Matching Dell Case Analysis Essay Example

low cost to enter the market as capital of $1 million was enough to establish an assembly line to produce 250,000 PC. b. Threat from Competitors: Dell faced competition from four major rivals. They were IBM, HP, Compact and Gateway. When Dell entered the market, IBM had majority of market share of 28%, followed by Apple (14%) and Compact (7. 5%). This was in the year 1987. By 1998 Dell was able to increase its market share to 13. 2% only trailing to Compact which has 16. 7%.

The main threat to Dell was from HP, IBM and Gateway. In the context of the worldwide market share Dell was behind Compaq and IBM at 8. 6%. Due to this high level of competition, the profit margins were very slim. Despite this Dell was able to make more profit than its competitors. c. Bargaining power Suppliers: The main two components used by Dell and its competitors were provided by Microsoft and Intel. Hence it can be said that the suppliers had huge bargaining power. And as the same suppliers were used by Dell’s rivals, they were all in the same playing field.

The suppliers for the hardware components used by Dell were selective and worked very closely with Dell to prefect "just in time" system. So in case of hardware suppliers, suppliers would have high bargaining power as to replace the current supplier would be difficult. d. Bargaining power of Customers: Dell sold directly to its customer and had highly diversified customer base. No single customer represented more than 2% of its sales. However, in the scenario of Dell’s competitors, it was different. Dell’s competitors

did not sell directly to its customers. They sold their PCs through distributors, resellers and retailers.

Therefore, these were the initial customers of the competitors. They were also provided with price protection and buy back agreement in case the product did not sell. e. Threat from substitute: The case does not provide much information about Dell's substitute. However, it can be said that PCs manufactured by Apple is a substitute in certain aspects. They were very different compared to “Wintel” computers. During the time frame provided in the case, it can be said that threat from substitute was low as switching between Wintel manufacturers was common but switching to Apple computers was low.

Dell was able to gain its market share in the PC industry and became the 2nd PC manufacturing company trailing to Compaq, despite the tough competition. So what made this possible? In order to answer this question we need to look at the product Dell were providing to its customers as compared to its competitors. Dell computers from the very start were selling customized personal computers. The customers were able to choose the components they wanted in their personal computers. This had not been done by the competitors and could not be replicated easily as direct contact with the customers were lacking in case of Dell’s competitors.

Dell was able to position its PCs in such a way that it was able to differentiate its PCs against its competitors as the competitors were selling a standardized PC. This did not provide the customers the choice to select the components they would have desired. We can say that the products

provided by Dell had a pull effect whereas product provided by its competitors had a push effect. PCs were being manufactured as per the order placed by the customers in case of Dell where as PCs were being created and shipped to distributors and resellers so that they could push the products to the customers in case of Dell’s competitors.

Internal Case Analysis So far we have looked at the external market, the product Dell was selling and now look at Dell and its internal factors that helped it to become a cost leader and make better profits than its rivals. To provide an analysis of Dell’s internal factors we will use Porter’s value chain and focus on the primary activities. The primary activities consist of inbound logistics, operations, outbound logistics, sales and marketing and services. a. Inbound Logistics As PCs did not have a high margin, Dell focused on reducing cost.

To reduce the cost, Dell introduced "Just In Time". This system helped to make inventory turnover very high. It therefore helped to have "no stock lying around" and as soon as the raw material components arrived, they were assembled and shipped to the customers. This helped Dell reduce large amount of cost as there would not be any obsolete stocks. Furthermore, there was minimal holding cost to the company hence, reducing the cost. Whereas, this system had not been followed by its competitors and this built huge cost for its competitors hence reducing the profit of the company.

This has been one of the main competitive advantages for Dell against its competitors. b. Operation Another competitive advantage Dell had to

its rival was the operation. It reduced the time to manufacture and assemble the PCs as much as possible. First by generating part list from a computer and assigning bar codes and the older facilities being organized in assembly-line fashion, as the chasis of the machine travelled down the line, hardware specified by the part list was added. Further, in the new facility five-person manufacturing cells where the parts would arrive in a bin and the assembly would take place.

The assembled PCs would be sent to the software loading zone where the specified software would be installed then it would be tested in the “burn-in” area after which they would be boxed and shipped. Components such as monitors would be shipped directly with the assembled PCs without the monitors ever arriving at Dell. This reduced the holding cost of finished goods and there would be no obsolete finished goods as they would be shipped as soon as they are assembled. c. Outbound Logistics Unlike its competitors, Dell sold directly to its customers through shipping which eliminated huge additional cost that were bore by its competitors.

Dell’s rivals used traditional distribution channels i. e. distributors, resellers and retainers due to which it would take a long time for the PCs to reach the end customers. This provided the major risk of price change and obsolete inventory. The cost bore by rivals were price protection, buy back and the margins of the distributors, retailers and resellers. These all cost was eliminated in case of Dell which provided Dell with superior profit margins compared to its rivals. d. Sales and Marketing Dell sold directly to

its customers. So it had a distinct advantage over it rivals in segregating the customers.

Further, they were able to understand the customer needs as they had employed over a thousand outside sales rep. to understand the customer needs, helping customers and prompting Dell’s products. Dell’s competitors lacked behind in this as the rivals never interacted with its end customers as they never sold directly to its end customers and this would be done by either distributors, retailers or the resellers. e. Service Dell was able to response to problems with its product immediately. With the help of customer database, diagnostic software and highly organized customer support team, customer problem was resolved quickly.

This helped Dell retain customers and pull customers from its rivals. 3. Problem Recognition Seeing the success of Dell, its competitors had started to adopt either the direct sales strategy or the just in time in certain aspect. Further, with certain level of saturation of the PC industry and high dependence on this market had become one of the major problems for Dell. By 1998 there was not much difference in the price offered by Dell and its competitors. 4. Conclusion: Even though the competitors have started to adopt Dell’s “direct model”, they still have a long way to go in order to catch up with Dell.

In regards of just in time the competitors have not been able to successfully implement it. Dell’s high dependence on the PC market can be identified as a major problem. To overcome this problem Dell needs to either find new markets with its existing products which is known as market development or

develop new products into the existing market, as we can see the later has already commenced therefore the need to penetrate the workstation and server market which is known as market penetration. The suggestion provided is through the use of Ansoff’s matrix.