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"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
Case questions answered:
- Analyze the success and failure of Dell Online.
- Provide your recommendations on how to better improve the company's services.
- What type of case was this? Based on the type of case, write a well-constructed analysis and response.
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Case answers for Dell Online
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Extended 5 C’S Analysis for Dell Online
The 5 C’s Analysis for Dell Online is used to analyze the five key areas in marketing before making any decision. They are Company, Customers, Competitors, Collaborators, and Climate. They are used to create a well-defined marketing strategy. This will help Dell make an informed evaluation regarding the introduction of their product into the online market.
Dell was founded in 1983 by Michael Dell, with the typical college dropout story. Michael Dell used his free time to upgrade IBM-compatible hard disks. Two years later, it grew to a size of $6 million and eventually started manufacturing its own PCs. The company became inherently successful and became the national supplier of fortune 500 companies with a size of $500 million.
Over the next few years, the success grew, but with it came bigger issues such as retail channels, which resulted in an operating loss in the financial year of 1993. Just three years later, they turned from an operating loss to $710 million profit with the introduction of a superior product in terms of quality, service, and much more. The Latitude product also won numerous prizes and awards, which further improved its brand name and recognition.
Over the years, Dell has introduced new and more innovative products to keep up with the changing demand. They have managed to do this by keeping a small inventory standby and using lean productions of distribution such as Just in Time. Moreover, this has allowed them to offer their customers the option to customize the products to their specifications.
With the rise of the internet, E-Commerce has become an increasingly important section for most businesses, and Dell has moved with the changing needs and introduced a new department, Dell Online. This change has allowed them to gain from unparalleled advantages, in the form of higher customers, lower customer accusation costs, wider market reached, to name a few.
Through the scope of this report, with the help of the case and marking tools such as Extended 5 C’s, SWOT, Hofstede’s dimensions, STP, and Marketing Mix (4 P’s) and I will effectively evaluate every aspect of the shift to online and suggest the best overall strategy for Dell Online. Due to this, Dell Online is an evaluation case and will be treated accordingly.
The market for PCs in the US was about $85 Billion in 1997, with Dell owning a 10% market share. There are three groups of Dell’s customers. They are the Transactional, Relationship, and the Mix. These groups consist of 2 main groups, the Transactional and The Relationship. Both groups have distinctly different needs and wants and come under a different product category.
The Mix consists of those customers who fall under both the product categories.
Note: This will be discussed more in dept in the segmentation section of the STP Analysis (to minimize repetitions).
The competition in the PC market can be categorized as an oligopoly because the few big players dominate the market share. The top 10 players take up 65% of the market share. Due to the increased popularity of the product in the market and increased new entrants, price competition rose. This caused the smaller firms with higher cost structures to find it harder to compete and left the big ten players in the market with the major section of the market.
Dell’s biggest competition and the current market leader is Compaq, which owns a market share of 18% of the $85 Billion US market for PCs. However, Dell is benefiting with lean production methods such as Just-in-Time production, which helps them reduce inventory and warehousing costs and allows them to change with the market demand. Since competitors such as Compaq and IBM have an inventory of 2 months at any given time, Dell’s computer system and features are usually two months ahead of its main competitors.
In the relationship segment, Dell’s biggest competitors are Compaq, IBM, HP, amongst others. Furthermore, one of Compaq’s value-added resellers, Vanstar, offers’ additional services such as on-site services, installations, etc. Due to the high success of Dell’s customizable segment, competitors such as Compaq are trying to enter this segment. However, it still has some issues which could be used by Dell to capitalize further.
Lastly, with the increasing preference for portable devices, the laptop market is becoming increasingly saturated. Laptops are priced at a premium and are usually bought in bulk for offices and schools. Dell has recently entered this market, which is dominated by Compaq, Hewlett-Packard, and IBM, with these three brands owning 54% of the market share.
When entering a market or introducing a product, it is crucial to take steps to increase the awareness of it in the market and successfully distribute it to the necessary customer segments. That is where collaborators or retailers enter. Initially, Dell has some issues with its distribution network, which leads to quality issues.
However, Dell survived that by increasing its importance on a good distribution network. Right now, Dell uses five main distribution networks, Dell Direct, Retail, Indirect through Value-Added Resellers, Indirect through national resellers, and online mediums. All of these channels are vital to Dell’s success as they target the different segments already existing in the market.
Dell Direct – This channel focuses on the made-to-order aspect offered by Dell, which helps customers to customize their products to their specifications. Moreover, they were able to predict customer needs and offer that through the customization. This has no middlemen as it is made and operated by Dell itself. This helps Dell gain from higher margins and lower overall costs in the form of shelving space, calls, etc. The 15% margin that the distributers receive will become the extra profit for Dell. Moreover, this segment is targeted towards most of the consumer segments due to the customization option available. Lastly, this channel has a market share of 19% of the US PC market.
Retail shops – This consists of shops like Best Buy, Circuit City, and CompUSA. This consists of three middlemen. The products go from the manufacturers to the National Retail Chain of the shops mentioned before. They then go to the distribution center and then finally to the retail stores. This distributer usually sold products to individual customers and small businesses, which means that this was targeted towards the Transactional customer segment. 30% of the market in the US for PCs was sold through this channel.
Indirect through Value-added Resellers – Next is the VAR’s, which consisted of companies like Ingram Micro has a 54% market share at $12 Billion, Tech Data, which has a 21% market share at $4.6 Billion, and Merisel, which has a 25% market share at $5.5 Billion. Altogether, they supply 100,00 units. This section consists of 2 middlemen. The products go from the manufactures to the National Distributers, and then to the Value-added Resellers. They have already established networks through which they push the product and hold 15% of the US PC market share and focus on specialized software and services. This shows that this section targets the blend of the Relationship segment and the Transactional segment.
Indirect through National Resellers – This is the last channel in the traditional direct and indirect sections. This consists of companies like Vanstar, which has a market share of 28.5% at $2.2 Billion, CompuCom Systems at 26% at $2 Billion, and MicroAge with a market share of 45.5% at $3.5 Billion. This also has two middlemen. However, it can go through different systems based on the need of the national reseller and then either the wholly-owned sales and service center or the Franchised sales and service center. This section usually takes care of the big orders of 100 computers, which allows them to further customize the products. This channel is used for The Relationship customer segment, where customer knowledge is high, and the volume is also high. Lastly, this channel conducts 33% of the US PC market business.
Online – The last channel is the online channel that Dell has just introduced. This channel has no middlemen and connects the customer directly to the manufacturers, which is Dell. This channel also benefits from the no middlemen aspect the Direct Dell channel benefits from. This channel is part of the previous channels and essentially connects them into one channel for all the customer’s needs. Therefore, there is no estimate of how the online market dominates much market share.
Moreover, they adopted the Just-in-Time production method, which helped them reduce costs in terms of transportation costs, Warehousing costs, Inventory costs, amongst others. Additionally, this helped them stay on top of the demand and offer the Dell Direct model, where they allowed customers to customize their product to their specifications.
The climate and context are also important factors when making any decision. Analyzing the environment around the area is a good measure to understand how customers make decisions.
Dell was initially established in the US market, but with the scope of the internet and their online website, they are…
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