Term Paper on "Matching Dell"

Term Paper 5 pages (1454 words) Sources: 1

[EXCERPT] . . . .

Matching Dell

From its early beginnings as a literal bathtub business, the Dell Computer Corporation has practiced a direct model of business in which manufacturer and consumer conduct transactions independently of resellers, retailers, or distributors. What appeared to be a romantic pipe dream blossomed into a multi-billion-dollar business that effectively transformed the computer industry and forced competitor companies either change their approach or partially mimic the Dell model. In its early years, the dell Computer Corporation focused on offering large corporations "high performance PCs at relatively low prices," (184). The Dell direct model stood out not only because of its elimination of middlemen but also because each computer was custom-designed and made-to-order per the customer's needs. Most of Dell's competitors manufactured machines to suit the needs of their retailers, resellers, or distributors, who in turn interacted with customers. In the article "Matching Dell," authors Jan W. Rivkin and Michael E. Porter discuss the wide-reaching implications of the Dell direct model for the entire computer industry. Because Dell has enjoyed a competitive advantage and a burgeoning market share, the corporation has threatened to undermine years of hard work by industry stalwarts such as IBM and Compaq. "Matching Dell" illustrates how Dell capitalized on the changing needs of consumers and on the changing marketplace. The article also shows how competitors might learn from Dell's success to ensure and preserve their own market viability.

The structure and dynamics of the computer industry have changed rapidly over the past ten to twenty years. The industry initially bloomed through the efforts of a handful of manufacturers headed by IBM, which had the lion's share of the market throughout the early 1980s. PC manufacturers relied on large retail stores and "value-added resellers" to handle tasks like installation of hardware and software, network configuration, and servicing before individual computer users knew how to perform these tasks themselves and before businesses had enough computers to justify hiring in-house technicians (179). That would all change by the 1990s, when PC-use became more commonplace. The popularity of the Internet and email offered businesses and individual consumers "new reasons to purchase a personal computer," (181). Especially as Asian and European markets warmed up, the industry was forced to make some drastic shifts in its marketing practices.

IBM and IBM clone makers helped create the ubiquitous "Wintel" computer configuration, in which a personal computer ran a Windows-made operating system on top of an Intel-made microprocessor. By as early as 1991, up to 90% of all computers sold on the market were of the Wintel model; the rest used the Apple/Motorola combination (179). By 1998, the Wintel share increased to 96% of all computers sold and in spite of some competition from rival microprocessor maker AMD, Wintel remains an industry-wide standard (181).

Before Dell began to dominate the market, the computer industry was characterized by several key features. First, its marketing model consisted of classifying consumers into four main categories and relying on four basic channels of distribution and sales. Manufacturers also assumed costs associated with buying back unsold inventory, offering price protection and other perks to resellers. Many manufacturers also invested heavily in advertising. Additionally, the pre-Dell model meant that the computer was manufactured using assembly-line techniques and computers generally took at least a month to reach the end-user (183). All those things were about to change when Dell entered the market and took it by storm.

First, Dell changed the way it categorized consumers. Industry stalwarts like IBM traditionally divided consumers into four categories: large to mid-sized companies and governmental organization; small businesses and small offices; individual consumers; and educational institutions. Dell changed the way consumers were categorized. Initially, Dell did, and still does, make most of its revenue from large accounts: the corporate customers. In fact, early on, 77% of Dell's total sales were to corporate-level and governmental organizations, 18% of sales were to the small and home office sector, and 5% for educational institutions. The individual consumer had not even entered into the picture yet. Dell's consumer categorizations were basically binary: large accounts and small ones.

Similarly, the company included individual consumers into its marketing vision and created a bipartite division of its consumers: the "relationship" buyers and the "transaction" buyers. Relationship buyers consisted of large companies with repeat orders of multiple PCs (184). To cater to the needs of the relationship buyer, Dell assigned a… READ MORE

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