Dell Case

Business Model

Dell has managed to become remarkably successful in a short span of time by following a direct "business to customer" model. By selling computers directly to customers, they have been able to best understand their needs and provide effective solutions to meet those needs. Dell built PCs to order, so customers received only what they wanted. Dell's just-in-time inventory system allowed them to order only parts that customers demanded, thus keeping the minimal inventories and enjoying the cost-reductions which in turn were passed to customers. Dell's extensive use of e-commerce contributed to further cost minimization, reduced the order and delivery time for customers, and customization. There are three golden rules at Dell: disdain inventory, always listen to the customer, and never sell indirectly.

Key Issue(s)

China had been identified as a very promising market and Dell has set the goal to improve its rank from seventh to second place in this PC market. However, Dell faces many challenges in this market. The Chinese government actively promotes the Chinese PC maker "Legend" who dominated the market; penetration of the Internet is relatively slow; software piracy is rampant; competition is intense. In addition, there is fierce competition for market share and Dell's competitors have started imitating Dell's business model. Dell needs to determine how it should modify its strategy to succeed in the Chinese market.

Alternatives and Evaluation

1. Open up Dell Retail Stores

The Chinese are uncomfortable with purchase high-ticket-price products that cannot be viewed before purchase. This is one of the reasons that Dell has invested in door-to-door sales calls. If Dell were to open up retail outlets they would be able to keep the costs of their computers down (avoiding retail mark-ups in China) and they would be able to remain loyal to their three golden rules. This option would allow for customers to come into a store and view the computers in person, which is something that they are more comfortable doing. The computers in the store could serve as models and sales representatives would be able to assist customers with making the online purchase right there in the store, allowing the customer to get a customized computer. There would be a large financial investment with this option, but it may compare with the amount of money that they are spending with their current door-to-door approach. Another consideration is that there is a shortage of qualified sales personnel in China. This option also doesn't capitalize on the strengths Dell has associated with online purchases. In addition, there is the added challenge of getting the customers to choose to come to the store.

2. Focus on Involving Customers in Leasing Computers through Dell Financial

In some of the regions that Dell operates, they have a leasing program through Dell Financial. Leasing allows a company to transfer residual risk and implement a disciplined approach to technology rotation, and it provides flexible end-of-lease options. If Dell were to allow this to occur in China, customers may be more likely to choose Dell products because this is in a sense a "try before you buy" opportunity for potential customers, which offers the customers a little more security. Also, since customers are making monthly lease payments, there isn't as much of an upfront capital investment. In addition, this option helps Dell establish longer term relationships with their customers because when it comes time to upgrade their computer systems, customers will likely stay with Dell products. This may be a difficult option to implement because Dell would be introducing a system that is foreign to their customers. Dell needs to figure out how they can demonstrate to its customers why they would want to lease a Dell computer rather