DELL MARKET STRATEGY

Umar Iyoob
 Michael Dell’s Approach

Michael Dell believed his approach to the PC

business had two advantages:
1. Bypassing distributors and retail dealers
eliminated the markups of resellers

2. Building to order greatly reduced the costs and

risks associated with carrying large stocks of
parts, components, and finished goods
 Market Position

• Dell Computer was the U.S. leader in PC sales in 2000.

• Dell Worldwide.
• Dell’s sales at its Web site (www.dell.com) surpassed
$35 million a day in early 2000
• Dell’s principal products included desktop PCs,
notebook computers, workstations, servers, and
storage devices.
• It also marketed a number of products made by other
manufacturers.(www.gigabuys.com)
 Company Background

• Michael Dell at age 18 dropped out of college

and formed a company, PCs Ltd., to sell both PC
components and PCs under the brand PCs
Limited.
• Michael Dell sought to refine the company’s
business model - The company was renamed Dell
Computer in 1987.
• Dell’s Distribution.
• ‘Virtual Integration’.
 Market Conditions in the PC Industry
• 350 million PCs in use worldwide
• A ratio of one PC for each four people
• Forecasters expected demand for high-end
servers carrying high prices
• Full global build-out of the Internet was
expected to entail installing millions of high-
speed servers
 Issues
Competing Value Chain Models in the Global PC Industry
• Develop key components in-house and
outsource the ‘non-critical’ items.
• Companies emerged that specialized in making
particular components.
• Makers had begun to abandon vertical
integration in favor of a strategy of outsourcing
most all components from specialists and
concentrating on efficient assembly and
marketing their brand of computers
 Issues
Declining PC Prices and Intense Competition
• Sharp drops in the prices of a number of PC
components had allowed PC makers to dramatically
lower PC prices
• The low prices were attracting first-time buyers into
the market and were also causing second- and third-
time PC buyers looking to upgrade
• unexpected shortages of certain key components
drove up prices for these items ,but the shortages
were expected to last only until suppliers could gear
up production levels.
 The Strategy
Build-to-Order Manufacturing
• Building to order avoided
1. Having to keep many differently equipped
models on retailers’ shelves to fill buyer requests
for one or another configuration of options and
components and
2. Having to clear out slow-selling models at a
discount before introducing new generations of
PCs. Selling direct eliminated retailer costs and
markups. (Retail dealer margins were typically in
the 4 to 10 percent range.)
 The Strategy
Build-to-Order Manufacturing
• The shift to cell manufacturing reduced Dell’s
assembly times by 75 percent and doubled
productivity per square foot of assembly space
• Customer Delight : Equally important was the fact
that customers who bought from Dell got the
satisfaction of having their computers customized
to their particular liking and pocketbook. 
• ISO 9002 quality standards
 The Strategy
Partnerships with Suppliers and Just-in-Time Inventory
• ‘If you’ve got a race with 20 players all vying to
make the fastest graphics chip in the world, do
you want to be the twenty-first horse, or do
you want to evaluate the field of 20 and pick
the best one’ – Michael Dell
• strategy was to partner with as few outside
vendors as possible and to stay with them as
long as they maintained their leadership in
technology, performance, and quality
 The Strategy
Build-to-Order
Partnerships Manufacturing
with Suppliers and Just-in-Time Inventory
• Dell was assured of getting the volume of components it
needed on a timely basis even when overall market demand
for a particular component temporarily exceeded the overall
market supply.
• Dell’s formal partnerships with key suppliers made it feasible
to have some of their engineers assigned to Dell’s product
design teams and for them to be treated as part of Dell.
• Dell’s long-run commitment to its suppliers laid the basis for
just-in-time delivery of suppliers’ products to Dell’s assembly
plants. Many of Dell’s vendors had plants or distribution
centers within a few miles of Dell assembly plants.
 The Strategy
Direct Sales
• intelligence about customer preferences and needs
• immediate feedback on design problems and quality
glitches
• totally customer-driven system, with the flexibility to
change quickly to new generations of components and
PC models
• Despite Dell’s emphasis on direct sales, industry
analysts noted that the company sold perhaps 10
percent of its PCs through a small, select group of
resellers.
 The Strategy
Customer Service and Technical Support
• A year’s free on-site service with most of its PCs
• Dell also provided its customers with technical
support via a toll-free phone number, fax, or e-
mail
• If a customer preferred to work with its own
service provider, Dell supplied that provider with
the training and spare parts needed to service
the customer’s equipment. 
 The Strategy
Value-added Services
• Dell used the knowledge gained by direct
contact with customers to add to the value it
delivered to its customers.
• Dell charged customers only $15 or $20 for
the software-loading and asset-tagging
services—the savings to customers were thus
considerable.
 The Strategy
Other Strategies
• Support.dell.com
• E-Support – Direct from Dell
• Dell Talk
• Ask Dudley
• On-site Service
• Migration to new Technology
• Customer Forums
• Premier Pages
 Recommendations
• Go with a two pronged strategy and go
through retailers as well as direct selling.
• Keep optimizing the Supply Chain
Management System so as to not lose out on
competition in falling prices and help suppliers
keep up with shortages.
 Conclusion
• Micheal Dell’s strategy is brilliant and would
triumph issues that could bring other
companies down given that they are
constantly evolving with the competitive
environments and act on the basic strategies
of direct selling, build-to-order manufacturing
and strategic partnerships in real time thus
giving way to JIT and Virtual Integration.
Thank You