Competitive Strategy Competitive strategy is the approach that an organisation takes in order to gain advantage over its competitors. According to Porter, there are two major sources of competitive advantages: costs and differentiation. Cost-based competitive advantage involves reducing production costs so that an organisation can earn higher profit margin or offer products at lower price compared to competitors. Differentiation-based competitive advantage involves offering unique properties that are not offered by competitors’ products. Differentiation allows an organisation to charge a premium for their products because they offer additional benefits to buyers. Dell’s initial competitive strategy, when it was founded in 1984 by Michael Dell, was to focus mainly on differentiation. Its strategy was to sell customised personal computer systems directly to customers, which was a rapidly emerging market at that time (1). This was done by targeting second-time customers, those that already understand computers and know what they wanted. Meanwhile other companies at the time was selling “’plain brown wrapper’ computers” (2). By offering customisations, Dell gained a better understanding of customers’ needs and wants. This helped the organisation position itself differently against the more popular brands, such as Compaq and IBM. This strategy was carried out by selling via phone, fax and direct sales, instead of selling through retail stores. Not only this approach differentiated Dell from other competitors at the time, it also reduced its operating costs as it did not have to rent expensive retail space. In addition, Dell’s strategy of selling customised computers allowed it to hold only a small amount of inventory, which reduce... ... middle of paper ... ...uary 25, 2010.] http://www.casestudyinc.com/dell-india-strategy. 15. Hill, Charles W.L. International Business: Competing in the Global Marketplace. New York : McGraw-Hill, 2007. 16. Brian T. Gladden. Dell.com. [Online] [Cited: February 25, 2010.] http://content.dell.com/us/en/corp/d/bios/BrianTGladden.aspx. 17. Customer-Driven Innovation. Dell.com. [Online] [Cited: February 25, 2010.] http://content.dell.com/uk/en/corp/d/corp-comm/cto-customer-driven-innovation.aspx. 18. Rugman, Alan M. and Collinson, Simon. International Business 4th Edition. Essex : Pearson Education Limited, 2006. 19. Sodhi, Sunil Chopra and ManMohan S. Managing Risk to Avoid Supply Chain Breakdown. MITSloan Management Review. [Online] October 15, 2004. [Cited: February 25, 2010.] http://sloanreview.mit.edu/the-magazine/articles/2004/fall/46109/managing-risk-to-avoid-supplychain-breakdown/.
A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competitors products (differentiation advantage). (QuickMBA, 2007) Creating this competitive advantage is produced using the organizations resources and capabilities b either a cost advantage or differentiated. Porter identified three basic strategies one of which is the cost leadership strategy. This strategy intends for the organization being the low cost producer in the industry. Such ways to lower prices include; improving process efficiency, vertical integration, and avoiding some cost for example.
Griffin, R. & Pustay, M. International Business, 2003, Pearson Education, Upper Saddle River. Pg. 301
Michael Dell is the founder and CEO of Dell Computers Inc. one of the largest sellers of personal computers in the world. His contribution to the computer industry is the “one-to-one relationship between the company and the customer— there are no intermediaries, no middlemen” (Krames, 2003, p.59). Not only did he relinquish the middleman, he also perfected combination of the bottoms up strategy and the just-in-time (JIT) by waiting till he received orders from the customer to build computers. In doing this, Dell increased its return on investment (ROI) while reducing its inventory overhead cost.
Wild, J. J., Wild, K. L., & Han, J. C. (2008). (CH2)Cross-Cultural Business and (CH5)International Trade,. International business: the challenges of globalization (4th ed., pp. 48, 61-62, 132, 136, 147). Upper Saddle River, N.J.: Pearson Prentice Hall.
How and why did the personal computer industry come to have such a low profitability?
Daniels, J. D., Radebaugh, L. H., and Sullivan, D. P., (2011). International Business: Environments and Operations. Prentice Hall, Upper Saddle River, New Jersey.
Dell corporation is a well known computer company incorporated in 1984. Dell Computer Company is the pioneer of the highly publicized business model called "Direct Model" in the personal computer industry. It had launched a method which attracted millions of customers across the world starting from personal use to small and medium size corporation use. Dell customized its computers to the individual need.
Dell's strengths were oriented around listening to the customers, responding to the customers, and delivering what the customer wanted. The direct relationship was first through telephone calls, then through face-to-face interactions, and now through the internet. It has enabled them to benefit from real-time input from real customers regarding products and future products they would like to see developed. The company also doesn't use reseller or retail channels because every computer is built-to-order, which allows less inventory. The direct model allows them to take the pulse of whatever market and provide the right technology for the right customers.
Speaking about the business model of Dell, it has ability to remain on the higher end of the scale for a particular time period. Dell has business model, which primarily focuses on direct selling line of attack. It in a straight line supplies the PCs to the regulars. It does not believe in intermediary, retailers for the business practices. Undeniably, this gives them an edge to serve customer well. Nevertheless, it understood the importance of retailers and start offering products on the premises of retailers, such as Wal-Mart, Sam’s Club and so on. Next, Dell administration is certain of the exclusive business of PCs. As time goes on, however, observing the
Dell Inc. has realized that the most efficient path to the customer is through a direct relationship, with no intermediaries to add confusion and cost. With the power of their direct model and their team of talented people, they are able to provide to their customers high-quality, relevant technology, customized systems, superior service and support, and products and services that are easy to buy and use. HISTORICAL REPORT Dell Inc, was founded as “PC’s Limited” in 1984 by Michael Dell, while still a student at the University of Texas at Austin, with just $1000. From Michael Dell's off-campus dorm room at Dobie Center, the startup aims to sell IBM-compatible computers built from stock components. Michael Dell started trading in the belief that by selling personal computer systems directly to customers, PC's Limited could better understand customers' needs and provide the most effective computing solutions to meet those needs.
Dell made the bold decision in 1994 to eliminate their products from retail stores and focused on mail order customers. In 1996 Dell began selling through their website as well. By eliminating the retail store presence Dell was able to reduce costs, reduce inventory, and maximize profit. Dell utilized a built to order system that allowed customers to specify exactly what they did and did not want on their Dell computer. Dell's just in time inventory system lowered inventory to 6 days and storage costs were saved.
Svensson, G., 2001. 'Globalization' of Business Activities: A 'Global Strategy' Approach, Management Decision, 39(1), pp.6-18.
1John D. Daniels and Lee H. Radebaugh, International Business: Environment and Operations (USA: Addison Wesley Longman, Inc., 1998), 181.
Dell Inc had very effectively used the direct marketing channel for the sales of computers to the end consumer. When all the other pc makers were selling through retailers and distributors, Dell had started efficient use of the direct channels.
Stonehouse, G., Campbell, D., Hamill, J. & Purdie, T. (2004). Global and Transnational Business (2nd ed.). Chichester: John Wiley & Sons.