Question

Help please on this case study : Case study 2.3: PC World PC World is 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 claim that the end cost has considerably surpassed their initial expectations. There are several reasons for this. 1. Some of the add-ons that they want to buy are not available with the deals on offer; sometimes the add-ons in the special offers include low-quality or obsolete items, causing one to suspect that the firm is 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 do 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 tries to hard-sell its extended warranty scheme. Depending on the package purchased, this can increase the cost by 5–6 per cent. This tactic is by no means exclusive to PC World. Several electrical appliance retailers in the UK, particularly Dixons and Argos, are currently 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 is 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 are offered through HFC Bank. The problem is that people are not notified at the end of the interest-free period, and they then become 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 is that the unwary consumer can end up paying about twice the original purchase price over a period of four years. Questions 1 Describe the various complementary products, both goods and services, that a consumer may consider in buying a computer system. 2 Compare and contrast the situation of PC World with that of a supermarket chain, as far as product mix profit maximization is concerned.

Answer 1

1. Availability of free add-ons like desirable software, printers, and scanners, extended warranty schemes, and interest-free credit are the complementary products the consumer may consider in buying computer scheme.

2. A supermarket chain as far as product mix profit maximisation is concerned, is ITC which offers a range of products under the category of food (Aashirwaas, sunfeast), cigarette (Gold flake, classic), lifestyle retailing (wills lifestyle, john players) etc. similar to PC world which is a major retailer of computers, including sellers like tiny,time and gateway selling own packages, dell selling custom made packages and dixons and comet selling variety of appliances. The large mix of products help in gaining greater profits.