Marketing Management Case Study

Dell’s Direct Model: In Need of Change?

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Abstract:
The launch of IBM's Personal Computer (PC) in 1981, was a boon to the PC industry. During the following years, both the PC hardware and software markets flourished. Dell was one of the many start-ups which entered the market during this period of high growth. Since its inception, Dell adopted a business model which was contrary to the established norms of the industry. The company bypassed traditional distribution channels and sold PCs directly to customers. This helped the company to save on costs like reseller margins and high inventories. While the industry followed a 'build-to-forecast' approach, Dell followed a 'build-to-order' model. Established players believed in vertical integration whereas Dell 'virtually' integrated itself by building close relationships with its suppliers and customers. The result was that Dell experienced stupendous growth during the 1990s. In the year 2001, the company became the world's largest PC manufacturer, based on the number of PCs shipped.

While Dell's competitors struggled to keep up with Dell's low-cost PCs and efficient supply chain, Dell progressed from strength to strength. But with the turn of the 21st century, the fortunes of the industry players seemed to change. Dell's growth rate started declining. Changing elements in the business environment like the maturing US market, resurgence of HP and Apple Computer, rise of low-cost Asian players like Lenovo and Acer, and high growth in the household demand for PCs, a segment where Dell was not focused, led the company to miss earnings and sales projection several times during 2005-2006. Dell's apparent inability to successfully respond to these environmental changes, led the market experts to doubt whether Dell's revered business model was equipped to provide Dell with a competitive advantage in the long-term.

Pedagogical Objective:

• To discuss the evolution of the PC industry
• To analyse the traditional business model adopted by the other players in the PC industry vis-à-vis Dell's business model
• To discuss Dell's business philosophy and culture and its effects thereof
• To analyse the internal and external factors that affected Dell's growth in the 21st century
• To discuss the strategy adopted by Dell in response to its problems and its effectiveness.

Keywords : Direct Marketing, Direct Selling, Dell’s Direct Model, Marketing Management; Marketing Mix; Market Segmentation; Product Life Cycle; New Product Development; Consumer Behavior; Marketing Case Studies; MBA; Marketing Course for MBA Marketing Course Case Map; Course Case Map; Case Map