matching dell

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Page 1: Matching Dell

Presented by:

Patricio Becar Hasnain ZaheerCandong WuPuru Tiwari

Page 2: Matching Dell

“It’s amazing to me that our competitors think the customer is the dealer.”

Michael Dell

Be Direct: DELL

Page 3: Matching Dell

PRODUCT

• Two lines of products; choice within a broad menu of features.• Support pages for self-help, 90% support tickets closed on phone, remaining

outsourced.• High customer perception of quality of products, services and support• Dell’s commitment to consumer value, to the team, to being direct, to operating

responsibly and, ultimately to winning continues to differentiate it from other companies.

COMPETITION

• Compaq (no.1 – wide range)• IBM (no. 3 – sales and service leader)• HP (no.4 - quality leader, closely tied to channel)• All above prisoners of channel and channel culture• All started variants of direct model – AAP (IBM), ODM (Compaq), ESPP (HP) but

no major headway • Gateway: Direct player, biggest threat but management weaknesses and

operational execution pushed it down

Page 4: Matching Dell
Page 5: Matching Dell

Background

• Time period of this case – 1984-1999. Alternative strategies and recommendations for long term, 10 years out, from 1999 onwards.

DELL• An entrepreneurial company started by Michael Dell who founded it in 1984 with just

$1,000, out of a dorm room.

• DIRECT MODEL: Build relationships directly with consumers - Cut out the middleman. Outside sales process for relationship, inside sales for transaction segments.

• Production processes to cut inventory, suppliers co-located, close collaboration with suppliers for efficient logistics

• DELL eliminated the need for inventory or middlemen and gave itself a built-in price advantage, which it in part keeps as profit and in part passes on to customers.” Used customer funds received for 5 days before passing on to suppliers.

• Global player, markets all over the world with manufacturing facilities in Ireland, Malaysia and Austin, US.

Page 6: Matching Dell

INDUSTRY

• Products: Based on well-defined, Wintel based standards first established by IBM. Wide range of configurations, highly competitive global markets for components except Wintel (processor and operating system)

• Evolution: 1975-81 start-up1981-86 – Early explosive growth, high margins, IBM enters in 19811990-95 – Crest because of economy but prices keep falling1995-99 – Growth recovery but industry at late-growth maturity stage

• Customers: Large / medium companies / government, small business, consumer, education

• Channels: Retail, distributorssmall resellers, integrated resellers, direct• Manufacturing: Assembly-line, low entry barrier, Asian manufacturers capacity

Background

Page 7: Matching Dell

Problem statement

CONCERNS AND CHALLENGES• Competitors are poised to copy and succeed in direct model• Price and productivity advantage with competitors is narrowing.• Maturing industry

PROBLEMS• How to deploy a global strategy to manage sales in international markets?• How to leverage growth in Internet usage that is promoting PC ownership?• How to leverage growth in Asia?• How to take advantage of growth in IT industry?• What will drive growth in future? Are we betting on the right products by still

promoting Wintel laptops and PCs?

• In short:Direct model and JIT/production and logistics have put Dell into an enviable position. How to preserve gains while ensuring growth.

Page 8: Matching Dell

Market Analysis - PC Market Size

PC Market Size (the U.S.), 1990-1998

05

10152025303540

90 91 92 93 94 95 96 97 98

Uni

t: M

illio

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nits

01020304050607080

Uni

t: B

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n D

olla

rs

Uni t s (mm)Dol l ars (bn)

PC Market Size (Worldwide), 1990-1998

0

20

40

60

80

100

90 91 92 93 94 95 96 97 98

Uni

t: M

illio

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0

50

100

150

200

Uni

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olla

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Uni ts (mm)Dol l ars (bn)

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Share of the U.S. PC Market, 1990-1998

40% 37% 38% 40% 40% 39% 38% 39% 40%

0%

10%

20%

30%

40%

50%

90 91 92 93 94 95 96 97 98

Uni

t: M

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n U

nits

Share of the U. S. market (Uni t s)

Market Analysis

Page 10: Matching Dell

Market analysis

Segmentation analysis

PC Market Share by Cumsumer Category in the U.S.market(by dollar value)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

94 95 96 97 98

Large/ mi dsi zebusi ness &governmentSmal l busi ness& offi ce

Consumers(home)

Educat i on

PC Market Share by Cumsumer Category in the U.S.market(by units)

0.0%5.0%

10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%

94 95 96 97 98

Large/ mi dsi zebusi ness &governmentSmal l busi ness& offi ce

Consumers(home)

Educat i on

Page 11: Matching Dell

PC Market Price Index by Cumsumer Category inthe U.S. market

0.60.70.80.91.01.11.21.31.41.51.6

94 95 96 97 98

Large/ mi dsi zebusi ness &governmentSmal l busi ness& offi ce

Consumers(home)

Educat i on

* Price Index = Market Share (by value) / Market Share (by units)

Market Analysis

Page 12: Matching Dell

Porter’s five-factor model of market profitability

Asker. A. D. (2005)

Bargaining power of customers:

More bargaining power because a lot of brands for their choice.

Bargaining power of suppliers:

Less bargaining power because many suppliers compete heavily.

Competition among existing firms

Compaq, IBM, HP, Apple, Gateway, etc.

Threat of potential entrants:

New PC manufacturers from developing countries, like China, Taiwan, etc.

Threat of substitute products:

PDA, notebook, net book, etc.

Page 13: Matching Dell

Competitive Analysis Understanding Competitors

Page 14: Matching Dell

Competitive Analysis Understanding Competitors

Page 15: Matching Dell

Competitive Analysis Understanding Competitors

Page 16: Matching Dell

Competitive Analysis Understanding Competitors

Page 17: Matching Dell

Competitive Analysis Understanding Competitors

Page 18: Matching Dell

Competitive Analysis Understanding Competitors

Page 19: Matching Dell

Competitive Analysis Understanding Competitors

Page 20: Matching Dell

Competitive Analysis Understanding Competitors

Page 21: Matching Dell

Competitive Analysis Understanding Competitors

Page 22: Matching Dell

Competitive Analysis Understanding Competitors

Page 23: Matching Dell

Competitive Analysis Understanding Competitors

Page 24: Matching Dell

Competitive Strength Grid                

  DELL Compaq IBM Gateway HP  

  User Satisfaction   

  Overall            

   

  Raw Technology            

  Sys. Speed, Reliability, Compability, Configurability, Upgrades, Hardware quality and Sys. Manag .

   

  Pricing            

   

  Service & Support            

   Warranties, Support Staff, Repair times, Channel & Web based Support, Overall service/support

   

  Customer Relationship               

  Point Scale  

  Very Good  

   

  Good  

   

  Fair  

   

  Bad   

  Worst                 

Page 25: Matching Dell

Competitive Analysis

Weakness IBM Compaq HP Gateway DELL Strength

Low Performance

IBM HP Compaq Gateway DELLHigh

Performance 28.70% 26.30% 21.40% 13.80% 12.40%

Synthesis: Competitive Strength Grid

Performance: Cost Structure

Page 26: Matching Dell

Competitive analysis - Notes

• Competitors struggled to follow and replicate the Direct Model of DELL• Gateway is a serious challenge in 1999.• DELL challenged Compaq market share. However, DELL is followed closely by

both HP and Gateway.• All big players tried to move partial sales to model similar to Direct.• Competitors had similar organization, culture and values (all from US)• New industry where no clear barrier (customers segment overlapping)• Reliance and degree of affiliation with channel can act as a strength as a well as

a weakness, mainly a weakness. • Use of technology to achieve operational growth may vary. • Level of investment in overseas markets determined the growth of Dell as

compared to gateway which remained formidable in US but failed to become a major global company.

• Overseas investment in manufacturing as well as sales was a great decision of Dell.

• Remaining steadfast to direct is a major focus point kept its differentiation in place and proved to be a SCA.

Page 27: Matching Dell

Environmental analysis

Source: D. Aaker

Page 28: Matching Dell

Environmental analysis

1. Technological .The computer market was influenced technologically by:

• Better performance of products increase both storage and HD, faster speed both microprocessor and CD-ROM, enhance monitor resolution etc.

• Miniaturization of devices less space and weight > cheaper freight• Moore’s Law Better performance and cheaper price

2. Customer Trends: In the mid 1990’s demand growth due to :• Strong economic growth• Emergence of new, popular services involving computer networks• Proliferation of electronic mail and WWW

3. Governmental/Economic Trends: US market was characterized by stable both economic and legal system.

Page 29: Matching Dell

Internal Analysis - Market share by brands

PC Market Share (the U.S.), 1990-1998

1.0% 1.6%

3.7%4.8% 4.2% 4.9%

6.8%

9.3%

13.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

90 91 92 93 94 95 96 97 98

Appl eCompaqDel lGatewayHPI BM

PC Market Share (Worldwide.), 1990-1998

0.0% 0.0%

2.3%3.0% 2.8% 3.2%

4.3%5.9%

8.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

90 91 92 93 94 95 96 97 98

Appl eCompaqDel lGatewayHPI BM

Page 30: Matching Dell

Profitability

Revenue of Dell ($ million)

0

5000

10000

15000

20000

92 93 94 95 96 97 98 99

Revenue

Profit of Dell ($ million)

-1000

0

1000

2000

3000

4000

5000

92 93 94 95 96 97 98 99

Grossmargi nNeti ncome

Page 31: Matching Dell

Days of Inventory of Dell

76.270.7

32.939.1 37.0

15.08.9 7.0

0.010.020.030.040.050.060.070.080.090.0

92 93 94 95 96 97 98 99

Days ofi nventory (Day)

Days of inventory = 365days / (Revenue - Gross margin) / Inventory

Internal Analysis

Page 32: Matching Dell

Factors affecting current performance and long term profit

In commercial market, Dell won a very high reputation on their PC.

Customer satisfaction / brand loyalty User satisfaction - Ranked 1st overall in 1998, and ranked evenly 2nd in from high to low price point. HP ranked 1st in high price point, and Gateway ranked 1st in midrange and low price points. Customer relationship – All ranked 2nd. HP ranked 1st.

Product / service quality Raw technology – Ranked all aspects 1st. Pricing – Mostly ranked 2nd and ownership costs ranked 1st. Gateway ranked 1st. Service and support – Mostly ranked 1st and 2nd except the item ‘channel-based support’ ranked 3rd.

Page 33: Matching Dell

Alternative Strategies & Recommendations

Page 34: Matching Dell

Alternate Strategies

Market Development• Expand Geographically• Target New Segments

Diversification new product and new market• Brand name (advertising)• Marketing skills• Sales and distribution capacity• Manufacturing skills• R&D and new product Capacity

Page 35: Matching Dell

Alternate Strategies

Strategic alliances• scale economies and strategic markets• Fill out product line to serve market niches• Gain access to technology & low cast mfg capabilities• Access a name or customer relationship

Product developmentAdd product features & refinementNew Generation products, new form factors

Page 36: Matching Dell

Recommendation

Product Expansion StrategiesNew product design and portfolio

• According to user ( kids , students , employers , elders )• Organic shape , colors , trend , age , gender

Diversification StrategiesAdvertising to establish strong brand positioning

• On needs and wants of consumer• Based on emotions• Adv for “direct sale” build the brand by service, support and warranty

Offering solutions• Lack of portfolio of offering in certain segments (E.g.. IBM has high margins

business solutions, HP expanded its technology service business)

Page 37: Matching Dell

Recommendation

Product and Market Diversifications• Laptop, server, PlayStation, Smart phone• Printers, Servers, Projectors, TV’s, Handhelds, Software,

Peripherals, Storage, Networking, Workstations and more.• Asia , Middle east…• Defense, Media, hotel, universities, schools…

Growth StrategiesAcquisitions, Strategic partnership

• E-Business, Storage, Security, Network …

Page 38: Matching Dell

Thank you !!