Dell, Inc. Case Study
First: Problem Diagnosis:
Over the years, Dell has devised very successful strategies to increase customer loyalty and reduce costs. However with the passage of time, the company has failed to have a proactive approach to capitalize the opportunities provided by the environment and sustained its competitive advantage. 1. Use of the direct selling approach:
This approach has been the main competitive advantage of Dell over the years, which enabled the company to create strong relationships with its customers without the need for any intermediary. But this trend is starting to lose its advantage because: The increased use of the internet across the world is increasing, and the competitor are taking steps to utilized this trend by following the Dell model of eliminating the traditional distribution system and focus on e-business. Such as : Gateway. Customers’ desire to see and touch products before purchase made Dell’s direct marketing channel less attractive to them Dell’s absence in retail stores had hurt the company attempts to expand beyond PCs into consumer electronics such as TVs.
2. Depending on Suppliers of component parts:
Traditionally the company outsourced its various components parts from suppliers in order to provide competitive prices to the customer. The strategy was once a very successful, but keeping in view the present market conditions, this eliminates the company differentiation, because the outsourced firm provides the same component part to other competitors and may not offer the quality parts Dell is expecting.
3. Low Cost Strategy:
Dell had been the lowest cost provider in the PC industry because it held no inventory (relies on JIT approach) which reduces its inventory costs other than competitors. Also it has no distributors or retail stores, which gives it a better command on its supply chain. This core advantage of Dell is now threatened because competitors are now able to cut their costs and price their products more aggressively by taking advantage of being in many retail stores.
Second: Industry Analysis: porter’s five competitive forces Model: 1st: Threat of new entrants (Low)
Any new entrant in this market faces heavy restraints. Capital requirements and technological know-how are high barriers to entry as skilled labor and sophisticated support industries are needed. Product differentiation also constitutes a high entry barrier because of the established brand names in the industry. despite these constraints, switching costs may be considered low because some may view PCs as commodity. 2nd: Rivalry among existing firms (high)
The PC industry is a consolidated industry in which is dominated by few firms who are striving to differentiate their products from competitors. Main competitors in the industry are: Dell, HP (HP-Compaq), Acer, Gateway and IBM. Also the rate of industry growth had been declined by 5% setting off price wars between competitors whose trying to cut their costs to be more competitive. 3rd: threat of substitutes (low)
Computer has a strong presence in today’s society. No other product can substitute a PC except Apple computers and notebooks but due to their high cost and sophisticated software customers can’t easily switch to them.
4th: Bargaining Power of Buyers (high)
Buyers in the PC industry are powerful because of low brand loyalty as most of the competitors produce similar products and the switching costs between them is low. Buyers’ power has forced companies to reduce prices and increase customer service and support. 5th: Bargaining power of suppliers (high)
Although there is high number of suppliers for hardware components (like keyboards), the software components are almost monopolized by Microsoft and the microprosser parts are monopolized by Intel and AMD. 6th: Relative Power of other stakeholders (Moderate)
Complementors play a critical role here. A complementor is a company whose product works well with a firm’s...