Dealing directly with suppliers was essential for the successful application of Dell’s direct model. Dell chose to build PCs to order, and Dell was the first PC manufacturer to offer free installation of applications software as a standard service option. Just-in-time inventory control created advantages that had an immediate implication on customers. Inventory costs were kept to a minimum, and new technological breakthroughs could be delivered to customers within a week as opposed to two months.
Dell bought random-access memory (RAM) chips and disk drives for IBM PCs at cost from IBM dealers and Dell resold the components through newspaper advertisements at 10-15 percent below the regular retail price at the beginning. By 1984, Dell was making lots of money and he dropped out of college to form a company, which officially became Dell Computer Corporation in May 1984. His strategy was to sell directly to end users; by eliminating the retail markup, Dell’s new company was able to sell IBM clones and the price discounting strategy was successful and attracting price-conscious buyers and producing rapid growth.
Besides that, dealing directly with a few main suppliers on a global basis reinforced Dell’s competitive advantage. Michael Dell emphasized that through closer contact with customers and with more information about customer needs, there was less need for massive amounts of inventory. The formula worked well for Dell. The direct model has led him for globalisation. Its build-to-order manufacturing operation for the US was located in Texas, for Europe in Limerick (Ireland), for Asia Pacific in Penang (Malaysia) and for China in Xiamen.
Apart from that, this American concept made its direct approach even more direct through the Internet where he launched Dell On-line in 1996 and the sales reached US $1 million by the first quarter of 1997. By August 1999, daily on-line sales have reached US $30 million, accumulating a total of US $11billion per annum. Dell had become the first computer company to provide a comprehensive on-line purchasing tool.
E-Support Direct was the fourth phase of Dell’s electronic commerce strategy because the Internet improved the speed and flow of information at much lower costs. It was the perfect and natural tool for Dell to deliver the ultimate in customer experience, the direct-service model. In 1998, Dell announced that the new direct-service model for building the business of the future and unveiled E-Support-Direct.
In conclusion, Dell implemented its marketing strategy with the Dell advantage, which is based on direct relationships, low cost, speed to market and e-commerce expertise as much as it is on Internet hardware, appliances and customer services and support.
- What does a SWOT analysis reveal about Dell’s situation?
The firm believes that its external environment is composed of a group of factors that are beyond its direct control. As a result, Dell examines these factors intensely to identify opportunities and treats. SWOT analysis of Dell Computer Corporation tells us how the company was setup in 1984 by Michael Dell himself.
The global expansion through the Internet, however, had its limitations. This was especially true for regions where Internet usage was still low in terms of population density. The weaknesses regarding Dell’s situation has allowed us to reveal the size of the market, current and potential, the availability of resources and skills relating to customer needs were not readily available. No proprietary technology and high dependency on component suppliers are the weaknesses as well. Besides, local acceptance of Dell’s direct model will decrease especially potential customers who had not heard of the Dell brand would find it difficult to pick up the telephone and order Dell PCs without having seen one.
The strengths of Dell Computer Corporation are listed as aplenty as well. One of them is no inventory buildup. Dell was able to pass along to its customers the savings from reductions in system component costs quickly because it maintained very low inventories. Being an industry leading growth, Dell has to target large companies if the business was to grow. Not forgetting its direct to customer business model has brought Dell to a rapid growth and customization had created good relations and trust within customers. Dell’s advantage or strength is to provide exactly what customers need and with Dell, customers can choose exactly what they want. Dell has dominated the Internet sales as well by generating at least US $5 million worth of product everyday. Dell’s global manufacturing and global sales capabilities are strengths when Dell built a few manufacturing factories around the globe.
Not to forget to give credits to timing for entry to new markets was therefore essential given all the factors that had to be considered. Dell at that time had this opportunity of making this underlying motivating force to come in at the right timing. In addition of the readiness of the market, all countries worldwide especially in Europe, China and Asia Pacific would have the potential and accept the direct model for selling PCs. Another opportunity that Dell has endeavored was network of Internet, Intranet and Extranet, which has given Dell a chance to expand his business through on-line purchasing tool. Low cost and advanced technology also gave chances to Dell Computer Corporation to function more efficiently.
However, there will be threats towards Dell’s company especially competition in price and market share from other major computer corporations. Major vendors such as IBM, Hewlett Packard and Compaq were vying for position in the market. Currency fluctuation in countries outside US in 1997 has been an alarm for Dell to keep an eye close towards Asia Pacific Region. This was because Asia Pacific Region such as China, Malaysia and Japan were the largest PC market for Dell. However, a long-term slow-down in global sales of PCs and servers has threatened Dell’s well being.
The SWOT analysis documents the attractiveness of Dell’s strategy and why it has been extremely successful in gaining market share in the PC market. It has a very attractive, hard-to-imitate set of resource strengths and competitive capabilities.
- Identify five key competencies of Dell Computer.
There are five distinctive key competencies of Dell Computer Corporation. The core competencies includes of just-in-time inventory practices whereby no one in the PC industry does it better, or even comes close to matching what Dell can do. As strategic management says, in order to remain competitive, Dell has had hard-to-imitate practices in this.
Another competency would be build-to-order manufacturing and mass customization. Dell is the industry standout in the PC market, however rivals are working to close the gap in this factor. But still, Dell has no rival that can yet match on this.
Direct sales capabilities are one of the core competencies of Dell. The image of Dell on direct business model has indeed build a long-term relationship with customers and key suppliers. This is one of the components where competitors find it hard to imitate.
Cost-efficiency has been reinforcing Dell as the competitive advantage in this PC industry. Low-cost assembly and efficient customer service has intimidate the trust of customers into Dell brand.
Lastly, global manufacturing and global sales capabilities have pushed Dell as the major competitor in the PC industry because Dell remained strong and a leader whereby Dell operated sales offices in 33 countries and served customers in more than 170 countries and territories around the globe.