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.

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.

Dell’s advantage is primarily due to cost drivers rather than differentiation drivers. Dell’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, Dell’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 firm’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:

 Current Cost Drivers:

o Inputs вЂ" low due to short lead time

 COGS lower due to short lead time for components which fall in price by 27% annually

 Co-location of component suppliers minimizes inventory & cycle times and associated carrying costs

o Processes вЂ" efficient due to tight integration

 Direct sales minimize channel mark-ups & advertising

 Tightly integrated order entry, production and shipping minimized inventory buffers and cycle times

 Tight control of cash via inventory metrics

o Scale & Scope вЂ" adequate but growth is slowing

 Scale вЂ" 7.4 mm units worldwide, ~8% WW share, #2 WW behind Compaq (13.4mm) and about even with IBM (7.4)

• 70% of revenues from large corporate clients

• 63% of revenues from US (40% WW market)

 Scope вЂ" narrow with primarily corporate equipment

• 2 Desktop lines вЂ" highly stable/high tech

• 2 Notebooks line вЂ" highly stable/high tech

• Servers & Workstations

• Software & Install

The cost driver examination shows that Inputs, Process and Scale/Scope all contribute in some way meaningful to Dell’s advantage. A graphical analysis of Dell’s value chain highlights the key support and primary activity interactions.

Having isolated the key elements to Dell’s success, we can further leverage these by repositioning in the following ways:

Inputs:

 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.

Processes:

 Target segments carefully to maintain short lead times.

• Leverage website to cultivate the consumer direct market.

• Align with specific retailers to carefully target consumer segments. For example, Sam’s Club’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 Sam’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.

 Minimize retail channels to one warehouse and one consumer electronics outlet only to minimize the complexity of the order fulfillment process.

• 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 SKU’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.

 Utilize the retailers’ websites to allow