in an intensely competitive market environment. However, the company continues to maintain its focus on innovation, which is the core driver of its competitive advantage. HP also deals in a large product range catering to the diverse needs of different customer segments, which helps it moderate the threat from substitute products. Based on Porter’s five forces analysis, HP is in a strong competitive position. The intensity of competitive rivalry is the most significant force in the PC sector. Still, HP has sustained its market leading position and apart from its focus on innovation, marketing and customer experience have also helped it sustain its market leadership.