The Dell Direct Model:What it means for customers(users)

• PROS:– Perceived customization– Convenience– No sales pressure– No price comparisons/objections

• CONS– No immediate delivery– No touch and feel

The Dell Direct Model:What it means for (corporate) customers

• PROS:– Premier pages: approved configurations only– Reduces procurement cost– Reduced overshipment costs– E-support

• CONS:– No immediate delivery

The Dell Direct Model:... for suppliers and complementors

• PROS:– Rapid introduction of new technology– Rapid feedback on product problems– Good data for forecasting– Increased switching costs

• CONS:– ?

The Dell Direct Model:... for Dell itself

• PROS– Lower inventory and little product

obsolescence– New technology to market faster– Quick feedback on problems– Ability to manage product shortage and

demand by advertising and pricing– Dell gets paid early

The Dell Direct Model:... for Dell itself (2)

• PROS (continued)– Lower component cost than indirect competitors

– Creates real switching barriers for large customers

– Customer database>>customer information, lowers cost of followup services and support

• CONS– may not appeal to all segments

Dell’s core competencies

• Core competencies are skills, knowledge, and collective learning that allow a company to execute some critical processes better than any of its competitors

• Supply Chain Management (SCM)

• Customer Relationship Management (CRM)

• E-service

• Demand Management

1: Indirect channel (with e-efficiency; pooling of inventory, etc.)

• PROS:– Current strength

– Ally with major retailers (CompUSA, Staples, etc.)

– Touch and feel; local service and support

– Many competitors withdrawing

• CONS– Declining market

– High costs

– Lack of customization (for customer; for channel)

– Will channel members cooperate?

2: Direct Model

• PROS:– Overall market trend– Lowest cost (commoditization of market;

importance of price)

• CONS:– Lack the core competencies (Lagger forever?)– Loss of channel support?– More competition in the direct model?

3:Harvest the PC Market(move to next generation products/ or to enterprise )

• PROS:– Higher margin segments

– Leverage their strong service capability (through DEC) or their server/storage product line in corporate market

• CONS:– not a product innovator

– integration problems

– Strong competitors

What resources and capabilities does Compaq have that it can leverage?

• RESOURCES– High speed enterprise computing hardware– Server and storage design, manufacturing,

sales, and service– Millions of users of Compaq products

• CAPABILITIES– Fault tolerance– Can handle large customers/ complex needs

LESSONS

• Value of quantitative and qualitative analysis• Value of customer relationships• Value of market segmentation• Don’t rely on past successes• Maturing of IT/PC market: special requirements• A standard global model has several benefits

WHAT HAPPENED?

• Compaq aimed at global leadership in internet infrastructure, access services, and solutions

• Acquired Inacom: to boost direct capabilities• IBM> moving away from retail• Hewlett Packard>early 2000; grabbed leadership in US

retail market• Dell has slowed down slightly; Compaq picked up

• Hewlett Packard purchased Compaq ($19b); HWP, CPQ HPQ

• Dell continues to outperform others (2005)