Matching Dell Final

Matching

Dellgroup 9

Jo s h u a To l m a n M at t Mo r r e l lBr a d r o B e r t s S a m Ne l S o N S c o t t A S h t o n

G r o u p 9M at c h i n g D e l l Bu sM 481 9 –21–2010

Dell has experienceD Dramatic growth in recent years, largely through their Direct selling moDel. this growth has attracteD imitation by competitors.


Competitor Program - Year

IBM Netfinity Direct Program – 1998

Compaq DirectPlus - 1998

HP HP Shopping Village - 1998

Gateway Always sold direct


how can Dell aDapt to the changing pc market?

Maintain cost advantage

Dell must further develop and leverage competitive

advantages

Cost competitiveness is

vital

Industry price is converging

Focus on key market segments

Emphasize Differentiation

Identify Key Markets

Seek growth opportunities

International Expansion

Increase product offering

I II III


maintain cost aDvantage: inDustry price is converging

as prices of pc’s converge, cost competitiveness is essential. companies with lower costs than Dell will be able to price Dell out of the market.

-1000

-800

-600

-400

-200

0

200

400

600

800

1996 1997 1998

Price Di�erential From Industry Average

Dell Compaq Gateway HP IBM

I


maintaining cost aDvantage: cost competitiveness is vital

Dell’s overall cost aDvantage is Disappearing, though their inventory management aDvantage remains strong.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Dell Gateway Compaq IBM HP

Investory Management Costs % of COGS

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

1996 1997 1998

Competitors' Gross Margins Have Caught Up

Dell Compaq Gateway


focus on key market segments

since competing on price is no longer viable, Dell must finD other areas of Differentiation.

Business PC’s generate higher margins •than consumer PC’s

Government and Business is the largest •market segment

Dell is ideally situated to serve these •markets

II



business pc’s retail for an average of 19% more than consumer pc’s, but cost about the same to make

Critical components are the

same in business and consumer

models. The cost of bundled

software, speakers, and a

modem offset the cost of the

LAN card—both classes of

machines cost about the same

to make. Dell’s business PC’s

are priced 24.3% higher than

consumer models.

Consumer PC Business PC

Processor Pentium II 400 MHz Pentium II 400 MHz

Memory 64 MB 64 MB

Hard Drive 8+ GB 8+ GB

Monitor size 17” 17”

Bundled Software? Y N

LAN card? N Y

CD-ROM 32x+ 32x+

Modem? Y N

Speakers? Y N

average price $1,650 $1,960

s o u r c e : e x h i b i t s 10 a , 10 b



as the pc market has grown, government anD large/small business have consistently been 2/3 of the market in both units anD Dollar value

-

5

10

15

20

25

30

35

40

1994 1995 1996 1997 1998

Mill

ions

of U

nits

Market Share by Units

Large Business &Government

Small Business

Consumer

Education

-

10

20

30

40

50

60

70

80

1994 1995 1996 1997 1998

Billi

ons

of D

olla

rs

Market Share by Dollar Value

Large Business &Government

Small Business

Consumer

Education



currently, 80% of Dell’s revenue comes from government anD business market segments.

$-

$2

$4

$6

$8

$10

$12

$14

$16

$18

Total All Business &Government

Large Businessand Government

Small Business Consumer Education

Billi

ons

of D

olla

rs

Dell Sales per Market Cateogry


focus on key market segments: Differentiation

businesses buy from Dell because of speeD of Delivery anD customization. Dell can use these aDvantages to continue to grow its market share among large businesses anD government.

Speed of Delivery• : Dell’s customers have access to the

most advanced computers several months before they

would with other PC providers as a result of their speed

of delivery. Dell’s supplier relationships make it diff icult for

competitors to imitate their speed of delivery.

customization• : Dell’s customized computers save their

customers time and money because they arrive with pre-

installed software and ready for employee use.


seek growth opportunities

introDucing new proDucts to existing markets or expanDing into new markets with existing proDucts effectively leverages Dell’s core competencies to ensure future growth.

Markets

Products

Old New

Old

New

III


seek growth opportunities: increase proDuct offering

existing network of business customers proviDe opportunities for increasing revenue through expanDeD proDuct anD service offerings

product example:

Servers - Dell has hardware

supplier networks already in place

Service example:

IT - Many large business may be

interested in bundling IT service

with their PC provider

Markets

Products

Old New

Old

New


seek growth opportunities: new global markets

continue increasing market share by finDing new customers in strategic regions of the growing global market.

Markets

Products

Old New

Old

New

Leverage existing customer relationships •in new regions

Identify markets with cultural and •economic similarity with the US

Seek joint ventures in areas where Dell •does not have strong brand recognition

0

20

40

60

80

100

82 84 86 88 90 91 92 93 94 95 96 97 98

PC Market Size in Units (Millions)

Us (millions) Worldwide


key takeaways

Dell has a sustainable advantage in inventory •cost management

PC sales to businesses makes up roughly 80% of Dell’s •revenue, and have higher margins than consumer PC sales

Customization and speed of delivery have been and •should continue to be successful differentiators for Dell

Expanding products and services offered to current •corporate customers is a possible growth opportunity

Expansion of current products and services into •international markets is an attractive growth opportunity

Documents

Matching Dell Final