Dell Computer Corporation was founded in 1984 by Michel Dell, as a result of a growing demand for his pre-formatted hard-disks and upgraded IBM-compatibles.
Within a year, Dell introduces its first own-design computer system and in 1989, the company introduces its first laptop. The first laptop introduced did not live up to the Dell standards, and was therefore taken off the market again.
Dell had to solve the problem of balancing the production of laptops, desktops and servers. On the laptop market, which Dell was committed to re-enter due to its growing customer base, there were a number of technological problems. Dell had hired John Medica, lead developer of Apple computer’s Powerbook line, and according to him, only one of the laptops being developed would be able to compete on the market. However, it would take some time before it was fully developed, so Dell had to reject their customer’s demand for laptops. In doing so, Dell made the customers understand that it would not take forever. Dell’s way to approach the fact that the company was not able to fulfil the customers wishes, was through honesty. The question was whether this strategy was an advantage for Dell or not.
The brand “Dell? which serves various consumer segments, is efficiently delivering attributes such as good quality computers along with operative support services. Dell takes position in direct communication with customers and delivers build-to-order computers. The value created by using the direct model to sell customized products and by providing on-site service ranked Dell between market leaders IMB, Compaq, HP. It represents good performance machines at a reasonable price as well as unique and distinctive “Direct Model? while targeting corporate, medium and small sized businesses and home office consumers.
The advantage of a strong brand, investment in R;D and direct communication with the customers could successfully lead the company into the laptop market. However, the laptop market differs from the desktop market in a number of ways. For Dell the main problem will be the manufacturing process. When producing laptops, most parts will be delivered by suppliers and Dell just ads the last parts. This limits the degree of customization possible and since one of Dell’s most important distinguishing features is computer customization, the company risks not attracting customers.
Dell needs to find a way of approaching their former and present customers as well as trying to gain new customers, making their offer interesting to both sides.
The new challenge the company faces is to decide whether or not to continue the with the direct business model for the laptop market, or if the Dell should follow its competitors and sell through the retail market.
Due to a changing market environment and existing product life-circle there is a need for the company to revise its present business units and to think about further expansion. There is a shift in customer demand and therefore it is crucial for Dell to recognize in what ways best to satisfy the customers?needs.
Dell is considering if re-entering the laptop market is profitable and advisable for the company and whether the distribution channel should be based on the direct model or the indirect model (the retail market).
Dell has successfully restructured the management team and hired John Medica, from Apple. Medica’s team is developing a new line of Dell laptops, and together with advanced and newly introduced technology this creates an expectation of large profits from the portable production.
The main issues related with entering the laptop market are: reduced degree of customization possible in laptops, competitors who are already established on the market, the customers that were once disappointed with Dell’s low quality laptops and how to distribute the laptops.
The reduced degree of customization indicates that production and assembly strategies may have to be changed from the one used for desktops in order to make the laptop manufacturing successful. As the demand for portable computers was growing Dell’s competitors (IBM, Compaq, Apple) were already gaining a great share of the market. Dell also needs to consider how to convince former customers to buy the improved computers. Furthermore, it is crucial for the company to decide between implementing the direct distribution strategy or the retail channel. All together these issues led to one main concern ?how to make the entering into laptop market successful?
The goal of entering the laptop market is to expand the company and to offer customers the high-quality customized computers they want at a competitive price, as quickly as possible and backed by great service. In order to reach these goals Dell needs to gain advantage in production cost and to select an effective distribution channel. The drawbacks that makes this situation difficult is the bad past experience and the need of new educated employees in service and manufacturing sectors, as well as the need for new suppliers. The distribution question is also essential, because many small office and home buyers prefer purchasing through the retail channel where they can see and touch the product, whereas Dell communicates with customers directly through the Internet.
Before deciding between the alternatives, it is necessary to look into the internal and external situation of the company.
– Previous withdrawal from the laptop market was made in a decent way: Dell effectively communicated with its customers, shareholders and suppliers, and everyone was told about the problem and Dell’s plan to correct it in a straightforward manner. Accordingly Dell didn’t lose the trust of its stakeholders.
– The company’s previous failure of entering the laptop market should be seen as strength, because the large-scale loss has given Dell an experience and will make the company more careful and cautious when choosing production methods and penetration strategies, as well as more detailed in pursuing R&D.
– Customer segmentation: by segmenting customers Dell can effectively serve individual needs, and take into consideration the difference between selling to large corporations and individual customers.
– Reputation built on Dell’s unique and distinctive distribution: by distributing directly, Dell can successfully communicate with customers and focus more on individual needs. The company’s strategy to build the computers according to customer’s specification results in low inventory costs.
– The company’s desire to experiment without being afraid of taking risks that could bring failure as well. The IT industry is ever changing, and being innovative is a must if a company wishes to be successful.
– The need to form market share in the laptop market from nothing.
– Reentering the market causes further production costs (investments in new technology, new specialized employees, restructure assembly line and etc.).
– Lower degree of customization that is possible for laptops and this in turn limits Dell’s ability to produce customized laptops which is its main feature of success.
– Company’s expansion to new market.
– New potential customers and the need to redeem lost customers in terms of laptop production keeping in mind previous failure.
– Possibility to take advantage in delivering products faster and providing service in competitively effective manner.
– Facing already well operating and widely spread competitors.
– Other companies are adopting Dell’s direct model – Dell is losing its uniqueness.
– The threat of rejection to buy Dell’s portables, because some former customers are prejudging Dell as producing low-quality laptops.