Dell, Selling Directly, Globally The case solution
Online Technical Support:
Dell is providing online support to all the users of Dell’s products, asit answers the users’ questions-via online support, software upgrading information & other technical support. With this technical support, customers are satisfied with Dell and feel satisfied with their services. This wide range of Dell’s services do only increase the intrinsic value of its products, but has also help the company in achieving customers satisfaction, which acts as Dell’s competitive advantage
Analysis of Porter
To analyze the competitiveness of the business environment, where Dell is operating, Porter’s five forces model has been applied, which is explained as follows: (Reference to Appendix 1)
·Bargaining Power of Buyers
The bargaining power of buyers is high, as the buyers in the industry have different alternatives available. As mentioned, in the Chinese computer market; numerous sellers are providing the solutions, like Dell. So, due to the high number of alternatives; the buyers have options to shift towards other brands, representing a high bargaining power of the buyers.
·Bargaining Power of Suppliers
The bargaining power of the suppliers is medium because Dell never sticks to one supplier. It keeps on changing its contracts with the suppliers. The switching costs are relatively lower as the suppliers’ locations are very close to Dell, making it easier for the company to switch towards other suppliers.
.The threat of New Entrants
The threat of new entrants is very high because the strategy followed by Dell is easily imitable and the initial startup costs are not so high. Moreover, the industry presents significant growth potential, as a result of which, different players will enter into the market to take the industry as a profitable opportunity.
·Threat of Substitutes
The threat of substitutes is not so high, as the products offered by the company are quite personalized and customized according to the customer's preferences. Moreover, the company enjoys a good brand reputation and it can offer the products at low prices, as a result of which the substitutes won’t be preferred by the customers over Dell’s products.
·Existing Rivalry
The existing rivalry within the industry is too high, as there exist very large industry players like Microsoft, Intel, and other Chinese competitors, which continuously strive to grab the market share through different tactics. There are frequent price wars between the competitors ultimately leading to lower profit margins.
SWOT Analysis
(Reference to Appendix 2)
.Strengths:
As a brand, Dell has strong global recognition. It has a customer focus strategy through which customers can order customized computers through Dell’s website and the product quality is far above expectations. Direct model marketing enables Dell to engage its customers through multiple channels, like phone, online, etc. Due to the direct engagement of customers; Dell is less dependent on its suppliers.
·Weakness:
As Dell wanted to expand its business in China, it is not familiar with Chinese culture. The price of Dell’s PC in China was so high, i.e. equivalent to a person’s two years savings. The company was focused on an online platform, which resulted in the lack of a face-to-face sales strategy. The company was highly dependent on PC sales, and the Commission of retail buyers was just 10% of sales.
·Opportunities:
The demand for customized PC is increasing. Additionally, Dell has planned to expand its business globally, with its main target being China because analysts predicted that China would soon become the second-largest PC market after the U.S.: between 1990 and 1996. By introducing the direct model, Dell has enhanced its existence in the Chinese market.
·Threats:
Chinese managers were becoming more tech-savvy on their own, therefore their dependency on external sources was decreasing. Software piracy in China was a great problem. Microsoft estimated that almost 95% of their software used in Chinese corporation were stolen. The Chinese Government did not entertain outsiders, as it clearly stated that the national vendors would be promoted. Sino- American relations were in danger because of China’s nationalistic politics.
Alternatives
Dell is presently-monitoring cost leadership key points and multiple key points. Dell offers“make to order” production&mass customization. Dell can approach the three golden rules such as disclaim inventory, attend to customers’ needs, and indirect sales were followed to eliminate the operational and functional costs. By having an online selling platform Dell has reduced its inventory cost to a significant level, which has also helped the company in cost-saving, which otherwise would have been used on inventory maintenance costs. The direct selling strategy has helped Dell in getting good riddance from the middleman, such as distributors and the cost incurrences involved in it.
Alternative 1: Endure current key point of targeting business accounts.
Pros: This key point has been contributing to the generation of best results. The company’s market share has increased from 0.7% to 2.3% in one year. (1998-99)
Cons: By targeting only commercial customers; Dell might get left behind in building other potential customer bases.
Alternative 2:Endurepresents a key point of targeting the business accounts, then acquiring the PC Group separately.
Pros: This key pointwould enable Dell to coverthe extra market entirely. The current perception is that China grows-financial tools and as purchasing power rises with time due to the expansion of the economy; the consumers will get extraflexible income in the future. Dell could offer specific consumers with payment options controlled by the company and could provide information on the number of limited online users and acquisitions completed through the internet. The primary objective for Dell should be to highlight this among the Chinese population and to acquire the internet sales approach as new and other users gain access.
Cons: Dell would incur extra costs while acquiring a separate group in China.
Recommendations
Alternative 2 is recommended for Dell as it would allow Dell to build its customer segment through having a rapidly spreading recognition rate among the Chinese customers, which would eventually help the company in acquiring extra market share as time passes by.
To acquire the biggest market share; Dell must create definite alterations in the Chinese market. Dell should market through a Dell-possessed company or through an accomplished dealership (with a Chinese partnerpossibly), which would allow Dell to have an in-depth penetration in the Chinese market through a carefully strategically planned procedure of direct retailing direct.Still, to implement this procedure; Dell could be faced with numerous difficulties in the Chinese market as the company would be required to have a dealership with a Chinese company first to become a bulk retailer. As Dell has huge financial resources; it can begin working on the implantation of this plan. The disadvantage in this procedure would be the extra cost incurred associated with finding and executing a dealership.......................
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