Read full version essay Recommend How Dell Should React To Slower Growth And Increased Competition In Its Core Market Segments. Explain How Your New Or Modified Positioning Strategy Enables Dell To Leverage Some Of Its Existing Advantages.
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Autor: anton 28 November 2010
Words: 1064 | Pages: 5
Recommend how Dell should react to slower growth and increased competition in its core market segments. Explain how your new or modified positioning strategy enables Dell to leverage some of its existing advantages.
DellÐ²Ð‚â„¢s advantage is primarily due to cost drivers rather than differentiation drivers. DellÐ²Ð‚â„¢s cost advantage in 1996 was estimated at 13% of revenues and was derived primarily through lower component prices, lower carrying costs and reduced distribution costs all linked to shorter cycle times. Per Exhibit 11, DellÐ²Ð‚â„¢s S&A of 10% was appreciably lower than rivals Compaq (16%), IBM (20%), HP (17%) and Gateway (14%) due to their direct sales model. Approximately 70% of the firmÐ²Ð‚â„¢s revenues were attributable to large corporate purchases in which Dell could maintain a negative cash conversion cycle.
In response to lower growth, Dell should isolate the key cost drivers as follows:
Ð¿â€šÂ§ Current Cost Drivers:
o Inputs Ð²Ð‚â€œ low due to short lead time
Ð¿â€šÂ§ COGS lower due to short lead time for components which fall in price by 27% annually
Ð¿â€šÂ§ Co-location of component suppliers minimizes inventory & cycle times and associated carrying costs
o Processes Ð²Ð‚â€œ efficient due to tight integration
Ð¿â€šÂ§ Direct sales minimize channel mark-ups & advertising
Ð¿â€šÂ§ Tightly integrated order entry, production and shipping minimized inventory buffers and cycle times
Ð¿â€šÂ§ Tight control of cash via inventory metrics
o Scale & Scope Ð²Ð‚â€œ adequate but growth is slowing
Ð¿â€šÂ§ Scale Ð²Ð‚â€œ 7.4 mm units worldwide, ~8% WW share, #2 WW behind Compaq (13.4mm) and about even with IBM (7.4)
Ð²Ð‚Ñž 70% of revenues from large corporate clients
Ð²Ð‚Ñž 63% of revenues from US (40% WW market)
Ð¿â€šÂ§ Scope Ð²Ð‚â€œ narrow with primarily corporate equipment
Ð²Ð‚Ñž 2 Desktop lines Ð²Ð‚â€œ highly stable/high tech
Ð²Ð‚Ñž 2 Notebooks line Ð²Ð‚â€œ highly stable/high tech
Ð²Ð‚Ñž Servers & Workstations
Ð²Ð‚Ñž Software & Install
The cost driver examination shows that Inputs, Process and Scale/Scope all contribute in some way meaningful to DellÐ²Ð‚â„¢s advantage. A graphical analysis of DellÐ²Ð‚â„¢s value chain highlights the key support and primary activity interactions.
Having isolated the key elements to DellÐ²Ð‚â„¢s success, we can further leverage these by repositioning in the following ways:
Ð¿â€šÂ§ Continue working closely with component suppliers with a focus on integrating the supply chain even more efficiently. Deploy supply chain specialists close to component suppliers to tightly integrate logistics, design integration and provide on-going incentives such as long term share commitments at market prices.
Ð¿â€šÂ§ Target segments carefully to maintain short lead times.
Ð²Ð‚Ñž Leverage website to cultivate the consumer direct market.
Ð²Ð‚Ñž Align with specific retailers to carefully target consumer segments. For example, SamÐ²Ð‚â„¢s ClubÐ²Ð‚â„¢s has a high percentage of small businesses customers. Consider targeting the small business segment with a limited number of SKUs which best meet the needs of this segment. Furthermore, work closely with SamÐ²Ð‚â„¢s Club, which is know for outstanding logistics, to use point of sale information to create a retail demand pull system similar to the current direct model.
Ð¿â€šÂ§ Minimize retail channels to one warehouse and one consumer electronics outlet only to minimize the complexity of the order fulfillment process.
Ð²Ð‚Ñž To target consumers, we would recommend aligning with Best Buy due to their skill in market segmentation. Cooperation with Best Buy can allow Dell to minimize SKUÐ²Ð‚â„¢s by selecting those with the broadest appeal to a finite number of well understood segments. Understanding segmentation can allow Dell to price discriminate so that WTP matches the targeted segment.
Ð¿â€šÂ§ Utilize the retailersÐ²Ð‚â„¢ websites to allow consumers to place direct orders to Dell while seemingly going through the retailer. Negotiate a commission structure that allows the retail outlet to gain a standard mark-up after the sale that is volume based and not just per transaction to protect retailersÐ²Ð‚â„¢ downside while driving profitable volume.
Ð¿â€šÂ§ Maintain metrics for cash flow but adjust them to account for a more diverse customer base with a lower share of corporate customers. Recognize that continued growth, which will be required to maintain scale, will impact metric targets and thus they should be adjusted accordingly.
Ð¿â€šÂ§ DellÐ²Ð‚â„¢s international revenues are weak relative to Compaq, IBM and HP. Dell should strengthen its global footprint by focusing on emerging regions which will continue to grow as the US market saturates. Emerging regions such as China, India, Latin America and Russia will all grow long after the US, Europe & Japan flatten out.
Ð¿â€šÂ§ Diversify the product offering
Ð²Ð‚Ñž Flat panel TVÐ²Ð‚â„¢s: start-up companies such as Vizio and Olevia have built winning brands during the advent of flat panel TVs and Dell can leverage an existing brand with a natural link to the supply chain (same suppliers make monitors).
Ð²Ð‚Ñž Other Consumer Electronics: LCD Monitors, MP3 Players, PDAs are all growing and Dell can leverage its direct model and select retail channels to grow the revenue base efficiently.
Ð²Ð‚Ñž Consumer PC & Notebook Market: By limiting the retail sales and selecting a very targeted set of SKUs, Dell can grow the sales base efficiently.
Team critique: Identify (a) at least one important reason the new strategy may be less profitable than DellÐ²Ð‚â„¢s old strategy, and (b) at least one major implementation challenges Dell will face in executing the teamsÐ²Ð‚â„¢ recommendations
Dell has profited in recent years by harvesting those corporate customers best suited to utilize the direct model and appreciate the value of the competitive, high quality and state of the art products. As this market saturates and competitors inevitably replicate the model, Dell must find other ways to grow and maintain needed scale. Reaching these customers will be more complex and costly due to retail expectations and the costs of expanding globally, especially in emerging regions and thus profit will suffer.
A major implementation challenge will be selecting the correct retail partners and configuring the arrangement for efficiency. Never confuse doing the right thing the wrong way with doing the wrong thing. Dell went down this road in 1993 and withdrew by 1994 due to poor profitability. We would suggest that Dell pay careful attention to the specific segments and product offerings in order to maximize willingness to pay by matching profitable products with targeted segments. While WTP per se will not increase, by understand the segments, Dell can select those that can be served profitably. We would also recommend cooperation with retailers to leverage website orders for operational efficiency. Finally, we would select partners who are operationally savvy themselves so that logistics between Dell and the retailer can be streamlined