1) Dell’s Direct Business Model which consist of the five principles:
Most efficient path to the customer – through direct relationship with no intermediaries to add cost and confusion
Single Point of accountability – so that resources necessary to meet customer needs can be easily marshaled in support of complex challenges.
Build-to-Order – provide customers exactly what they want in their computer systems through easy custom configuration and ordering. Thus eliminates the maintenance of expensive inventory.
Low-Cost Leader – highly efficient supply chain management which eliminated inventory thus reducing stocking cost.
Standard-Based Technology – unlike proprietary technologies, standards give customers flexibility and choice.
2) Supplier Relationships: Dell’s highly efficient and integrated supply chain allows it to keep only four days of inventory which allow the company to provide customers the declined component prices.
3) Pricing: Dell’s highly efficient supply chain has gain advantage from the reduction of inventory maintenance cost and the depreciation of component price, which allow reduction in pricing for their customers.
4) Strong CRM: Build-to Order gives customers the flexibility to choose the kind of configuration they want, the direct model which sells directly to customer through the internet which gives the customer lower price and higher convenience. Dell is able to gives its support and service directly without the middlemen or resellers and maximum profitability to their customer in pricing, thus enhancing the value of CRM.
1) Lacked of solid dealer relationship: Dell does not have a strong relationship with dealer due to their direct model, which sells directly to their customer. This has a big impact their brand name because it has resulted in lack of support from dealers to help promote their brand to consumers.
2) High dependency on component suppliers: Dell’s dependency on component supplier such as Microsoft and Intel due to majority of PCs’ platform is based on MS Windows and Intel’s processors.
3) Research and Development: Dell does not invest much in research and development as they provide a standard-based technology through its direct business model. Therefore, Dell’s business strategy does not encourage them to invest significantly in producing any new technology.
1) Globalisation: Dell’s biggest opportunity is through its direct business model (which they do their selling directly to their customer through the internet) has enabled the expansion its business model over the geographical barrier that has brought about globalisation of their business.
2) Growth in market share: Globalisation of its business has enable Dell to enjoy a double digit growth in market share in the past few quarterly sales.
3) Services and Solutions: Dell has the opportunity to expand its business to other areas like providing customized solutions or services and consulting due to its strength in CRM.
1) Competitors like HP, IBM and others: The lack of support from dealer has weakened Dell’s brand name against its other competitors such as HP and IBM which has a stronger brand name.
2) Corporate Image: Dell’s concentration in shipments volume has given Dell’s an image as more a hardware vendor rather than a service provider.
3) Trade tariff barriers: Factors such as currency fluctuation, political instability, trade tariff can result in barrier for Dell’s marketing strategies which has a great impact on its direct business model.
Dell’s Business Model Evaluation
The rapid development of Internet technologies has facilitated Dell’s direct business model and its supply chain management, which serves as the backbone for its business model. Dell’s direct business model, which allows them to sell directly to its customer through the internet, this has enable Dell to globalise its business operations. Through this model Dell is able to gain competitive advantage by offering lower pricing to its customers due the reduction of inventory cost and the benefits from the depreciation of component prices.
Ravi et. al. (1999) mentioned Built-to-Order concept suited its customers well because they given the flexibility to choose the type of configuration they want for the computer systems, thus by passing resellers and their markup which increased the value for money for customers. This has consequently improved its CRM (Customer Relationship Management) process because customer gets to deal directly with Dell which eliminates the inefficiency of middlemen.
However, Dell faced difficulty in its branding as it lacks the support from dealers or resellers which make it difficult to compete against other competitor with stronger brand names such as IBM or HP for more complex services share market. Dell’s chairman, Michael Dell has stated in Computer Weekly (August, 2002), Dell’s preference in volume product instead of niche products. The usual target market for volume product is home users which its needs are very different from corporate users thus will have a big impact of the quality of the type of products and services which Dell has to offer.
Computer Weekly (August 2002). Michael Dell spells out strategy for market defiance.Technology: servers.
Access date: 3/1/2004
Mehta, V. and Kwinter, Y. and Wohl, A. and Blundo, J. (November 2001). Analysis on Dell Computer Coporation.
Access date: 11/1/2004
Ravi, K. and Marcia, R. (1999). E-Business Roadmap for Success. Addison Wesley Longman, Inc. (1999).