Answers to questions on Dell and PC market and supply strategy

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Since 1996 Dell stated to sell its computers via Website, company is using Four P's in order to build direct relations with customers and sustain long term success. Dell target two market segments: corporate and consumers, the first generate 85% of Dell's sales ().'We believe that true business innovation take place when financial resources and time are available to drive new initiatives' (Dell, SIMPLIFY IT, 2010), therefore Dell provides its employees and IT personnel with 30% free time for innovations and spend 1% (US$ 663 million) of revenue for research, development and engineering.

Product

Product aspects include packaging, function, warranty, feasibility, dependability and appearance ().

Dell has variety of product, which include business class and home/consumer class products and services. Company's product portfolio varies based on market segments, which company targeting. Figure 1 presents Dell product range. Dell provides quality products with extended warranties, accessories, features, installation options and full customer support. Dell provides customized and personalized services and support to its customers as well as latest technology.

Figure 1 Dell product range

OptiPlex Desktops

Dimension Desktops

Servers

Latitude Notebooks

Inspiron Notebooks

Net books

Peripherals

Printers

Television

Dell monitors

Scanners

Power Vault and Dell Storage Products

Support Services

Power Edge Services

Recycling Services

Power connect switches

Dell Precision workstations

Source:

Price

Price factors include profit margin, which can benefit company, flexibility and competition's pricing ().

Dell offers competitive prices by reducing operating costs. Dell' manufacturing plants located in countries with the lowers costs of production. Dell products are mostly customized, therefore price range depend on the options and services added to the product. Since 2006 Dell stopped using mail-in rebates and instead reduced its selling price. Another fact that making Dell prices cheaper that competitors is that Dell a direct supplier of its products, therefore costs of retailers are not included in the selling price. Additional aspect, which reduce Dell's costs is 'Just-in-Time' approach, which based on is build to order basis; company do not require to keep the stock of components and ready-made computers. These allow saving costs of storage, consequently reducing selling price.

Price structure innovation:

Direct calculation of the price bellow competitors' price

PC Deployment Model (save on average US$400 pr PC)

Name Your Own Price (NYOP) allows customers to name their price for the chosen PC

Place

Place refers to how the product is distributed through channels, including customers' access to product, including how and where the product is stored and shipped ().

Initially, Dell was selling its products only directly to its consumers, while their competitors was selling through mass-market and via distributors. Currently company made their products available in several outlets, which are not normal outlets where customers used to shop for the PC, but the opposite, Dell place its products in shops like Wal-Mart, Costco, Target and Cold Storage. Direct selling via outlet centers, telephone and the Internet allows customers feel trust and value in the company. Additionally, Dell provides toll free telephone numbers in order to make process of buying PC easier and process of installation more efficiency. Dell' direct approach also helps to understand customer needs and requirements.

Distribution innovation:

Dell's Direct Model ( Traditional distribution model in PC industry illustrated in Figure2 and compared with Dell Direct model)

Figure 2 Traditional distributions vs. Dell's Direct Model

Indirect PC value chain

Distributors

Final Customer

Retailers Resellers Integrators

PC maker

Suppliers

Direct Dell's value chain

Final Customer

Suppliers

Source: Adopted from Dell Inc http://www.scribd.com/doc/33743465/Dell-Marketing

Promotion

Promotion refers to how the company tells its target market about the products (). For its marketing campaign Dell uses different colors that suit customers' attitude. Dell advertises its product via television ads, newspapers, computer magazines and Internet (Appendix 1). In 2009 Dell spent $811 million on ads, which is 1.3% of revenue. Additionally, Dell publish monthly 24 page catalogues with the description of its products and services, which further send to business and domestic customers via mail. Moreover, all advertisements and promotional materials are different for different cultures and segments. Dell always have computers sale on their website and different promotions such as free shipping, free memory upgrades, free CRT monitors and free printers.

Question 2

According to Tidd et al (2005) innovation can be divided into for types:

Product innovation (new products or improvements)

Process innovation (modifying process to benefit company)

Positioning Innovation (repositioning)

Paradigm Innovation (major shifts in thinking)

Rather than optimize existing value chain, Dell created totally new model, which became revolution in PC industry. Dell changed the traditional business model of selling PCs with the Direct Model of selling customized PCs directly to the customers. Before Dell' model PCs were purchased in standard configurations from retailers. PC industry was considerably affected by Dell's innovation business model. New Dell' model avoided retails and therefore reduce the cost per PC. Dell' new business model is low-end disruptive innovation, which helps company to sustain its success. Figure shows types of innovation and Figure illustrates Dell's innovative 4P's and mapping of Dell' innovation activities illustrated in Figure.

Figure Type of Innovation

Figure a

Radical Innovations

Disruptive innovations

Dell Direct

Low

High

Low

High

Cell

Phones

OJ

without pulp

Cordless

Phones

Source: Adopted from

Figure Dell's Innovative 4P's

Product - Incremental

Personalized PCs

Updated futures

Design

Modification of already existed products

Process -Radical

Direct Model:

Internet sales

Telephone sales

Build-to-order

Direct customer value management

Positioning- Incremental

Same for less - quality products at a lower price

Main differentiators:

Build to order manufacturing

Direct retailing

Better customer satisfaction

Better knowledge about customers

Low prices

Paradigm- Radical

Customization of PCs (before people only bought PCs already build for use, customers could not build their own PC online and order)

Direct sales (previously PCs could only be bought through retailer to the customer, Dell invented online, telephone, mail sales of PCs directly to customer avoiding retailer. Dell totally changed way people used to buy PCs

Source: This study

Figure Mapping Dell's innovation activities

Source: This study, Adopted from Tidd Joseph & Bessant John(2007) Innovation And Entrepreneurship

Question 3

Dell's innovation approach relies on three main aspects:

Listen

Solve

Impact

Dell's innovation process started with simply asking customers about what do they want and asking suppliers about how it can be done more efficiently and quickly.

Dell' core areas of concentration in innovation activities is process, through its processes Dell impacted 'Paradigm', the way customers used to buy PC and the way PC companies used to sell computers. Dell core strength is its processes which help to reduce price of the PC, understand and satisfy customers' needs. Dell supply chain helps to reduce the length and cost of selling process, which impact the total production costs. The total length of production starting from customer order to customer deliver the product varies between five to seven days, which is paradigm shift in PC industry, where normal length for 'build computer-reach customer' is about seven month to more than one year (). Additional strength is customer support and after sale services provided by the company through its Direct Model. Great pricing capabilities and empowering customers to control price online bring additional strength to Dell. Direct model allows Dell to identify customer' needs and trends and respond with needed products before its competitors, which is additional strength for the company. Moreover, build-to-order allows keep level of inventory relatively low, which is also reducing company's costs. Operational innovation can be measured and further modified and also it is difficult to copy, because it is mostly dependant on internal processes. Dell developed beneficial cost structure that could not be matched for years, while large competitors were having long term contacts and integrated overheads; Dell was able limited its inventory to seven days of work process. However this costs structure made switching cost low, it is not difficult for customer to switch from dell to HP for example. Also the big gap for the company is dependence on suppliers in order to sustain its supply chain. More over all innovation concentration is on processes rather than technologies; therefore company doesn't have proprietary technology, all Dell technology is shared by other major competitors. Additionally the biggest problem for Dell is that company was so involved I reducing cost that finally the reduction in cost affected quality and since 2009 company receiving complains about lack of innovations and poor support. Also company need to manage one of Four P's, which is Place more efficiently, because not currently it's still not as much available as customer want it to be. Product innovation gap also take place for the company, Dell computers are mostly modified or personalized its PCs for the customers' choice, while customers' choice is limited by customers' knowledge, and Dell as not the PC manufacture, it is a PC maker which make it totally depend on various suppliers.

Summary of main strength:

Just-in-Time manufacturing

Build to order

Effective communication with customers

Flexible manufacturing process

Successful supply chain management

No dependence on retailer

Low cost production and low selling price

Excellent after sales support

Summary of gaps:

No proprietary technology

Dependence on suppliers

Lack of outlets

Lack of innovative products

Conclusion

Dell has various strength due to its Direct Model, supply chain and Build-to-Order; however company put all concentration on process innovation and continuously avoiding other areas of innovations which can benefit the company. In order to sustain its reputation and success company need to pay attention on product innovation and position. Currently Dell is positioned as a low cost for business and home users, while it has difficulties attracting students; the new innovative products together with advertising campaign may bring company to a new positioning, which will help to attract new customers and specifically students.

Appendix 1 Dell Advertisement

http://www.personal.psu.edu/acr5005/blogs/annaliese/author/anna_reutemann/2008/02/

http://smartcanucks.ca/tag/dell-canada/

http://smartcanucks.ca/dell-canada-days-of-deals-day-2/

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