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Matching Dell Essay

1662 words - 7 pages

Competitive StrategyHarvard Case ReviewExecutive Summary: This analysis describes the case of computer and peripherals industry especially the successful management of Dell Computer Corporation which grew twice as fast as its major rivals like Compaq, Gateway, Hewlett Packard and IBM. The case begins with a brief description of the history, product ranges, distribution channels, manufacturing, and marketing of the computer industry in the United States.IBM was the first to launch its PC in 1981 and soon held 42% of the market. But the growth of IBM proved to be short lived as with Schumpeterian rents when it failed to take any proprietary competitive advantage and ceded rights of the microprocessor and operating system to Intel and Microsoft. Consequently an imitation boom followed which saw companies like Compaq, HP and Dell enter the market with low priced portable PC's. The performance of PC's increased steadily and their prices dropped down. In addition, the range of software expanded fourfold. Most of the companies except for Dell relied on resellers and retail stores to reach customers. This was also a period of growing partnerships as is evident with the combination of Windows operating system and Intel's x86 microprocessor known as "Wintel" thus becoming a standard in almost all PC's in the early 1990's.A fierce price war began in the 1990's when Dell started to advertise much more less prices than Compaq. Increased demand caused the prices to decline further.Dell entered the PC market which was dominated by a generalized standard which IBM had set initially and which involved huge sales force and many reselling contacts. But a major disadvantage of this kind of a strategy was that it involved huge inventory of goods and as technology advanced rapidly, the cost of storage of obsolete products was tremendous.Dell was quick to respond to the challenge and it introduced a revolutionary business strategy which would enable it gain cost leadership in the PC market. The business strategy known as "Direct Model" enabled the company to eliminate wholesale and retail dealers that proved to be very expensive and wastage of time. Furthermore the direct model also provided a better understanding of customer needs. To identify useful opportunities Dell divided its customers into a wide segment namely businesses, governments, individual customers and educational institutions. To ensure the success in their direct customer model, it built a highly efficient supply chain and distribution network. The company just focused on one retail channel known as direct distribution while eliminating the other three channels namely retail stores, distributors, integrated resellers which its competitors like HP, IBM and Compaq followed. Dell thus received their orders directly from customers. This point is of special mention here as the company for a brief period in the early 1990' tired to deal at the retail channel but after four years, it shunted the idea due to...

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