1. Dell Online Professor Joel Huber BA 360 Marketing Management
Fuqua School of Business

2. Key Components of Dell’s Direct Model
Close
relationship
with suppliers
Assembly and market skills
Successful JIT
manufacturing
Small WIP and RM inventory
Low costs
Profits
Ability to offer
latest products
Minimal
finished goods
inventory
Channel captain for suppliers, plants or warehouses nearby—strong electronic links
Dell kept its focus on assembly, resisted integrating backwards as that would decrease flexibility
Integrated supply system permitted Just in time delivery
Resulted in 3 days order to delivery!
Key input is direct distribution and customization
Adaptability to new trends—contrast with retailer feedback
From consumer’s perspective, apparent choice, but most people accept defaults
Upselling easier when a person is making a choice within a product
Dell remains the price leader (high prices)
Price premium
Direct
Distribution and
Customization
Upselling

3. What happened? Dell easily achieved its 50% internet target in 1998
1994 Compaq developed its own direct sales, mimicking Dell’s
Compaq got into trouble with their retail dealers, and VAR distributors—merged with HP
Share of PC’s
Dell 10% 18%
Compaq 18% 15%
Dell, IBM and HP-Compac each have about 10% share of laptops. These are becoming commodities.
Dell’s relative share has grown in the last three years, IBM at the top is now about 8%.

4. HP-Compact’s merged response

5. HP-Compaq’s ordering process

6. Dell’s Option within NC Premier page

7. Lessons from Dell’s success
Company:
Low cost strategy required narrow business focus—assembler, JIT with strong links to suppliers.
Customer:
Transaction customer—price sensitive but important because they can become relationship customers
Relationship customers—subsegmented by size, need. Premier pages tie customers to Dell

8. Competition:
Compaq caught in a channel conflict trap—could not go direct without channel conflict
HP caught in a high-end trap—could not adjust its line to price competition
Dell’s disintermediation was a bet-the-farm risk when implemented in 1992