1. Ch. 3 Building and Editing the Channel Value Chain I: The Key Principles I. Industry: PC ; Company: Dell 198419881994 Direct Dealer/VAR/SI Retail 25% 70% 5% 24% 68% 8% 18% 58% 24% Total Units7.7Million9.23Million15.60Million Table 3-1: PC Channel Share in the U.S.

2. Ch. 3 Building and Editing the Channel Value Chain I: The Key Principles 200120032005 Direct inbound Direct outbound Internet Direct Dealer/VAR/SI Retail Others 23% 18% 8% 28% 19% 5% 19% 23% 13% 22% 20% 4% 17% 25% 12% 20% 21% 4% Total Units46.07Million52.70Million64.14Million Table 3-2: PC Channel Shipment Share in the U.S.

3. Ch. 3 Building and Editing the Channel Value Chain I: The Key Principles II. More than Timing: Secret of Dell’s Success 1. Ability to Time the Market 2. Very Tight Configuration of Value Chain (Supply Chain and Demand Chain) III. How Dell Builds and Edits the Channel Value Chain 1. Value creation starts with the customer. 2. Benchmark offerings against key competitors 3. Channel capabilities and demand chain requirements influence each other.

4. Ch. 3 Building and Editing the Channel Value Chain I: The Key Principles Principle 1: Value creation starts with the customer. 1. Need for market segmentation = SOD ex) Dell: Transactional or Relational Principle 2: Benchmark offerings against key competitors - Calibrate your capabilities and costs ex) Dell: Foray into retail in early 1990s

5. Ch. 3 Building and Editing the Channel Value Chain I: The Key Principles Principle 3. Channel capabilities and demand chain requirements influence each other. ex) Dell: Need to target large companies for growth  Chip sets by Chips & Technologies; Premier Pages Translating Principles 1. Dell is a masterful retailer. Do you agree? 2. Your intermediaries are your customers? Do you agree?

6. Ch. 4 Building and Editing the Channel Value Chain II: A Framework for Getting Started Six-step Framework (example: Alpha Company) Step 1: Start from the perspective of the end-user customer. Step 2: Prioritize and segment customers by demand-chain needs.

7. Ch. 4 Building and Editing the Channel Value Chain II: A Framework for Getting Started Six-step Framework (example: Alpha Company) Step 3: Measure the (current) channel’s capability to serve those needs. Step 4: Benchmark key competitors.  Customers’ Other options

8. Ch. 4 Building and Editing the Channel Value Chain II: A Framework for Getting Started Step 5: Configure and evaluate new capabilities That address customers’ needs. Step 6: Evaluate alternative channel options and shape one that best fits the insights from the prior steps.

9. Ch. 4 Building and Editing the Channel Value Chain II: A Framework for Getting Started Three Archetypes of Channel Systems 1.Vertically Integrated 2.Third-party delegated 3.Composite (Partially Integrated)