Dell’s economic logic and strategy was a narrow target through focused differentiation.

Dell offered
a service no other firm was providing, PCs built to customers’ specifications delivered directly to
them.

In comparison, competitors were primarily selling their products through distribution channels such
as retailers.

To maintain their competitive advantage with this economic logic and strategy, Dell increased the
difference between the value they offered and their costs.

Rather than increasing prices, Dell focused on decreasing their costs. Dell sold their PCs at
comparable prices to their competitors, as seen in Exhibit 10.

Though they were not the most expensive PC on the market, they were also not the cheapest. In
selling direct to the customer Dell was able to cut costs by purchasing inputs later and lowering
inventory carrying costs.

The direct model also enabled them to have no channel partner mark-up or any other channel-
related costs.

Overall, this logic and economic strategy allowed Dell to offer value to customers that its
competitors could not in the form of personalization, while still maintaining higher profits margins.

In doing so, Dell was able to sustain a high willingness to pay without any additional costs.

The scope conditions for Dell’s strategy was niche, at least within the consumer (home) market.
Given that Dell was building PCs to customer specifications, it requires that customers have
knowledge about PCs to give these specifications. As mentioned in the case, by 1998, 30% of PC
purchasers were first time buyers.

At this time, PCs were still up and coming, and the average consumer did not yet have enough
general knowledge to know what kind of specification they wanted in their home PC.

Therefore, Dell’s scope condition at this time was the niche market, the PC consumer who valued
personalization and had the knowledge to specify for it.

On the other hand, companies selling through retail stores were pursuing the dominant scope within
the consumer (home) market. As previously mentioned, at the time, consumers generally did not
have a lot of knowledge about PCs.

In 1998, retail displays and salespeople still played a significant role in assisting customers in
selecting among models and manufacturers. From this, it is assumed that a majority of the consumer
(home) market were purchasing their PCs from retailers where they could be assisted.

Therefore, those companies selling through retail stores were pursuing the dominant scope, the
scope that encompasses the largest number of consumers.

Dell’s strategy posed a threat to competitors because scope conditions are subject to change. In the
case of the PC industry, in 1998, 30% of PC purchasers were first-time buyers, but this figure was
expected to drop to 18% by 2000, proving that PCs were poised to become popularized.

Meaning, that over time, a greater number of consumers would become knowledgeable, making
Dell’s scope condition no longer niche.
Overtime consumers would not only know more about their PCs but expect more, increasing the
number of consumers that would find value in Dell’s personalized offering.