"Dell Online" case study discusses the company Dell Computer Corporation which commenced its virtual presence for its PCs in 1996. The following year, the corporation had garnered a $3 million per day sales rate. This case study looks into the moves of Dell Computer Corporation which eventually led to its success. It discusses how the company can maintain and improve such leverage for the succeeding years.
V. Kasturi Rangan and Marie Bell
Harvard Business Review (502S31-PDF-SPA)
August 09, 2002
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Case answers for Dell Online
Introduction – Dell Online
In 1996, Dell Computer Corporation first launched its website, opening up a great opportunity for the company. The success of Dell Online led to Michael Dell, the founder of Dell Computer Corporation, setting the goal of having half of their business done online in the next few years. Their website allowed consumers to buy products online, access technology help, and check the status of their order, all with 24-hour access.
This launch brought in a lot of sales revenue, as well as cost savings for Dell, received overwhelmingly positive feedback from consumers, but such a major change required a lot of strategic decisions to be made and considerations for existing product lines and other factors of the business. This “Dell Online” case is a decision case, focusing on what Dell has been doing so far that has led to its growth, but questioning how to continue on and ensure a sustained competitive advantage and growth.
Company – Dell Computer Corporation
Dell Computer Corporation began with Michael Dell upgrading IBM compatibles on his evenings and weekends while attending university. A year later, by 1985, the business had grown to $6 million, and he dropped out of university to focus on it, shifting his focus to assembling his own PCs, growing his business to $70 million in sales by the end of that year. His success continued until 1993 when the company faced its first operating loss despite a 40% increase in sales.
They realized this loss was a result of them trying to sell their products through traditional retail channels and some quality issues with their laptops. To quickly resolve this issue, the company exited the retail channel and decided to only re-enter the laptop market when their product quality was equal to or better than the quality of their desktop computers. They were able to come up with such a product, and by 1996, Dell Online’s sales were $7.8 billion with $710 million in operating income.
Throughout the lifetime of the company, the majority of their sales came from large corporate accounts, small and medium-sized businesses, state and federal governments, and educational institutions. “Home” consumers represented very little of their sales. Customers were broadly segmented as either “relationship” representing 40% or “transactional” representing 30%, and the rest is a combination of the two.
Dell tended to avoid the transactional consumer, especially individuals who paid lower prices and had higher service requirements. Dell preferred to cater to those who were more knowledgeable and computer-sophisticated. Dell Online achieved very high penetration with relationship consumers, with a 25% penetration rate with Fortune 500 companies, 10% penetration with the next largest 5,000, and 8% penetration with the 15,000 companies with 200-2,000 employees.
Dell Online’s main competitors in the transactional segment, consisting of small businesses, individual consumers, and portions of educational institutions and the federal government, were Gateway 2000, Micron Electronics, and the retail channel. This consumer shopped around a lot focusing on the best PC for a particular situation, so the competition was more intense.
In the relationship segment, consisting of Enterprise, Preferred Accounts, and federal government contracts, the main competitors were Compaq, HP, IBM, and other leading brands that were sold through value-added or national resellers.
With Dell’s new website and the success of the “Dell Direct Model”, competitors such as Compaq were looking to imitate Dell Online by selling directly to the consumer and offering more customization to their product.
Dell Online offered a product line complete with desktop computers and portable computers based on the most recent Intel processors, as well as a PC/LAN server product launched in 1996, and workstations launched in 1997. Dell earned…
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