Case Study (Dell)
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CASE STUDY (DELL) 3
Case Study (Dell)
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Case Study (Dell)
During the 1980s, there was a lot of competition in personal computer market. Initially, IBM had taken the market with a storm, amassing a market share of over 62%. This market structure was altered by other entrants such as Compaq and Dell Corporation, which started producing IBM clones. The entrants were motivated by the increase in the demand of personal computers. The clones were cheap and portable, and therefore, presented a great competition to IBM. Through the strategy of providing the clones at cheaper prices, Compaq became the fastest growing company of that era. Another factor that led to fierce competition was the fast improvement of personal computers with the development of microprocessors such as 386 chips. Increase in clone makers and their continuous use of resellers, led to IBM dropping its market share from 37.5% in 1985 to 16.9% in 1989. In this period, personal computer performance continued to improve.
Due to the fierce competition and fast improvement in the personal computers, there was a period of price wars in the personal computer market, leading to a decrease in general prices of computers. There was also emergence of new popular services involving computer networks. Increase in competition led to Dell advertising heavily of their cheaper prices, and this bore fruit, as the company expanded its market share.
Personal computers mainly flowed from manufacturers to consumers through four channels. These included retailers, resellers, integrated resellers and direct distribution. Among the retailers were Circuit City and CompUSA that operated in United States of America, and Time Computers that operated in Europe. The machines then passed to stores owned by the retailers, where sales personnel were situated. Typically, a store held 3 to 5 brands and the retailers used to earn margins. Therefore, the retailers acted as intermediaries between customers and manufacturers, and therefore, had a say in the market. By earning a fee of the profit, it meant that PC makers had to settle with lower amounts of profits than the actual figures. Therefore, presence of the suppliers reduced the amount, which makers of personal computers collected as profit.
During this period, the main substitutes for personal computers were workstations. Historically, workstations were more expensive and faster than personal computers. The workstations operated with distinct operating systems. Due to improvement of personal computers on the basis of operating with the fastest microprocessor and Windows NT, they nearly reached the capacity performance of workstations, and therefore, they could be termed as substitutes.
The main substitutes of personal computers today are smartphones. The phone industry has rapidly grown, and contemporary smartphones have the processing capabilities of personal computers. The phones can use operating systems that personal computers use, and can generally perform any task intended for personal computers. The presence of these substitutes has greatly impacted the PC market. The current market has shifted from the personal computers to the smartphones, due to their portability and ease of operation. It has led to decrease in the demand of personal computers, and in turn, increased the demand of smartphones. Innovations have also been improved to increase the performance of the smartphones while reducing their size.
Dells strategy was customer based. The company was structured in a way that it was flexible enough to manufacture computers according to a customers specification. Customers were divided into either large or small customer groups with the company designating sales representatives to collect customer orders and then communicate to the company for the processing of the order. The customer-based strategy of operations meant that customers demands were met and this was the basis of Dells expansion. Initially, they used direct system of collecting orders from customers and then distributing to them. Dells strategy was based on differentiation because computers would be customized according to a customers needs and specifications. Computers manufactured would therefore be different, since they resembled a customers order.
Dells model of operation was suitable for their customer-based differentiation strategy. The main concept of this model was to study a customer first, including the history of purchase and all the relevant details to understand consumer needs. The company then incorporated the data collected into their manufacturing process. Dell also used inside and outside sales representatives to court customer personnel and help customers configure their information systems. The company used the sales representatives to advertise and promote its products. A combined study of both market and after sales services appealed to customers showed the companys efforts were designed to satisfy their customers.
Dells rapid improvement in performance and market expansion alarmed competitors to take action. The company faced competitors such as IBM, Compaq, Hewlett-Packard and Gateway, which were having a very hard time to match Dells success. The first challenge was Dells advertisement techniques. It was during the period of price wars and Dells advertisements emphasized on their low priced products and it was a success, as numerous customers turned to Dell. Another challenge faced by the competitors was the strategy Dell deployed. The customer-based strategy meant that a close relationship was set due to the after sales services the company offered to its customers. The study of the market aimed at elicitation of the customers needs also worked in Dells way. Dell would manufacture computers based on customers specifications and other competitors would not match this strategy. In conclusion, Dells strategy, which was customer-oriented, became the main blow to competitors, as they could not match them.