Matching Dell

Avinash H
Benedikt Wiesmann



Jagat Jain
Ramanan R K



Ratnesh Kumar
Group Members
Dell Direct Model
Selling computers directly to customers which
eliminated all traditional channels like distributors,
resellers and retailers
Direct model also provided a better understanding
of customer needs
Enable it gain cost leadership and competitive
advantage in the PC market
An intensive after sales service, both online and in
call centers to improve customer satisfaction

Why it worked
Dell was able to align its resources and capabilities with customer
expectations
Dell was able to build huge and highly integrated and efficient external as
well as internal sales forces
It produced computers based on actual orders rather than demand
forecasts
Cellular manufacturing units which consisted of five employee
manufacturing cells enabled to achieve fewer defects and zero inventory
targets
It had sound relationships with its suppliers via close electronics links
Enabled the company to direct some supplier shipments such as monitors
from Sony directly to customers
Suppliers were encouraged to locate warehouses and production facilities
close to its assembly operations to ensure smooth flow of materials across
the value chain
Dell Competitive advantages
Since it has to maintain a lower inventory because of the direct method of
business model it uses
Lower Inventory Carrying Cost
Since price of the component is falling, Dell need to buy the products
component later than its competitor due to direct selling model (Just in time)
delivery model
Saving in purchase of component
It eliminate the channels as it was selling the product directly to the
customers
No Channel Cost
Since there were no channel, hence channel mark-ups was eliminated
No Channel Mark-up
Cost categories Temporary and
Permanent advantages
Inventory cost advantage permanent because low inventory
can be attained only through direct selling
Cost leadership by saving dealers margin, just in time
manufacturing
Customized product Customers could customize PCs, thus
providing variety of options, also less time to reach customers
Increased willingness to pay from customers because of
technology and good support advantage to cut prices during
price war
Reduced advertising expenses due to non-spending in the
channel partners marketing activities



Dell Competitive advantages
Dell Competitive Advantage due to following



1996 1998
Lower Inventory Carrying Cost 21.25 24.05
Purchase of component( as price is falling) 44.98 86.35
No Channel Cost 57.83 49.42
No Channel Markup 129.37 76.99

Total Cost Advantage 253.42 236.81
This shows that Dell has a competitive advantages of ~ $254 in 1996 which has fallen to
~$237 in 1998 per PC which is significant i.e. 11% of revenue

User Satisfaction
Customers are satisfied with the different price
points offered by Dell in comparison to Compaq
and its resellers
Raw Technology
Being the leader in technology, the willingness
to pay for the brand is very high as the
customers prefer the best in technology in
addition to the pricing
Pricing
The value perceived by the customers has been
consistently rated above Compaq and its
resellers (2
nd
for Dell compared to 4
th
for
Compaq)
Service and Support
Many customers are moving to Web-based
support thus increasing the Willingness to pay
for Dell Products compared to Compaq and its
resellers
Customer Relationship
Close electronic links with the suppliers help in
getting the best prices for its parts, reducing the
overall cost
Willingness to Pay Comparison
Dell has superior ratings on a majority of factors and thus the Willingness to Pay based on the Competitive Cost
advantage ( ~ $237 ) will be higher for Dell compared to Compaq and its resellers
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1
2
3
4
5
Dell
Compaq
IBM Gateway
HP
Perception Mapping of Dell and Competitors
User Satisfaction
Raw Technology
Pricing
Service and Support
Customer
Relationship
Compaqs response to Dells advantage
Option 1: Copy Dell
Reduce inventory in system to free cash and shorten time
to market
Use postponement strategy: lean component
manufacturing up to decoupling point followed by agile and
fast customised deliveries of products according to
customer requirements
Open new channel opportunities with direct distribution
initiative
Explore possiblities of unique service offering
Other channel members will oppose this option. Their
opposition cannot be ignored as they are responsible for to
large a share of Compaqs revenues.

Option 2: Make buying and designing computers for
consumers as easy as possible
As prices for PCs are decreasing computers become more
affordable for consumers
Dells products and buying process are more directed
towards professional users
Compaq could add value by making buying and designing of
PCs easy for consumers and offering a unique customer
service
As prices are destined to come down and customer service
offerings are expensive, Compaq should reconsider using a
direct channel including referrals for resellers to keep these
happy and in the system


Compaqs response to Dells advantage
Option 3: Offer unique packaged solutions to corporate
customers
Business clients are not as price sensitive as consumers and
are more reliant on high quality support services
Hence, Compaq could offer packaged solutions consisting
of hard- and software and support services to corporate
clients
This would make Compaqs value proposition more unique
and attractive to the corporate computer market
Compaq could rely and make use of its extensive reseller /
distributers network for this option. The network could
provide the necessary customer support and provide
access to corporate clients


Compaqs response to Dells advantage