Dell Online- Harvard Case Study PDF

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DELL ONLINE

Case Analysis Report

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Table of Contents

3 C’s (Company, Customers, Competition)

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Company Background:

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Customers:

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Competition

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SWOT Analysis:

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Dell Online

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Failure with Retail Channels

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Porter’s 5 Forces:

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Market Analysis:

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Recommendations:

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STP Analysis

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Segmentation:

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Target Market:

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Positioning:

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Marketing Mix:

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Product:

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Price:

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Place:

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Promotion:

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Conclusion/Recommendations:

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3 C’s (Company, Customers, Competition) Company Background: Dell was founded in 1984 by Michael Dell and it transformed into one of the largest PC laptop brands globally and earned an admirable reputation for the products and services it provided. Dell produced several products such as laptops, desktops as well as PC/Lan servers. In 1996, sales reached as high as $7.8 billion and they had been able to capture a loyal customer base as their products were high in quality and also reduced ownership costs. In July 1996, Dell introduced its first ever online website which gave customers access to several features such as ordering, customizing and checking the status of their order at their convineince. This was received positively by their customers which generated millions of dollars in revenue. This report will further analyze the success behind their online store as well as offer recommendations that can be implemented by Dell to remain competitive in this industry. Customers: Dell’s customers can be classified into three broad groups: transactional customers, relationship customers or a blend of both. Transactional customers make up 30% of their entire customer base. These are individuals or businesses that view each purchase individually even if they are purchasing several computers. These customers are used to purchasing computers from a wide range of vendors over time, and they tend to search for the PC that is the best in terms of specific factors such as features, reviews, awards, performances as well as specifications. These customers research and consult various sources such as reviews and editorials to ensure they are making the correct decision and they view previous experience with the brand only as an indicator. On the other hand, relationship customers view the process of purchasing computers as “multi-dimensional” despite the number of computers they were purchasing. They tend to be less price sensitive and their major concern factors include reliability, strength of vendor as well as product standardization. They receive most of their information from sales people, conferences as well as testing and trials. Although these are the main customers that Dell currently has, another unclassified group is “for home customers”. These are individuals that use laptops for their own personal reasons such as social media, web surfing and blog posts. This group is price sensitive as they need a laptop that carries out the basic functions. Competition The PC industry can be classified as an oligopoly as there are a few major players such as Compaq, Dell, Gateway 2000, Hewlett Packard and IBM. Dell currently faces severe competition from Compaq as

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they are attempting to imitate Dell’s new services by going directly to the customers as well as allowing the consumer to configure their product. In the different customer groups mentioned above, there is severe competition in both groups. In the transactional segment, Gateway 2000 acts as a strong competitor while in the relationship segment, the major competitors include Compaq, IBM, HP and other leading brands. Compaq’s major seller Vanstar offered consumers a complete computation solution including the installing process and on-site service which posed it as a major competitor to the services offered by Dell. This is concerning as the relationship segment acts as a major customer base for Dell. However, on the bright side Dell has been able to achieve a significant level of penetration within this segment. In the image above, it is evident that Compaq, Gateway 2000, IBM and Hewlett Packard have all at one point had more sales than Dell in the United States as well as worldwide. It is evident that laptops are becoming more popular and needed as they have a 23% annual growth rate. The desktop market has been predicted to grow at 14.5% which will bring strong price competition as PCs have become a commodity product. It is noticed that competition in the PC industry has become quite fierce. In 1997, this industry in the United States was seen to be $85 billion in which Compaq was leading with an 18% share. Dell followed with around 10%, Packard Bell-Nec and IBM both held about 8-9% and HP and Gateway 2000 both held about a 6% share. This indicates that although Dell is competitive and does hold a larger share than other brands, it needs to remain price competitive and implement strategies that will give it a competitive edge. Note: Competition and Customers will be discussed in more details further in the report SWOT Analysis: Strengths

Weaknesses

● Dell has been recongized for its high quality products through winning the PC Computing managinze’s Torture Test twice.

● Dell has not been as successful in selling products through other retail channels such as CompUSA and Staples.

● Dell also won the Industrial Design Excellence Award which makes the brand appear more reputable and credible and raises brand awareness.

● Dell only focuses on the direct channel which does not represent a large portion of consumers.

● Most of Dell’s sales were to governments, educational institutions and large corporations.

● There is inconsistency regarding the role of sales representatives as it is dependent on the customer that is being targeted.

● Dell lowers their consumers cost of ownership

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through offering efficient installation services as well as appropriate software management practices and licence programs. ● Dell has developed a strong customer base and brand reputation over time due to the quality of its products and services. ● The "Dell Direct Model” has gained a remarkable reputation for being unique and has led to great success for Dell.

● Dell Online has been a huge success so far, however there remains uncertainty about its implications as it can be problematic for customers that prefer to test the product out in person. ● Home buyers only represent a small portion of sales, and since this is an emerging sector Dell is currently losing out on sales.

● Dell Online is a huge innovation and step forward for Dell and has been received positively by consumers which has led to a huge increase in revenue. Opportunities ● Online shopping is becoming more popular and common. 46 million Americans are estimated to purchase goods electronically by 2000. This will allow Dell Online to flourish and increase sales. ● The PC industry is growing at a fast pace as computers and laptops are becoming common for everyday tasks and for business purposes. ● Dell can utilize the internet to forecast demand through analyzing customer trends. ● Dell Online will make global expansion easier giving them an opportunity to become better known world-wide.

Threats ● Dell faces strong competition from other leading companies such as HP, Compaq, Gateway 2000 and IBM. ● Companies such as Compaq are likely to start imitating Dell’s new services by going directly to customers and offering similar features which threatens Dell’s competitive edge. ● There are continuously new features that other companies are introducing. This forces Dell to continuously be on the watch and come up with new products very often.

● There are continuous technological advancements that Dell can benefit from to offer its customers the latest features that other brands don’t offer.

Note: This case can be characterized as a problem  case, as although Dell has implemented online services and retail channels, it is noticed that they are facing strong competition from leading companies and it is imperative that they adapt to changing needs. The main task in this

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report is to analyze Dell Online, and suggest recommendations on how Dell should further differentiate themselves by leveraging their competitive advantage. Dell Online Dell’s launch of its first online website has allowed customers to have a remarkable experience. This website gives customers the ease of configuring a computer according to their needs as well as receive online technical support all at their convenience. This has definitely had a positive reaction from Dell’s customer base, however this recent move has its own advantages and drawbacks. Pros: ● The online website makes operations easier and smoother as they can receive orders through the internet and build products in the factory much quicker. ● This allows Dell to have lower inventory levels as production is more controlled. ● Dell’s parts tend to be 60 days newer compared to its competitors IBM and Compaq. This results in a 6% advantage in profits regarding components itself. Cons: ● Depending heavily on the internet can be risky as shipping may not be possible globally due to various restrictions. ● The internet is a new asset that is available to consumers globally which indicates that not all customers will readily trust the internet with their bank information to purchase a PC. ● Several people prefer to test out the product in person. Purchasing a laptop online will remove this experience, which can make them hesitant to try it. Dell’s recent online business has seen great success and has played a huge role in being a competitive advantage as it reduced spending on storage and inventory. Once an order is received, the order is broken down to form a list of parts that are necessary in designing the required PC. An electronic bar code connects the computer to the order number which allows customers to track the status of the designing or delivery process of their laptop. This new service has allowed Dell to differentiate itself in this industry as they are able to customize and deliver products faster, and at the time no other leading companies offered such a service. In order to implement this service, Dell did not have to spend a lot on capital. Additionally, low inventory levels benefitted them as it allowed them to adopt new technology faster. Dell’s electronic parts are also estimated to be approximately 60 days newer compared to other brands, as they order parts directly preceding assembly. Dell Online allowed the company to offer newer products in a timely manner and gives them the advantage of introducing new technology faster than other leading brands. When companies have a large inventory level, they must deplete it if

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they wish to move on to newer technology which can be a timely process. On the other hand, the major downside of this service is the heavy dependence on the internet for sales. If the website glitches or crashes, it can lead to unsatisfied customers and reduced sales as they will not be able to view and order products. Since the online stores are open 24/7, if customers are unsatisfied and want to speak to a sales representative, it would require employees to be available anytime of the day. Online shopping is becoming more popular and common, however it removes the in person experience which offered consumers the chance to test out products in person which allows them to come to a purchasing decision. Since computers are a significant purchase, it becomes difficult to judge which is the best one only through an image and description. If Dell wants to remain competitive, it needs to ensure that it is able to offer its services and ship worldwide in order to make it accessible by people globally. Failure with Retail Channels Dell has previously witnessed failure within retail intermediaries such as CompUsam, BestBuy and Staples. This is due to several reasons including: ● It can be quite expensive which goes against Dell’s objectives ● A lot of major competitors ude retail channels as their only source, making it more difficult for Dell to do well. ● Dell’s utilization of director to consumer as well as the retail channel method affect their relationship with retail distributors. Dell has attempted to sell its products through channels like Best Buy and Staples however this has proven to be unprofitable and even led to a loss in 1993. This method has proven to be too expensive for Dell in the past as each store that Dell picked as a retail store for their product had to have trained employees that were aware of their products. Additionally, Dell’s major competitors made use of this method as a way to sell their products which put Dell in a competitive spot where it was not dominant. Retailers will be more likely to supply other leading brands products and establish a good relationship with them as compared to Dell, as this would be the only place customers could access these products which would mean high sales. However, when it comes to Del, retailers are aware that customers can access Dell products online which deteriorated the relationship between Dell and retailers. It is predicted that if customers can access and inquire about products online, they would be less likely to seek products through retail stores. This is the reason behind retailers reluctance to supply Dell products. Porter’s 5 Forces: Rivalry Among Existing Competitors: High As mentioned in the competition section, this industry is highly competitive and has other leading companies such as Compaq, Dell, Gateway 2000, Hewlett Packard and IBM. All of these

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pose a threat to Dell as competition in this industry relies heavily on price and competitive advantage. Although right now Dell has a competitive advantage in the sense that other brands don't offer similar online services, it is predicted that companies like Compaq will easily replicate this by going directly to customers as well. In this industry, the company that offers the latest features and adapts the fastest to technological innovations is likely to succeed. It is imperative that Dell focus on remaining competitive by managing online services and remaining up to date with the latest innovations as well as continuously updating its product features. Threat of New Entrants: Relatively Low New companies in this industry will find it quite difficult to enter and succeed for various reasons. Firstly, a new company will have high barriers to entry as they will require lots of financial capital for employees, technology as well as R&D. New brands may not be able to finance this and may find it impractical to compete with dominant players like Dell, IBM, Gateway, HP etc. These companies have already gained a large portion of the customer base who are loyal to them. This means they will not be willing to test out products from new companies, which makes it unreasonable for new brands to compete with well established brands. The threat of new entrants is low as they will face high barriers to entry as well as a lack of interest from customers in this industry. Bargaining Power of Buyers: High Buyers hold a high bargaining power in this industry as although brand loyalty does exist, it is easy for customers to switch brands depending on new features and innovstions. Customers have a very low switching cost, and will stick to the brand with a fair price and better features. It is essential that Dell remain competitive by launching new products in order to retain the customers it has gained. Bargaining Power of Suppliers: High In this industry, suppliers also have a high bargaining power. This is because there are only a few suppliers of main computer parts that are neccasary. For instance, the dominant suppliers of microprocessors are AMD as well as Intel. These companies tend to be almost monopolistic and if companies do decide to switch suppliers it may have a higher cost. It is more reasonable for companies to stick with their current suppliers as they are not aware of the quality of other suppliers and it takes time to establish a strong relationship. Threat of Substitutes: High The threat of substitutes is quite high in the industry for Dell. As mentioned previously, although currently other leading brands do not have online services, they will imitate Dell’s service soon enough as they will realize it is what customers prefer and require. This industry is so competitive that brands need to continuously adapt and improve compared to products developed

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by other brands. The availability of substitutes will definitely have an impact on sales and profitability as consumers may choose to purchase from a brand other than Dell as long as they receive the same or a better outcome. The strong competition between these brands make the availability of substitutes much easier and companies will quickly replicate products and improve them in order to distinguish themselves. It is necessary that Dell remain updated and introduce new features once it is noticed that other brands are replicating its services. Market Analysis: As shown in the table to the right, Dell has depended heavily on the United States for more than 50% of its sales, and they have not placed a huge importance on customers globally in the European and Asian market. On the other hand, its competitors Compaq, IBM and HP have focused on international sales making them a better world-wide brand. There are several reasons why Dell has not been able to be as successfully world-wide: ● Although the online service is brillant, many customers in other parts of the world such as Europe and Aisia do prefer to touch and handle the product in person before buying it. ● There is fierce competition in these markets as Dell will not only compete with brands like HP, IBM etc. but also domestic computer brands. ● Customers in these markets may also be more inclined to purchase from places where they can pay in cash in person rather than submitting their bank details online. ● If Dell does not establish a retail presence in these markets it will not be able to compete with brands that make use of retail distribution. Overall, it is noticed that the lack of retail experience is the main reason behind the lack of success in these regions for Dell. Customers are reluctant to purchase a significant product from a company they are not aware about. Since this industry is so competitive, consumers will choose the brand that will give them the opportunity to test out the product in person before purchase. Since laptops and computers do last for a while, it is imperative that customers be given the chance to test out and understand the product before purchase. A written description online may not be the most helpful as it may sound biased and consumers will not get an exact idea of the various features and accessibility.

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Recommendations: This report has analyzed Dell and its current operations, and has highlighted particular issues that should be considered for the future. Below are some marketing recommendation that Dell should implement in order to remain competitive and distinguish themselves: STP Analysis Segmentation: There are currently three major segments that Dell caters to: ● Transactional Customers: ○ As mentioned in the customers section, these are individuals that purchase laptops/computers that have specific features to improve efficiency in work or for a particular task. ○ They research and gather information from various sources such as expert reviews, awards as well as word of mouth. ○ They make up 30% of Dell’s con...