Radboud University Nijmegen

Marketing Management DELL CASE STUDY ASSIGNMENT

Team Nr. 10 Surname,Name Dubedout , Guillaume Hgele , Anna Nagel , Britt Slonimska , Lana Voroneckait , Aurelija Student Number 4214293 4257367 0807931 4212789 4228227 Signature

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Introduction In order to create a feasible marketing strategy and run analyses of current marketing features, it is important to define the overall problem of the company and try to come up with possibly effective solutions. By taking the matrix offered by Nijssen & Frambach (2001) into account, we see that the current situation of Dell (1994) is facing a potential limited mismatch, thus there is a need for strategic checks and evolution. Dell Company has always tried to keep up with the environmental changes. However, there are still potential issues which have to be overcome in order to keep market share and increase profitability. Dell has to invent reactive strategy plans and re-orient strategy in line with ever changing demand and competitors. Dell Company has successfully performed during the first decade because of the superior value creation for the customer. As there are no major issues in loss of sales and profitability at the current point, we assume that symptoms for identification of the problem should be found in more qualitative perspective than in a quantitative perspective. As there is fierce competition in the industry and an ever changing evolution of products in competitors portfolios, Dell Company may experience a downfall and drop of position in the future. Consequently, even though Dell Company generates superior value for its clients with strong customer service, the company still has a key strategic issue of how to maintain sustainability and competitive advantage against fierce competition worldwide. In order to provide solutions and answers to this problem we try to identify and provide a solution for the problem by conducting an initial gap analysis (Nijssen & Frambach, 2001), by performing an internal and external company analysis, and by using tools such as SWOT and Porters Five Forces model. External and Internal Analysis In this part we will use Dells value chain, a SWOT-analysis and Porters Five Forces model to perform an external and internal analysis of Dell. Value Chain Analysis
Dell 1984-1999 Value Chain
A value chain is the set of procedures to determine the ability of an organization to gain competitive advantage.

These steps correspond to the services of the company or complex activities nested into the organization. M. Porter (1979)

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Support Activities Firm infrastructure: From the early stage of Dell creation, the idea was to keep the firm infrastructure simplified by reducing the intermediaries between the firm and the customers. The idea was interesting during the early stage but became difficult to maintain in the late 87s due to the success of Dell. Indeed Given the lack of infrastructure in market outside the U.S and some parts of Europe to support the direct model, a significant part of the growth in international sales had come through retailers and distributors (page 15). Human resources management: Dells human resources have increased in a significant way from early creation in the 84s where Michael Dell was the only employee up until 1994. Indeed, in this period Dell had 150 based field sales rep and inside phone rep with a number of account executives (page 7). Furthermore, a classic way to improve the skills of Dells human resources was to hire people who were actually working for other companies by offering them better income and advantages. Technology Development: Dell was able to incorporate the latest technology in microprocessor and peripheral technology within the cost that other competitors such as IBM were proposing. Furthermore, Dell has different products based on the Intel technology (page 6). Procurement: No concrete data

Primary Activities Inbound Logistics : Dells inbound logistic was based on the idea that stock cost money and by this Dell was able to reduce cost and stock to a minimum of 30 days. Next to that, its suppliers usually carry sufficient stock to allow Dell to replenish its requirement (page 7). Operation: Dell wasnt outsourcing all its entire products. For example, it had a manufacturing plant in Austin for custom only American orders which share some similarities with car chain manufacturing processes (page 7). Outbound Logistics: Most of Dells sales went to corporate accounts and large and small businesses. Dell adopted a made to order strategy with a high velocity and low cost distribution process (page 6) with a kind of individualized strategy. Marketing and sales: In 1985, Dell started its own marketing for its own brand of PCs and services. Moreover, Dell set up a house team for product marketing, advertising, market support and sales support which strongly increased its reputation (page 6). Services: Dell was strongly focused on the service aspect and in particular after sales services, which were the core of Dells added value. Dell proposed a 24h/24 phones after sales services. Furthermore Dell was able to replace any part in 24h to 48h guaranteed shipment. Porters Five Forces Model Power of suppliers In general, the power of suppliers consists of the possibilities of increasing prices and lowering the quality of the products. At first, Dell made profit by simply upgrading IBM

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compatibles that they'd bought. So they were dependent on the materials delivered by IBM. From 1985, Dell started to produce it's own PC brands based on the microprocessors of Intel. Dell was unique in making customized products: customers could build their own computer which Dell assembled. For delivering their products in the US, Dell had contracts with several shippers. Dell is of course dependent on them because if they do not do their job well, it will negatively affect Dell's reputation. On the other had, shippers are relatively easy to replace. Competitive Rivalry In the early 1990s, Dell's successful model was imitated by a lot of competitors like Gateway. They were a powerful threat for Dell's profitability because they were a lot cheaper than Dell's products. Compaq is also a very strong competitor, especially on the desktop market in the corporate market.They were cheaper than Dell and established relationships with all kind of computerstores. They also wanted to enter the mail order channel to respond to the need from customers to buy their products directly. IBM and other market leaders had similar plans, so there is a lot of pressure from competitors for Dell.Therefore, Dell made distribution agreements with some computer stores as well in order to reach out to those who want to buy their products in a shop. Dell also launched new computer lines to stay ahead of competitors. All in all, this was not too successful, so Dell terminated the relationships again. Concluding we can say there's a stiff competition for Dell. Power of customers Because Dell has a lot of competition, customers have a lot of alternatives. At one point, they found Dell's prices too high, so sales droped dramatically. This indicates that customers have quite a lot of power, because they have a lot of different possibilities to switch. Dell really has to satisfy them to keep them as customers. Threat of Substitution The computer market is a market with a lot of competition, and the products can function as a substitute for each other. Except for the server market, price plays an important role in the buying decisions. So when Dell was too expensive according to the customers, they switched to substitutes like products from Compaq or Gateway. Dell has one particular advantage: their Direct Model whereby customers can compose their own computer. In this way, Dell can adapt their products perfectly to the demands of customers, which lowers the threat of substitution. But Dell still has to be careful when their Direct Model is copied by competitors. Threat of New Entries The computer market is not in its early stages anymore, but is entering a more mature phase. Because of the great amount of money it takes to start up a business that delivers similar quality, the threat of new entries is not very high. Dell is competiting as one of the top firms, so new entries would not have a very large impact on Dell's sales on the short run. On the long run, Dell has to keep an eye on them of course. SWOT-analysis The main strengths are coming from the Direct Model. Because dealing directly with a customer with no use of a middleman helps to have high velocity and low cost distribution, therefore that reflects on a competitive price. Also Dell design computers to the customers specifications, that means that they can satisfy their buyers needs better. Another strength is that Dell can offer customer service before and after the sale, the client can call and tell their problem and technicians try to solve it in 24-48 hours period. Also a big advantage is that Dell

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has a big data base with sales history, which helps to fulfill customer needs faster and better by offering exactly what they need and helps to solve a problem faster. Dell has several weaknesses. First, the company has weak business relationships with computer retailers and Dell concentrates on direct selling, so buyers cannot physically touch products before purchasing. Also the company does not manufacture its computers. That means that Dell relies on a few large suppliers and they cannot easily switch to another supplier. The other weakness is international differences, because in some countries the direct model is working out perfectly, but in others not so good. So they need to adapt that for every country. Demand for laptops is growing. Since Dell hired John Medica, who designs his own line of notebook computers, it should help getting back to laptops. We cannot forget that the PC market is also growing, because people becoming more educated and they want to use new additional features and experiment more customer built computers could be the answer. Also we can see big expansion in opportunities in education and government markets. Technology is improving really fast. That means that the company should keep up with technological advancements search for new things and introduce new products.
Strengths Direct Model (high velocity, low cost distributions) Customization Reliability, service and support Competitive Price Opportunities Demand for laptops is growing. PC markets are growing also Expansion to other countries Expansion to education and government markets Weaknesses Weak business relationships with computer retailers Buyers cannot touch or see products they want to purchase Dell does not manufacture its computers International differences Threats Fast technological improvements Price difference among brands is getting smaller New competitors

Customer Value Generation Dell holds all three generic value strategies, introduced by Treacy & Wiersema (1993), at least at a satisfactory level and especially excels in the customer intimacy strategy. According to the operational excellence strategy, a firm has the lowest costs and offers the best price and/or convenience to their customers. Dell has lower costs than market leaders such as IBM to incorporate latest improvements in and peripheral technologies and microprocessor into their systems. In addition, Dell offers their educated customers good performance at reasonable prices. From a product leadership strategy perspective, Dell reaches a more than satisfactory level, as the company offers nearly the highest benefits and focuses on the innovativeness of its products. Dell executes quality checks of the components and products in order to avoid systems with defects. Moreover, Dell has early access to new technology through close relationships with component suppliers, which ensures innovativeness of Dells products. Dell excels in the customer intimacy strategy, because the company pays most individual attention for the customer. The company has a unique and distinctive model which

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is called the Dell Direct Model. Dell pursues the strategy of individual consideration of customers offering personalized, individual, targeted and customized products and services and a unique distribution system. Dell provides custom made products where a variety of options of peripherals is offered, whereas it is ensured that these are compatible with the rest of the system of the computer. Moreover, Dell pretests combinations of components before the company delivers the products. Dell has a broad range of business activities performing well and implements an effective segmentation of customers based on the volume potential of customers PC purchases. The first segment Relationship customers includes large companies, government and educational accounts the second segment implies Transaction customers who are medium and small companies and home office customers. Products, services, orders, transactions and sales are customized to the group in order to fulfill the needs of the special group. So-called inside reps and outside reps are responsible for certain tasks and regions who know the needs of the customers of the particular region. In addition, Dell provides support services such as a 24-hour hotline for complaints and the reps are very effective in taking care of service problems. Moreover, Dell offers 24 to 48 hour guaranteed shipment of replacement parts and will supply replacement systems if field service could not resolve problems. Furthermore, the company has a low-cost, high-velocity distribution system with direct customer relationships, build-to-order manufacturing, so that ordered products can be quickly delivered to the customers. To sum up, Dell fills the unfulfilled and latent needs of customers in the PC industry by introducing a built-to-order and on-site service. Therefore, Dell inherits a competitive advantage as it creates superior customer value. Recommendations In the end of the 1994 Dell still has a debate between either entering server markets or not and whether it is profitable to get into laptop business again. As there is such a big preference for servers it is obvious that this market niche is going to grow, therefore there might be a potential to extent business and increase market share. The only risk here is that Dell lacks the knowledge to make an outstanding server product. So when they decide to enter the server market, they should hire some experts to bridge this knowledge gap. Furthermore, it is likely that laptops are going to become more and more popular among both individual users and firms when the quality of laptops increases. As major part of the sales is generated by firms, Dell Company should consider getting into laptop markets again in order to avoid lose of position to the competitors. To enter a server markets Dell Company should consider acquiring existing customers with entirely new product. Dell Company should perform product development which includes needs assessment and segmentation studies. Servers should be adapted to the needs of existing customers and preferably exceed qualities of servers offered by competitors. Furthermore, laptops are products which are targeted to both existing customers and new ones in case of international expansion. As laptops have been introduced before Dell has to find a way to differentiate laptops and make them better and more appealing to the existing customers. However, Dell Company should also consider entering new markets internationally and therefore study what are preferences of the international customers and in which countries Dell Company is able to grow.

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