Dell Flashcards
Dell’s entrepreneurial vision
- majority of PC retailers huge markups but offered little product support
- knowledge of demand side of the market
- realized that how a product is marketed is as important as how it is manufactured
- enterprise with strong, direct connections with customers
- business model: efficient manufacturing, mass customization, responsive customer service and product support (then became industry standard)
Important mistakes
1) costly accumulation of excess inventory
2) Decision to employ third-party retailers in their distribution strategy
Industry context
he began buying unsold IBM PCs, enhanced their performance, and resold them
State of the industry
in early 1980s: variety of new and established players
IBM: leading company, experienced salesforce, customer loyalty, firm command of the technology
IBM’s size and strategy increased its vulnerability to the onslaught of the clones (costs and prices high, opportunity for other companies to undersell Big blue)
IBM’s decision to produce PC based on an open architecture enabled the clones to produce compatible machines
How did these players compete?
ruthless, price-based competition, characterized by frequent entry and exit, declining margins, and constant product introductions
Market
during early 1980s: demand small and dominated by hobbyist and programmers and then developed to one in which business customer on the demand side
Distribution
IBM refused its sales force to reach large corporate customers (SMEs and individuals)
other manufacturers and IBM sold their products through 3rd party retailers
Dell
- retailers add considerable markups and often lacked expertise to tailor each machine to needs of customers
- dell responded by purchasing excess inventory (unsold) from PC retailers at reduced prices, enhanced capabilities, and sold them to small businesses that were not well served by existing distribution channels
Market
- important of SMEs in the mid-1980s
- who wanted responsive customer service, after-sales support, knowledgeable sales representative
- 2-way communication btw PC manufacturers and consumers critical in a young fast changing industry
- direct sales: cost-effective
Other competitions
they all understood key insights (3rd party distribution channels not great, ..)
but Dell alone combined these insights with a keen understanding of customer preferences and the demand-side shifts that underlay them
If you were an investor in Autstin in 1984, would you invest?
yes: dell’s track records, emphasis on direct customer contact, sales skills, increasing standardization in the industry, existing neglect of significant segments of the market
no: dell’s youth, formidability of his competitors (Apple), fierce pricing pressures, logistical difficulties of large-scale customization, possible commoditizaiton of PC in the future, unclear future applications of the product
How did Dell’s business model develop in the early 1980s and 1990s:
Marketing
- strategic brand creation
- customer segmentation
- targeted advertising
- money-back guarantees
- 2-way communication
- evolution of the business model to embrace large corporate customers
Manufacturing
- quality control
- mass customization
- information-sharing with sales
- customer support and product development
- tight inventory management
- tight inventory control (bought too many chips at time their capacity was increasing and had to sell them at lower prices: became industry leader in inventory management and demand forecasting)
Management
- recruitment of experienced executives
- reliance on customer info to make strategic decisions
- Michael Dell’s own ability to adapt to changes in the organization
- management of extraordinary growth in sales and organizational capabilities
Sales
- extensive training for sales representatives
- information flow btw customer service, product development, and senior management
- development of corporate salesforce
- utilization of salesforce as listening posts for customer concerns and preferences
- after-sales support
- demand assessment
- direct relationships with customers
- 2 nd( lost important customer contact, diluting brand equity, administrative costs rising)
