matching dell
Post on 18-Oct-2014
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TRANSCRIPT
Presented by:
Patricio Becar Hasnain ZaheerCandong WuPuru Tiwari
“It’s amazing to me that our competitors think the customer is the dealer.”
Michael Dell
Be Direct: 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
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.
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
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.
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
n U
nits
01020304050607080
Uni
t: B
illio
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
n U
nits
0
50
100
150
200
Uni
t: B
illio
n D
olla
rs
Uni ts (mm)Dol l ars (bn)
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
illio
n U
nits
Share of the U. S. market (Uni t s)
Market Analysis
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
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
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.
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
Competitive Analysis Understanding Competitors
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
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
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.
Environmental analysis
Source: D. Aaker
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.
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
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
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
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.
Alternative Strategies & Recommendations
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
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
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)
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 …
Thank you !!