Presented by:

Patricio Becar Hasnain Zaheer Candong Wu Puru Tiwari

Its 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 Dells 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.

Background

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-up 1981-86 Early explosive growth, high margins, IBM enters in 1981 1990-95 Crest because of economy but prices keep falling 1995-99 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

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
40 35 30 25 20 15 10 5 0 90 91 92 93 94 95 96 97 98 Uni t s ( m ) m Dol l ar s ( bn) 80 70 60 50 40 30 20 10 0 Unit: Billion Dollars Unit: Billion Dollars Unit: Million Units

PC Market Size (Worldwide), 1990-1998

100 Unit: Million Units 80 60 40 20 0 90 91 92 93 94 95 96 97 98 Uni t s ( m ) m Dol l ar s ( bn) 200 150 100 50 0

Market Analysis

Share of the U.S. PC Market, 1990-1998

50% Unit: Million Units 40% 30% 20% 10% 0% 90 91 92 93 94 95 96 97 98 Shar e of t he U. S. m ket ( Uni t s ) ar 40% 37% 38% 40% 40% 39% 38% 39% 40%

Market analysis Segmentation analysis

PC Market Share by Cumsumer Category in the U.S. market(by dollar value) 50.0%
40.0% 30.0% 20.0% 10.0% 0.0% 94 95 96 97 98 Educat i on

Lar ge/ m dsi ze i busi ness & gover nm ent Sm l busi ness al & of f i ce Consum s( hom er e)

PC Market Share by Cumsumer Category in the U.S. market(by units) 45.0%

40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 94 95 96 97 98

Lar ge/ m dsi ze i busi ness & gover nm ent Sm l busi ness al & of f i ce Consum s( hom er e) Educat i on

Market Analysis

P C M a rk e t P ric e In d e x b y C u m s u m e r C a te g o ry th e U.S . m a rk e t
1 .6 1 .5 1 .4 1 .3 1 .2 1 .1 1 .0 0 .9 0 .8 0 .7 0 .6 94 95 96 97 98

Lar ge/ m ds i z e i bus i nes s & gover nm ent Sm l bus i nes s al & of f i c e

Cons um s ( hom er e Educ at i on

* Price Index = Market Share (by value) / Market Share (by units)

Porters five-factor model of market profitability

Threat of potential entrants: New PC manufacturers from developing countries, like China, Taiwan, etc.

Bargaining power of suppliers: Less bargaining power because many suppliers compete heavily.

Competition among existing firms

Compaq, IBM, HP, Apple, Gateway, etc.

Bargaining power of customers: More bargaining power because a lot of brands for their choice.

Threat of substitute products: PDA, notebook, net book, etc.

Asker. A. D. (2005)

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
User Satisfaction

Compaq

IBM

Gateway

HP

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
Synthesis:
Weakness IBM

Competitive Strength Grid

HP Gatewa y DELL Strength

Compaq

Performance:

Cost

Structure

Low IBM HP Compaq Gatewa DELL High Performan y Performanc ce e 28.70% 26.30% 21.40% 13.80% 12.40%

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 Moores Law Better performance and cheaper price

2. Customer Trends: In the mid 1990s 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

18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 90 1.0% 91 1.6% 92 93 94 95 96 97 98 3.7% 4.8% 4.2% 4.9% 6.8% 9.3% 13.2% Appl e Com paq D l el G ew at ay H P I BM

PC Market Share (the U.S.), 1990-1998

16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 90

PC Market Share (Worldwide.), 1990-1998

8.6% 5.9% 4.3% 2.3% 0.0% 91 0.0% 92 93 94 95 96 97 98 3.0% 2.8% 3.2% Appl e Com paq D l el G ew at ay H P I BM

Profitability
Revenue of Dell ($ million)
20000

15000 Revenue

10000

5000

0 92 93 94 95 96 97 98 99

Profit of Dell ($ million)

5000 4000 3000 2000 1000 0 -1000 92 93 94 95 96 97 98 99 G oss r m gi n ar N et i ncom e

Internal Analysis

Days of Inventory of Dell

90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 92

76.2

70.7 D ays of i nvent or y (D ay)

32.9

39.1

37.0 15.0

8.9 98 99

7.0

93

94

95

96

97

Days of inventory = 365days / (Revenue - Gross margin) / Inventory

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 development
Add product features & refinement New Generation products, new form factors

Recommendation

Product Expansion Strategies New product design and portfolio According to user ( kids , students , employers , elders ) Organic shape , colors , trend , age , gender Diversification Strategies Advertising 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, TVs, Handhelds, Software, Peripherals, Storage, Networking, Workstations and more. Asia , Middle east Defense, Media, hotel, universities, schools Growth Strategies Acquisitions, Strategic partnership E-Business, Storage, Security, Network

Thank you !!