Situation Statement Dell Computer
Corporation was founded in 1984 by Michael Dell. From the early 1990s until the mid-2000s, Dell was ranked as a PC market leader relying on their distinctive marketing pattern “Direct Model” which undertook direct communication with customers and provided customized products. Recently, the PC industry is facing inconceivable worldwide competition, and Dell is gradually losing their competitive advantages by using its direct model in critical business segments. The company is facing shrinkage of growth, increasing competition, declining quality of customer service, and limitation of expansion.
These issues have an enormous impact on Dell’s position as a technological giant in the PC industry. Problem Definition Generally, in order to consolidate its top market position, Dell Computer Corporation has to keep its competitive advantage and fgure out the issues which come from the internal and external environment. First, as globalization continues to develop, it is bringing both opportunities and threats to companies worldwide. The PC market is experiencing constant renewal and replacement and this results in the reducing of differentiation and the increase in price wars among competitors.
In the early 1990, Dell was positioned as “focused differentiation” in the PC market and attracted a lot of customers by using their superior customer service. However, Dell’s competitive differentiation from its competitors, which is based on its “customized product”, is not its core competence anymore in 2007 since Dell’s remarkable direct model has been imitated by other companies. Second, although the PC market is a highly competitive and rivalrous market, the profitability is still attracting the attention of companies to squeeze into this market.
Therefore, Dell is facing the challenging threat of new ntries into the market. Additionally, due to the diversified products, customers have more options on computer brands, styles, and functions in the current market. This also forces Dell’s position to move from supplier power towards buyer power. In brief, when an industry is growing, more rivalry is likely to enter the market. Third, internal erroneous decisions will negatively impact Dell’s long-term operations as well. In 2001, Dell decided to move its support center to India, and this directly resulted in a declining perception of the company’s customer service.
Although the company is roviding its “superior customized product”, the quality of customer service is another key element for keeping customer loyalty. Finally, the traditional direct model strategy is not appropriate in the current PC market. The direct model mainly focuses on operational efficiency and organizational restrictions on individual customers, but this limits the company to step into new business segments for long-term operation. This model has restricted Dell from gaining market share in the “single consumer” segment, and nas resulted in an inability to otter more customized products to iverse customer segments.
Furthermore, globalization is creating additional opportunities for the PC market. The United States is Dell’s primary market and yet the company is competing in the global computer market. Therefore, Dell will need to consider expanding its market globally in order to develop its differentiation advantage outside of the U. S. Diagnosis Dell’s accomplishments through the mid-2000s caused its rivals to take notice and action. IBM and Lenovo launched a direct distributive initiative and created the Authorized Assembly Program which improved their inventory turnover rate.
Compaq lso optimized its distribution model by building orders only after they were received which declined their inventory holding. HP began selling PCs directly to business customers online and initiated a toolkit to increase consulting and sales training. Gateway focused on individual customers rather than large corporations. Acer eventually bought Gateway and differentiated itself as “100% indirect” company that specialized in producing inexpensive notebooks. Dell positioned itself as a successful differentiator; however, its competitive differentiation is no longer an advantage for it due to the ease of their Direct Model imitation.
Home and corporate users dominate the five categories of buyers on PC consumption. There are large amounts of these buyers in the market that are price sensitive and have low switching costs on their products which raises overall buyers’ power. However, in the case of Dell, many customers became frustrated with Dell. For example, Dell’s call centers received manyf discouraged clients’ comments. One reason: many service representatives were trained to solve only one category of a problem, so almost 45% of calls had to be transferred from the agent who answered the call to someone with the knowledge eeded to help the customer.
Richard L. Hunter, who was brought in to improve Dell’s customer service, called the situation “terrible”, explaining that it was comparable to “delivering materials to the wrong factory 45 percent of the time. ” Worse, to slow the tide of calls from customers, Dell tried removing its toll-free service number from its website. Customers’ reactions showed up in Dell’s declining market share and slumping customer satisfaction ratings (Certo, 2013). Moreover, when Dell went on to expand its tech support outsourcing with other call centres in India, customers began omplaining.
Consequently, Dell stopped being perceived as an American role model (Munarriz, 2012). Overall, in recent years, Dell has started to experience problems with its direct sales model and has steadily been losing ground to HP, who now occupies the number one spot in the PC sales market. Analysts had felt that the innovative sales model developed by Dell had made it the industry favourite and also a high indicator of good sales growth. However, industry insiders have now observed that those upbeat days appeared to be over for Dell as the company’s profits and hare prices had dropped considerably.
The diagnosis, then, is that Dell’s traditional direct model is failing because the market, the competitors and the consumers have changed and yet Dell still uses the same model which Michael Dell invented in the early 1 Cause-Effect Analysis As companies such as Compaq, HP, Lenovo and Acer imitated Dell’s direct model for sales of their PCs, this quickly began to cut away at Dell’s competitive advantage. Dell’s direct model brought in large profits for the company and gave them “the title of worlds biggest computer maker” (Sorensen, 2013).
However with the other omputer makers wing for the top spot in the competitive PC manufacturing space, the direct model “spawned a host of imitators??”several who proved to be better equipped to take advantage of the business model Dell thought it had perfected. “(Sorensen, 2013) The adoption by other PC makers of cutting out the wholesaler and selling directly to the consumer caused Dell to “relinquish the title of world’s biggest computer maker to HP in 2006. ” (Sorensen, 2013) In the below graph representing more recent years of the top 5 PC makers shows that Lenovo has also now surpassed Dell in market share.
Peitsch, 2012) With Dell being the first manufacturer to use the direct sales model, they have been able to take much praise from their customers for producing more affordable products and customizing products that meet the customers desired specifications. However, with having “a closer relationship with the customers”, they also receive “all the blame when things go wrong” (Spooner, 2004). Being able to manage negative product experiences and questions from their customers is key as Dell has cut out the middleman in the distribution process.
Dell’s offering of poor customer service is large contributing factor to them losing the title of being the top manufacture. Dell was once strong with customer service, but as the company grew and sales continued to increase, “Dell’s customer services deteriorated due to outsourcing its call centers offshore. Dell invested a large sum of money in fixing this, but hasn’t yet regained its previous reputation for customer services” Ourevicius, 2013). With Dell falling behind HP, Lenovo, Acer and Apple the company needs to evaluate how they will manage their customer service to avoid further alienating and losing customers.
When companies compete in that type of environment, only the ones that deliver great customer service eventually win” (Satterwhite, 2013). Action Plan Dell must expand its marketing plan to reach foreign markets. The company’s direct sales model was an absolute advantage during its golden age because it helped cut costs and advertising expenses. However, as the market changed, other companies gained market share while Dell’s direct model fell out of touch with customers’ needs. Therefore, Dell must develop retail channels in some particular regions in order to satisfy consumer needs.
A customer in Beijing needing a laptop immediately cannot afford to wait a whole month before his laptop arrives. In order to secure the sale, Dell will need to have a retail presence in Beijing otherwise the customer will likely purchase his laptop from a competitor. Developing retail channels will help boost Dell’s brand and increase international sales. It is necessary to establish at least one retail store in major Asian and European cities such as London, Paris, Shanghai, Tokyo and Seoul. Dell must focus its current efforts on producing innovative products in rder to stay competitive in the future.
Information technology is a fast-cycle industry and Dell needs to be a leader instead of a laggard in this field. In their comments on the leading firms in fast-cycle markets, Bower and Hout (1988) say, “These companies make decisions faster, develop new products earlier, and convert customer orders into deliveries sooner than their competitors. As a result, they provide unique value in the markets they service, value that can translate into faster growth and higher profits. ” If Dell holds onto its old advantages in the old market, it will be weeded out y competitors in the new market.
Core competency is the key to a companys success in the current competitive environment and Dell has not shown any competency in innovation. HP, Dell’s largest competitor, has already discussed delivering a tablet to the market after its acquisition of WebOS. This is a prime example of Dell falling behind its competitors in the area of innovation. Developing its own tablet will help Dell improve its market competitiveness in the future. Also, this will give the company the opportunity to implement a cloud system between its devices.
When considering Apple’s products, the first word that often enters the mind is “design”. The company has positioned themselves as the leader in this area with their sleek looking laptops, ‘phones, ‘pads, and ‘pods. They have capitalized on the swing in consumer demand for design while Dell has fallen embarrassingly behind. In todays competitive market, customers demand more than mere functionality – they desire a stylish product that appeals to the senses. Simply put, Dell must focus more attention on the design of its products if it wants to stay alive in the computer ndustry.
In 2004, IBM announced that it would sell the division to Lenovo; Compaq and HP followed distinct paths that intersected in a 2001 merger; Acer bought Gateway to have faster growth. We can see that many computer companies have already tried to make adjustments to the new IT environment and drive technology forward at a faster pace by combining their assets. It helps companies enhance market competitiveness and gain greater economic benefits. However, Dell is still alone in its struggle and it should try to have win-win co-operation with other related partners.
Dell could merge with an Asian or European computer brands such as IBM or Gateway to expand their international competitiveness. The company could also engage in co-operation with Microsoft or other software engineering companies to improve its soft strength.
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