Principle of Marketing

Case Study Analysis

DELL COMPUTER:
BUSINESS TO BUSINESS OVER THE WEB

Adnan Ahmad

EX-MBA Spring13-012

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 Table of Contents

Executive Summary 3
Analysis 3
Recommendation 5

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Executive Summary

Dell has grown rapidly to become one of the top three vendors in the PC industry, and has seen
an extraordinary increase in share price and market valuation.

The key to Dell’s success has been its direct sales and build-to-order business model. The
primary method Dell uses in order to achieve and sustain their competitive advantage is a unique,
direct to customer business model with the help of Web technology. The model is known as Dell
Direct, referring to their relations with their customers as being “direct.” This model helps Dell
focus on price for performance, customization, service and support, latest technology and
superior shareholder value. Additionally, Dell is able to distinguish itself from its competitors
with it’s customized on- demand manufacturing. With this customization, Dell is able to offer
customers more value for their money by eliminating intermediaries in their procurement,
manufacturing and distribution processes.

The competitors like Compaq and IBM are trying to implement their own build-to-order
processes similar from the Dell business model. Questions that naturally arise are: How much of
Dell’s success is due to its business model? How can Dell maintain and improve its performance
in the face of new challenges versus its execution of the existing model?

Analysis

After the marketing and sale attempts of laptops failed through traditional retail distribution
network in 1993, Dell shifted its focus to develop and improve a method of selling all their
product line to customers, corporate and individual consumers, from the Dell Direct model, a
Web-enabled infrastructure that allows customers to customize their PCs and order other
products they need or desire. This virtual integration structure eliminated the need to
manufacture everything, and instead uses the power of the Internet to share and exchange
information with suppliers and vendors to build a truly superior supply chain that keeps
inventory turnover low and costs to a minimum.

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Michael Dell stated is as “Free flow of information” model. Mr. Dell defines that it a tool to
build strong relationships with customer hence benefit for both company and its suppliers over
the traditional retail channels. This relates to Dell’s inventory system. Dell implements a Just-
In-Time inventory system which operates on only 6 days of inventory. Dell is able to achieve
greater profit margins and increased profits because of their inventory system. Inventory and
labor are the highest liabilities of a firm. Since Dell only operates with 6 days’ worth of
inventory, they are able to cut costs on warehousing, hiring people to track and maintain
inventory, and avoid holding on to obsolete technology. This allows Dell to free up cash flow to
invest in other value adding activities.

Dell is able to sustain a competitive advantage over competitors in the computer industry
because of its unique distribution and supply system. Dell is able to achieve superior profits in
the industry with low liability of inventory because their vision of knowledge and information
free flow, communication, e-commerce, e-business, internet, and web technologies.

Dell uses a JIT (Just In Time) inventory system and because of it, Dell’s customers can order
computers directly through Dell itself. Dell uses the website to take customer’s orders. Dell
focuses on direct sales, cutting out other distribution channels entirely. This allows for a deeper
relationship with the customers whereby Dell can offer their customers better service, savings,
convenience, and efficiency. A customer can order their own custom computer, have it built by
Dell in three days and have it delivered to the customer’s doorstep within one week. Dell
focuses not only on sales online but also created their “Premier Page” for its customers specially
the corporate including corporations, the Government, and educational institutions etc. This
webpage includes dynamic price upgrades, projections, order and inventory tracking and a
greater range of product related options like discounts and upgrades etc.

Not only does Dell use the internet to make the customer ordering process easier. They also use
the internet to build better relationships with their customers and suppliers and solve their
problems. Corporate clients like Boeing or Byer corporation with thousands of servers and
workstations in use, Dell provide them full hardware and software support which is a big support
to minimize client’s financial expenditures and technical problems but also proved beneficial for
Dell as it helped getting insight understanding of corporate clients requirements and inputs for

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their future product development and develop better customer relationship. For example, in
order for Dell to work off of 6 days of inventory, their suppliers have to be very involved in the
company to make sure superior service is met.

Overall, three tiers of Dell’s business offers them advantages in computer manufacturing industry
—direct sales, build-to-order, and Internet commerce. Direct selling offers advantages in any
industry because clock speed is critical and products, services, or information is delivered more
quickly by eliminating intermediaries. Build-to-order production, or mass customization, should
benefits as more industries as companies look to differentiate their products and avoid pure price
competition. Most important, the use of the Internet for marketing, sales, and supply-chain forms
a virtual integration which undoubtedly embraced by large segments of the market and industry.

Recommendations

Constantly changing technology and highly competitive computer industry could directly impact

Dell’s success and future. Although Dell is comparatively successful company, there are areas of

improvement and enhancement that could be considered. After an analysis of Dell’s business

model and competitive advantage above, I have come up with few suggestions that could be

implemented by Dell to maintain its competitive edge.

These suggestions are

1. The Internet is Dell’s key IT factor in its success and it competitive advantage lies in

its direct model success. Dell should continue expanding its online selling and

support strategy while try to include and partner newly emerging web technologies

for better customer experience and relationship management.

2. Consider adding new vendors and markets to its supply chain management system.

3. Conduct routine market research through “Customer Surveys” to gain market

knowledge to increase share.

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4. New product development other than computers should be considered as market is

shifting more towards custom feature selection rather then what is new in the

industry.

5. New services should be added for customers and partners with more research.

6. Research and development budget should be increased to bring new technology and

solutions.

7. Improve the existing web based applications and interfaces for better user experience

and knowledge.

8. Advertisement budget should be increased and new developing markets should be

reached.