Based on Ali Farhoomand’s “Dell: Selling Directly, Globally (2007) Introduction
Dell’s business model has been the key element of Dell’s growth in revenue and reputation. It was innovative, cost reducing and effective with customers. Since the foundation Dell grew rapidly and did not appear to look back until 2007 when they lost their spot as the number one computer vendor in the world. This report will identify the key elements of Dell’s strategy and explain why it was a success in the past. Present challenges, including attempts to expand into China, as well as a look into the future of Dell, will also be discussed. The strategy that made Dell a top 25 company in the world
As the title implies the strategy of Dell has been the foundation of one of the largest companies in the world. Dell was founded by Michael Dell in 1984. Eight years later, in 1992, it was on Fortunes top 500 companies worldwide. By launching their website, www.dell.com, e-commerce became a significant part of Dell. Selling computers built to order directly to customers through a website was one of Michael Dell’s visions. Dell gained early-mover advantage as one of the first companies to offer PCs for sale online in 1996 . Why the three golden rules fit the Internet
The Internet provided a technology with great potential for computer vendors such as Dell. By using a website Dell had their own platform to serve B2B and B2C clients. The golden rules, on which founder Michael Dell based Dell’s strategy are as follows: 1. Eschewing inventory
2. Always listen to the customer
3. Never sell indirectly
Computers can be customised through Dell’s website or by phone which ensures the customers to get the exact computer they want. When Dell receives the order they know exactly which parts for the computer they need from their suppliers. So instead of having a warehouse filled with computers, Dell only make computers they know they are going to sell. On their website Dell can track customer’s behaviour. This allows Dell to know what their customer’s interests are and this information is useful for building and managing customer relationships and recognising new sales possibilities. Dell’s strategy is based on disintermediation, selling computers using neither warehouses nor retailers. After Dell has built the ordered computer they send it directly to the customer. This visual representation creates an overview of Dell’s direct sales strategy, shown in figure 1:
Dell’s biggest advantage is their low prices on computers. Dell managed to keep costs low by using the following approaches: Low inventory – because Dell maintained low inventory they could quickly pass along savings to consumers by a reduction of system component costs. No retailers – eliminating the intermediaries saved Dell 25-45 % of mark-up on every machine. Basically squeezing all of the inefficiencies out of the supply chain. Investing very little in research and development (r&d) 
These three areas helped Dell keep their costs low but it was not without risks. No inventory makes Dell susceptible to external problems – for example, earthquake in Asia, SARS outbreak and such could terminate the ships getting from the suppliers in Asia to US. No retailers prevented customers having the comfort of trying or seeing the product first-hand before purchase - this excludes some customers. With little investment in r&d Dell is vulnerable to new technologies on the market. Taking risks are important to be successful in any business and it seemed like Dell’s risks paid off.
Successful strategy indeed, but why?
Dell’s strategy has proven to be very successful because they fulfill their customer’s needs. With the increase of the Internet during the 90’s many people in the Western world felt a need for a computer. This computer should be capable of doing the basics such as writing e-mails and browsing the Internet. What Dell provided was basic computers at very...
References: 19:Digital nation on the Rise: Profiting from China’s Internet Revolution, McKinsey, 2010
38:Inside Steve’s Brain by Kahney, L (2011)
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