Dell Online Professor Joel Huber BA 360 Marketing

Dell Online Professor Joel Huber BA 360 Marketing Management Fuqua School of Business Dell Online– 1

Key Components of Dell’s Direct Model Close relationship with suppliers Small WIP and RM inventory Minimal finished goods inventory Direct Distribution and Customization Assembly and market skills Successful JIT manufacturing Low costs Profits Ability to offer latest products Price premium Upselling

What happened? • Dell easily achieved its 50% internet target in 1998 • 1994 Compaq developed its own direct sales, mimicking Dell’s • Compaq got into trouble with their retail dealers, and VAR distributors—merged with HP • Share of PC’s 1997 2001 Dell 10% 18% Compaq 18% 15% Dell Online– 3

HP-Compact’s merged response Dell Online– 4

HP-Compaq’s ordering process Dell Online– 5

Dell’s Option within NC Premier page Dell Online– 6

Lessons from Dell’s success • Company: – Low cost strategy required narrow business focus—assembler, JIT with strong links to suppliers. • Customer: – Transaction customer—price sensitive but important because they can become relationship customers – Relationship customers—subsegmented by size, need. Premier pages tie customers to Dell Online– 7

Competition: • Compaq caught in a channel conflict trap—could not go direct without channel conflict • HP caught in a high-end trap—could not adjust its line to price competition • Dell’s disintermediation was a bet-the -farm risk when implemented in 1992 Dell Online– 8