Dell's Direct Model and Competitive Strategy in the PC Industry
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The document discusses Dell's direct sales model and competitive strategy. It summarizes Dell's history and growth founded on direct sales to customers. It analyzes Dell's competitors who struggled to copy the direct model. The document also reviews Dell's market share, competitive strengths, and provides recommendations to expand products, markets, and diversify through acquisitions for long-term growth.
![“ It’s amazing to me that our competitors think the customer is the dealer.” Michael Dell ,[object Object]](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
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Dell's Direct Model and Competitive Strategy in the PC Industry
- 1. Presented by: Patricio Becar Hasnain Zaheer Candong Wu Puru Tiwari
- 8. Market Analysis - PC Market Size
- 10. Market analysis Segmentation analysis
- 11. * Price Index = Market Share (by value) / Market Share (by units) Market Analysis
- 12. Porter’s five-factor model of market profitability Asker. A. D. (2005) Bargaining power of customers: More bargaining power because a lot of brands for their choice. Bargaining power of suppliers: Less bargaining power because many suppliers compete heavily. Competition among existing firms Compaq, IBM, HP, Apple, Gateway, etc. Threat of potential entrants: New PC manufacturers from developing countries, like China, Taiwan, etc. Threat of substitute products: PDA, notebook, net book, etc.
- 13. Competitive Analysis Understanding Competitors
- 14. Competitive Analysis Understanding Competitors
- 15. Competitive Analysis Understanding Competitors
- 16. Competitive Analysis Understanding Competitors
- 17. Competitive Analysis Understanding Competitors
- 18. Competitive Analysis Understanding Competitors
- 19. Competitive Analysis Understanding Competitors
- 20. Competitive Analysis Understanding Competitors
- 21. Competitive Analysis Understanding Competitors
- 22. Competitive Analysis Understanding Competitors
- 23. Competitive Analysis Understanding Competitors
- 24. Competitive Strength Grid DELL Compaq IBM Gateway HP User Satisfaction 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
- 25. Competitive Analysis Synthesis: Competitive Strength Grid Performance: Cost Structure Weakness IBM Compaq HP Gateway DELL Strength Low Performance IBM HP Compaq Gateway DELL High Performance 28.70% 26.30% 21.40% 13.80% 12.40%
- 27. Environmental analysis Source: D. Aaker
- 29. Internal Analysis - Market share by brands
- 30. Profitability
- 31. Internal Analysis Days of inventory = 365days / (Revenue - Gross margin) / Inventory
- 33. Alternative Strategies & Recommendations
Editor's Notes
- Whether in the U.S. market or the Worldwide market, from 1990 to 1998, the PC market grew very fast, and growth rate of these two market are quite similar. In term of unit sold, both the U.S. and the worldwide markets grew 3.8 times in 1998 compared to 1990. In term of dollor, the U.S. market grew 3.2 times however the worldwide market grew only 2.8 times in 1998 compared to 1990. Thus the U.S. market sold PC more expensive than the average of price of the worldwide market. This was might be one of reason Dell develop the U.S. market first.
- From above charts, the U.S. market share was dominant which around 40% of worldwide market and it maintained a stable market share. So this was the other possible reason that Dell targeted the U.S. market firstly, then developed overseas market.
- In the U.S. market, PC market was divided into 4 segments – Large/midsize business & government , Small business & office , Consumers(home) , Education.
- According to the price index showed above, consumers market lacked price attraction to Dell, only large business & government segment and small business & office segment had a higher average unit price. Besides, consumers belong to large business & government segment and small business & office segment did not care more about the price of PC because they need reliable network and high performance computers, especially to large business & government segment. By contrast, because they were sensitive to the price of PC and paid more attention to brand of PC than those two segments, consumers (home) segment did not have high price selling attraction for Dell. Dell only had 18.3%(by unit, worldwide) market share of consumers(home) in 1998.
- UNDERSTANTING the COMPETITORS Competitors Objectives struggled to follow and replicate the Direct Model of DELL Gateway is a serious challenge for DELL ‘position. DELL challenged Compaq Market share. However, DELL is followed closely by both HP and Gateway. Gateway was a serious challenge for DELL’ strengths. Except of Gateway all the big players were shift to model similar to Direct Model. Competitors had a quite similar organization, culture and values (all from US) Gateway is a serious challenge for DELL ‘ SCA. It was a new industry where it did not have a clear barrier amongst competitor (customers segment were overlapped)
- UNDERSTANTING the COMPETITORS Competitors Objectives struggled to follow and replicate the Direct Model of DELL Gateway is a serious challenge for DELL ‘position. DELL challenged Compaq Market share. However, DELL is followed closely by both HP and Gateway. Gateway was a serious challenge for DELL’ strengths. Except of Gateway all the big players were shift to model similar to Direct Model. Competitors had a quite similar organization, culture and values (all from US) Gateway is a serious challenge for DELL ‘ SCA. It was a new industry where it did not have a clear barrier amongst competitor (customers segment were overlapped)
- UNDERSTANTING the COMPETITORS 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.
- UNDERSTANTING the COMPETITORS 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.
- UNDERSTANTING the COMPETITORS Competitors Objectives struggled to follow and replicate the Direct Model of DELL Gateway is a serious challenge for DELL ‘position. DELL challenged Compaq Market share. However, DELL is followed closely by both HP and Gateway. Gateway was a serious challenge for DELL’ strengths. Except of Gateway all the big players were shift to model similar to Direct Model. Competitors had a quite similar organization, culture and values (all from US) Gateway is a serious challenge for DELL ‘ SCA. It was a new industry where it did not have a clear barrier amongst competitor (customers segment were overlapped)
- UNDERSTANTING the COMPETITORS Competitors Objectives struggled to follow and replicate the Direct Model of DELL Gateway is a serious challenge for DELL ‘position. DELL challenged Compaq Market share. However, DELL is followed closely by both HP and Gateway. Gateway was a serious challenge for DELL’ strengths. Except of Gateway all the big players were shift to model similar to Direct Model. Competitors had a quite similar organization, culture and values (all from US) Gateway is a serious challenge for DELL ‘ SCA. It was a new industry where it did not have a clear barrier amongst competitor (customers segment were overlapped)
- UNDERSTANTING the COMPETITORS 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.
- UNDERSTANTING the COMPETITORS 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.
- UNDERSTANTING the COMPETITORS 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.
- UNDERSTANTING the COMPETITORS 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.
- UNDERSTANTING the COMPETITORS 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.
- We can i dentify two strategic groups competitors either close or further against Dell. Closest Competitors: Compaq (incumbent position), HP, Gateway Further Competitors: IBM, Apple Latecomers competitors: Toshiba, Sony, NEC, etc. Cost Structure of the five big players:
- In the U.S. market, Dell grew very quickly from 1% market share(by units) soared to 13.2% in 1998 and ranked the second in home market. In worldwide market, Dell also had a excellent performance in term of market share (by units). It began to develop oversea markets from 1992 at well figure of 2.3%, and market share of 1998 reached 8.6% and took the third place which only lower than the giant IBM by 0.2%.
- Performance analysis : It is necessary to develop performance measures that will reflect long – term viability and health. The focus should be on the assets and competencies that underlie the current and future strategies and their SCAs. What are the key assets and competencies for a business during the planning horizon? What strategic dimensions are most crucial: to become more competitive with respect to product offerings, to develop new products, pr to become more productive? Profitability : It can be measured with the ROA = (profits/sales) x (sales/ assets). It has to meet or exceed the cost of capital. Sales: It is necessary to separate changes in sales that are caused by tactical actions from those that represent fundamental changes in the value delivered to the customers and it is important to do an analysis of customer satisfaction and loyalty. Shareholder value analysis : If the return is greater than the cost of capital, shareholder value will increase and if it is less shareholders value will decrease. One danger of shareholder value analysis is that it reduces the priority given to other stakeholders such as employees, suppliers and customers. Customer satisfaction : The most useful information comes from those who have decided to leave a brand or firm. Product quality : How good a value is it? Can it really deliver superior performance? How does it compare with competitor offerings? How will it compare with competitor offerings in the future given competitive innovations? Brand associations : What are the associations of brands? What is its perceived quality? Is a brand or firm regarded as expert in a product or technology area? Innovative? Expensive? For the country club set? Relative cost : It is critical when a strategy is dependent on achieving a cost advantage or cost parity. Sources of costs: Economies of scale, the experience curve, product design innovations and the use of no – frills products offering. New products : Does the R&D operation generate a stream of new product concepts? How does the flow of patents compare to that for competitors? Is the process from product concept to new product introduction well managed? Is there a track record of successful new products that have affected the product performance profile and market position? Is it possible to generate substantial innovation? Are there programs to precipitate innovation? Employee capability and performance : Are the human resources in place to support current and future strategies? Do those who are added to the organisation match its needs in terms of types and quality or are there gaps that are not being filled? Is there enough diversity to respond to new threats and opportunities?
- Major performance indexes(revenue, gross margin, net income) were in a high growth way during 91-98, and one more important thing is its days of inventory was improved wonderfully and reached only 7 days at the beginning of 1999. It fasted its days of inventory 10 times during only in 7 years.