Dell Business Model (B): A Case for Business Model Innovation



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Code :BSM0056A

Year :
2008

Industry : Engineering, Electrical and Electronics

Region : US

Teaching Note:Available

Structured Assignment :Available

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Introduction:In the early 1990s, Dell used direct as well as indirect sales channel to sell its products. It sold its products through retail outlets like Best Buy, Costco, and Sam's Club. But in 1994, citing pressure on profit margins, Dell stopped selling its products through retailers and decided to concentrate on its direct selling model. But with changing trends and high level of awareness among individuals, the usage of retail computers increased. The retail segment grew at a faster pace.

In 2007, Dell Inc. (Dell), the world's second largest computer company by market share, partnered with many retailers to sell its desktop and notebook computers. The retailers included Tesco (Europe), DSG International, Carrefour (Europe), Carphone Warehouse (UK), Best Buy (US), Staples (US), Courts (Singapore), Gome (China), Big Camera (Japan), and Wal-Mart (US, Canada, Brazil and Mexico).

Dell started losing market share to Hewlett Packard (HP) in 2007-08. As of the third quarter of 2007, Dell shipped 27.8% of PCs sold in the US compared to HP, which shipped 24.1% of PCs sold. Dell also faced competition from the aggressive players like Acer in the notebook category. Dell decided to aggressively focus on the retail segment. But analysts were sceptical. Richard Shim, PC industry analyst at IDC5 commented, "It (retail)'s a big step for them (Dell). It's risky, but it's a gamble they had to make... It's going to be hard for them to make this change... (as Dell is) used to having a very intimate relationship with customers".

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