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Dell Case 1
Dell Case 1
Background
II.
Problem
1. Dell computer brand name is not popular to the college
market.
2. The erosion of Dells brand value continues due to the
perception of declining customer service.
3. Dells inability to serve all market needs due to the current
strategy of limited vendors in its supply chain. Dell brings few
products to market and leverages technology created by
other companies effectively and efficiently.
4. The company has such a huge range of products and
components from many suppliers from a plethora of
countries, that there is the occasional product recall that can
cause Dell some embarrassment.
5. Customers just cant buy Dell as simply as other brands
because each product is custom-built according to their
specifications and this might take days to finish.
III.
Objectives
1. To aid or to make actions to the declining customer service
and support efforts of the company.
2. To strengthen Dells customization position.
3. To strengthen Dells visibility and revitalize the companys
marketing to the other markets.
4. To strengthen Dells position as the low-cost personal
computer producer and provider within the market
IV.
Theoretical Framework
Wharton Model of Competitive Advantage Cycle
Understanding the key sources of advantage and how they are
sustained or eroded become crucial in formulating competitive
strategy. The Wharton Model below will help assess the nature and
magnitude of present advantages and the reasons why they have
been sustained.
Positional Advantage
Dell is well known for its
innovations in supply
chain management and
innovation
in
ecommerce. A variety of
scopes
and
brands
under its belt.
Source of Advantage
Differentiation and product
specialization. (Product
Driven)
Performance Rewards
for Dells Inc.
Customers
Quality service and
products
Satisfaction
Dell kiosks for customer
service
Competitive Dynamics
Erode Advantages
- Other brands prioritizing
and strengthening
customer service and
relationship.
Barriers to Imitation
- Constant innovation
Investments in
Renewal
Dell Inc should invest in
other sources of income
and lowering costs and
losses of product recall
and customer
compensation for faulty
and misrepresented
products.
Analysis
Dells primary source of advantage is product differentiation and
specialization because they have the most differentiated and customized line
of computers/laptops for the consumers in the market. They have different
specialized features for each particular user such as heavy users for
education, business, entertainment and gaming. Dell has different types of
brands each catering to the said categories.
Dells positional advantage is its variety of scopes and brands
aiding to that of its source of advantage which is the product differentiation
and specialization. Dell has tapped many specific market segments as shown
here:
Its Business/Corporate class represent brands where the company advertises
emphasizes long life-cycles, reliability, and serviceability. Such brands include:
V.
SWOT Analysis
STRENGTHS
WEAKNESSES
Lower cost due to direct selling
Difficulty in attracting the
college students segment of the
Lower cost due to decreased
market
inventory
Customization
and
direct
Lower
risk
of
retaining
method problems with home
inventory due to build-to-order
users
model
OPPORTUNITIES
Continuous increase in usage of computers
Personal computers are becoming a necessity now more than ever.
Customers are getting more and more educated about computers.
Customizations attraction to second-time computer buyers
Second-time buyers would most likely avail of Dells custom-built computers
because as their knowledge grows, so do their need to experiment or use
some additional computer features.
Increase in demand for laptops
Demand for laptops is also growing. As a matter of fact, demand for laptop
has overtaken the demand for desktops. This is another opportunity for Dell to
grow in other segments.
Convenience in online shopping
The internet also provides Dell with greater opportunities since all they have
to do now is to visit Dells website to place their order or to get information.
Since Dell does not have retail stores, the online stores would surely make up
for its absence. It is also more convenient for customers to shop online than to
actually drive and do purchase at a physical store.
Diversification
Dell is pursuing a diversification strategy by introducing many new products to
its range. This initially has meant good such as peripherals including printers
and toners, but now also included LCD televisions and other non-computing
goods. So Dell competes against iPod and other consumer electronics
brands.
WEAKNESSES
Difficulty in attracting the college students segment of the market
Dells biggest weakness is attracting the college student segment of the
market. Dells sales revenue from educational institutions such as colleges
only accounts for a measly 5% of the total. Dells focus on the corporate and
government institutional customers somehow affected its ability to form
relationships with educational institutions. Since many students purchase their
PCs through their schools, Dell is obviously not popular among the college
market yet.
Customization and direct method problems with home users
For home users, Dells direct method and customization approach posed
problems. For one, customers cannot go to retailers because Dell does not
use distribution channels. Customers just cant buy Dell as simply as other
brands because each product is custom-built according to their specifications
and this might take days to finish.
Occasional product recall
The company has such a huge range of products and components from many
suppliers from a plethora of countries, that there is the occasional product
recall that can cause Dell some embarrassment. In 2004 Dell had to recall 4.4
million laptop adapters because of a fear that they could overheat, causing
electric shocks or fires.
STRENGTHS
Lower cost due to direct selling
Dell is able to reduce cost because selling directly to customers allowed the
company to reduce marketing and sales cost by eliminating mark-ups of
distributors and retailers.
Lower cost due to decreased inventory & Lower risk of retaining
inventory due to build-to-order model
Dell uses build-to-order inventory system which aims to operate on the
principles of lean manufacturing. This means that the end consumer dictates
when and what products will be produced. A production order only generated
when a customer order is received and confirmed. This model reduces
production waste, work in progress, inventory holding cost and improves
customer lead times and cash flow for the company.
Stronger relationships with customers due to their direct model
Dell's Direct Model approach of enables the company to offer direct
relationships with customers such as corporate and institutional customers.
This is because the company can assist the customers personally fostering
trust and loyalty.
Extensive range of ways as to how customers may comment or suggest
The companys strategic method also provides other forms of products and
services such as internet and telephone purchasing, customized computer
systems; phone and online technical support and next-day, on-site product
service. This extensive range of products and services is definitely one of
Dells strengths.
Inexpensive quality products and services
Analysis
Currently in the market, HP is number one and has a great pull for its
brand of laptops and PC units because of its variety specific for its
users ranging in gaming, entertainment, business and education.
The second in the market is Dell however it is over run by the pull and
the aggressiveness of users for Apple who caters to entertainment,
business and education because of its constant innovation and buzz
marketing for products.
This leads Dell on a leverage bordering from pull to push& pull. Notice
the apparent scope in gaming, because Dell is the leading brand for
gaming because of its successful brand of Alienware.
Sony is in the Push & Pull area scoping mid-range of gaming to
entertainment until a bit of business specifics.
Acer on the other hand is Push and Pull area nearing the Pull region
scoping from the mid range of entertainment to business and
education.
IBM has been sold to the Chinese which owns Lenovo, because of this
brand absorption, it is in the Push region because the firm wants to
push the brand and its product in the market for consumers to react
and create a need for them to purchase.
The biggest Push is with Samsung given that the brand and its
products attributes have a minimal scope in the consumers
preferences and categories of specialization.
Inbound Logistics
Dells direct-to-consumer sales model has revolutionized the value chain
within the computer industry. This model, which relies heavily upon webbased technologies such as Electronic Data Interchange (EDI) and just-intime inventories, has clearly been one of the distinguishing factors in Dells
success. Dell encourages its suppliers to use its website to track orders and
inventories. This real-time information sharing allows Dells chip and
component manufacturers to better see Dells sales.The goal of the
information sharing is to create a virtual corporation where suppliers can
watch their products purchased as parts on Dells computers. By using this
technology, suppliers are able to more efficiently meet inventory requirements
and maintain low costs.
Operations
Dell has positioned itself as the number one seller of personal computers by
maintaining an efficient and streamlined operating strategy. Dells servers,
storage systems, mobile and desktop computers are built-to-order in six
manufacturing facilities around the world. Web-based systems control
customer orders and inventory levels.Dell maintains inventory levels of only
four days, even as it serves more customers with more products in more
markets every day (Fiscal 2005 in Review, 2005). As noted, Dells culture
encourages its employees to find ways to cut costs. Within the last 4 years,
Dell has increased its productivity by 400% and saved more than $1.9 billion
by removing unnecessary costs within its operations (Fiscal 2005 in Review,
2005).This efficiency has allowed Dell to sell its made-to-order units for 10%
to 20% less than its rivals.
Outbound Logistics
Dells direct-to-consumer business model enables its customers to purchase
its products via its website, by fax/phone or at limited retail locations. Internet
customers are able to customize their purchases on their own Dell
Homepage.Dell notes that customers which utilize its website spend more
and make purchases faster than those using the fax/phone method of order.
Once the order is placed, Dell prides itself on a 7-day shipping schedule. This
delivery schedule is typically better than those offered by the companys
competitors.
Marketing and Sales Dells marketing efforts have a ubiquitous presence
across the web, television and print. Few competitors can match the
marketing budget of the $50 billion firm. Internet sales currently make up over
50% of the firms total sales. In hopes of increasing its consumer base the
organization has offered its products at discount chains Wal-Mart, Target,
QVC Inc. and Costco. Although Dell built its reputation as a low-priced
computer seller, the firm has shown signs of distancing itself from its discountprice image by expanding its product mix to include high-end PCs, televisions,
MP3 players and other electronics.
Service
Over half of Dells sales are made on its website, limiting the level of direct
sales interaction between its employees and customers. However, once the
purchase is made consumers often interact with customer service/support
representatives. As cost differences become slimmer, exceptional service is
one way in which computer companies differentiate and attract new and
returning customers. Revenues from enhanced services/support are
significant for the firm and have grown nearly 40 percent for three
consecutive years (Fiscal 2005 in Review, 2005).Although the firm has long
prided itself on offering the best customer service in the industry, recent
surveys have shown declining results in this segment of the business.
Consumer Reports ranked Dell behind Apple, IBM and Toshiba for its
customer support with laptops (Computers, Desktops, & Laptops, 2006, p.
232).Despite the decline, Dell has still managed to rate higher than its
competitors HP and Compaq. I n recent years customer service/support has
been moved to lower wage nations. Top executives have acknowledged the
problem and are reportedly working toward improvements.
Firm Infrastructure
Dell was founded in and maintains its worldwide corporate headquarters in
Round Rock, Texas. To increase its global presence the firm has expanded its
infrastructure to include corporate offices and manufacturing facilities in the
UK, Japan, Singapore, Ireland, Brazil, China, Malaysia and other U.S.
locations. The firms infrastructure also includes several overseas call centers
in India. Although the company partners with retailers, it does not have any
official retail locations as part of its infrastructure. Most of the firms
infrastructure is virtual or web-based. This allows the company to sidestep
retail overhead costs while maintaining customer visibility.
Human Resources
Dell employs over 55,000 individuals. The organization is dedicated to
creating a diverse workforce to meet the objectives of the organization and its
customers. Dell-sponsored groups were formed to promote a sense of
community among employee participants, support business goals, aid in their
personal and professional development, support business goals and provide a
resource for organically recruiting and retaining the best and brightest talent in
the industry. The organization works diligently to create a corporate
environment based on meritocracy, personal achievement and equal access
to all available opportunities.
Technology Development
Dell defines itself as a global diversified technology provider. Although it
would seem that Dell spends a tremendous amount on its R&D this is not the
case. Dell brings very few new products to market. Instead, Dell has a
focused strategy which leverages the work of partners and other firms to
recreate the work others have done very well Fiscal 2005 in Review,
2005).Dells global teams meet regularly with customers to gain feedback on
which new technologies will have the greatest impact. This feedback is then
shared with partners such as Oracle, Intel, EMC and Red Hat to share in R&D
costs. This strategy is in stark contrast to IBM which spends billions of dollars
annually on R&D. The savings that Dell realizes from R&D allows it to deliver
cookie-cutter servers and desktops at value. However, many analysts believe
the firms inability to adopt more state-of-the-art technologies has prevented
Dell from establishing a successful strategy for high-end products.
Procurement
As previously stated, Dell has remained extremely loyal to chip maker Intel.
As the largest producer of personal computers, Dell is also the largest
customer of Intel chips. Intel claims to be able to ship materials into Dells
production facilities every two hours based on real- time customer orders.
This real-time supplier allows Dell and its suppliers to forecast and manage
the most efficient levels of inventory. Dell's decision to remain solely
committed to Intel chips have certainly helped contain the cost of low-end,
standard-based desktops and servers. Purchasing orders for production
facilities are initiated when customers place orders thereby depleting
inventory levels on the shared website. This form of purchasing allows both
Dell and its suppliers to properly forecast, thereby maintaining low levels of
inventory and capital investment.
VI.
OBJECTIVES
To aid or to make
actions to the
declining customer
service and support
efforts of the
company
To strengthen Dells
visibility and
revitalize the
companys
marketing to the
other markets
To strengthen Dells
position as the lowcost personal
computer producer
and provider within
the market
Focus on
innovation
Divesting
10
ACA
Reinvigorate
Differentiation
Advantage
VII.
To
Total
strengthen
Dells
customiza
tion
position
Recommendation
This strategy also recommends that Dell revitalize its marketing efforts to
target underserved markets within the U.S. while expanding its marketing
abroad into emerging and growing international markets. To strengthen
Dells visibility, it is recommended that Dell modifies its marketing focus.
Dell must develop marketing campaigns to position its PCs as
commodities that are necessary for everyday life.
The second marketing enhancement will be centered in emerging markets
where Dells direct sales model has several inherent limitations. For
obvious reasons, the model does not work well in markets which
customers do not have access to the internet or credit-cards. In these
markets it makes sense for Dell to expand its use of retail locations or
showrooms. To achieve success within emerging markets Dell must
combine its direct sales model with its learned experience from its retail
partnerships. This tactic calls for Dell to develop showrooms in which
displays are available for customers to test and use products before they
place an order. Once a customer has decided to purchase an item, they
may use an in-store phone or internet connection to place their order. As in
the traditional Dell model, customers may customize their product during
this process. This tactic allows Dell to bring its product to customers in
emerging markets while still maintaining its direct sales business model.
To strengthen Dells position within the market, the company must improve
its focus on specific customer needs. Dell must improve its existing
services to provide reliable and predictable solutions around this segment
of business. Specifically, it is critical that the company design and deliver
services which offer superior quality and efficiency, while sustaining
customization for individual customer needs.
Industry
20.95%
8.50%
5.71%
26.80%
10.40%
25.40%
Market
48.23%
10.64%
6.96%
13.20%
2.20%
6.50%
2.06
37.34
9.72
31.12
30.46
1.46
20.65
2.77
12.06
50.53
67
1.9
11.9
7.5
0.3
7.2
1.2
1.53
1.41
Quick Ratio
Leverage
Ratio
(asset/equity)
Leverage
Ratio
(debt/equity)
Data Revenue Per Share
0.9
4.74
1.3
2.57
1
6.1
0.1
0.06
1.35
23.02
18.09
21.66
Diluted
EPS
from
Operations
Book Value Per Share
Growth
12-Month
Revenue
Growth
Source http://www.scribd.com
1.29
1.53
2.05
14.60
%
3.84
9.20%
11.39
1.80%
Profitability
Valuation
Operations
Efficiency
Financial
Liquidity
Per Share
(dollars)
Unlike many competitors, Dell does not rely on debt to finance its
capital structure. This is contributed to cost cuts in operations and efficiencies
in manufacturing and inventory management. Dell also outperformed the
industry in terms of annual growth. It is wise though to lower future
expectations in light of recent reports of lower than expected growth rates and
net profits in the 3rd and 4th quarters of the previous year. Lastly, Dell does not
pay dividends to stockholders. Instead, Dell uses net income to fuel its
growth.