ariakhalid2003
Case Analysis PC World* was a major retailer of computers and…
Case Analysis
PC World* was a major retailer of computers and related equipment in the United Kingdom, calling itself ‘the computer superstore’. The market features much heavy advertising by different types of seller: Time, Tiny and Gateway, who put together their own packages of components under their own names; Dell, which produces custom-made packages as well as standard offers; and retailers like Dixons and Comet which sell a variety of appliances. However, PC World probably out-advertises them all with its regular full-page spreads in the major national newspapers. Because of the nature of the product most of the advertisements feature packages at a special sale price. These packages often include a variety of software, and sometimes items like printers and scanners. The featured computers are highly competitive in terms of price, and include most major manufacturers, like Compaq, Packard Bell, Advent, Hewlett Packard, Apple and Sony. The company has been expanding in terms of size and profit for several years.
While many customers have been very happy with the deals that they have obtained from PC World, some of them claimed that the end cost has considerably surpassed their initial expectations. There were several reasons for this as follows:
1. Some of the add-ons that they wanted to buy were not available with the deals on offer; sometimes the add-ons in the special offers included low-quality or obsolete items, causing one to suspect that the firm was just trying to get rid of these items by packaging them with others, since nobody would want to buy them separately. Similarly, the packages often did not include the most desirable software. Thus, even with a seemingly complete offer, the buyer may end up having to buy several additional items to obtain the system they really want.
2. The firm tried to hard-sell its extended warranty scheme. Depending on the package purchased, this can increase the cost by 5-6 per cent. This tactic was by no means exclusive to PC World. Several electrical appliance retailers in the UK, particularly Dixons and Argos, were under investigation by the Monopolies and Mergers Commission because of their alleged excessive profits in this area of activity.
3. The credit terms can be misleading. Often a lengthy period of interest-free credit was offered, like nine to twelve months. It is highly attractive to many buyers to buy something costing over £1,000 and not to have to pay anything at all for such a long period. These credit terms were offered through HFC
Bank. The problem was that people were not notified at the end of the interest-free period, and they then became liable to pay interest on the whole purchase price from the date of purchase at a high interest rate, close to 30 per cent annually. The result was that the unwary consumer can end up paying about twice the original purchase price over a period of four years.
* now trades under the combined “Currys PC World” brand
Questions:
Compare and contrast the situation of PC World with that of a supermarket chain, as far as product mix profit maximization is concerned.
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