Dell's competitive strategies and market position decline since 2007

Dell Case Study and Business Strategy

Comment by Sabina:

Dell is one of the leading industries for computer production and sales globally. The brand is highly recognizable and the company is mainly known for its personalization of computers for customers. In 2004-2005 Dell became one the leaders in the industry for PC sales, by overtaking Hewitt Packard. However since 2007 sales have dropped and Dell is struggling to keep its market share. Dell must compete in a very competitive market against competitors such as Apple. The competition has advance technology and has adapted similar business strategies to gain market share. Some of the major challenges that Dell faces are failure to keep with the technological advances of the competition, defect in equipment and management struggles to keep production cost low. In this paper I will discuss Dell's business strategies, some changes in the last two decades, their financial performance and other aspects of the organizations business.

Background Information

Dell computer was founded by Michael Dell in 1984, through his own research and investment (Thompson & Gamble, 2008). Michael Dell's main business strategy would be to keep cost low by eliminating the middle man. Dell computers would be produced, marketed and sold directly to consumers. The organization kept cost low by using an assembly line for production. Customers ordered their computer to their specification and Dell built the computers to meet that specification. The organization did not have to invest a large amount of money on inventory and kept high volumes of stock. This business model also allowed the organization keep cost low. Dell provided a high level of customer service to customers. Dell does not invest in research and development of new product, which is a major challenge for the organization. Dell's competitive position is getting stronger they are trying to surpass Hewitt Packard as the leader in PC sales.

Dells Competitive Strategy

Dell's initial business strategy could be described as differentiation, however changes in technology and the market has forced Dell to adapt new business strategies. Dell's expansion globally and intent to become the leader of the industry has led Dell to adapt a dual market strategy. Dell continues to focus on their differentiation strategy; however they have adapted some of the other market techniques like selling through kios instead of just through direct order. "Many other brands of computers do offer PC customization for their customers; however the options are very limited" (McCabe, 2010). Expansion into other global areas will usually require different business strategies. The differentiation strategy is stronger when market concentration is low such as was the case in China (Li & Li, 2008). Dell's differentiation strategy focuses mainly on satisfying the needs of customers. The Dual strategy allows companies to compete with the small businesses as well as the leaders in the industry (Li & Li, 2008).

Product Expansion

In the 1990's Dell began marketing portable CD and DVD players. In 2001 Dell expanded their services by selling low cost data routing switches, and then in 2003 they began selling flat screen television. Dell is no longer just known for their PC, they manufacture a wide range of equipment. They expanded their product sales to meet customer demands, to maintain their current market share and to expand market share. Each of these new additions proved to be profitable and put Dell on the front-page (Lee & Ante, 2005). In 2008 Dell's PC sales only accounted for 32% of their revenue, other products accounted for the other 68% of sales. The expansion strategy is working well for Dell; however in the realm of technology the market is changing daily, therefore companies in this industry must continue to change their product and their strategy to maintain their competitive edge. Dell now has Business to Business (B2B) sales, where customer service is the key to this component of Dell's strategy. The B2B sales included onsite technical support, sales and high level customer service. This strategy has created an increase in revenue.

Financial Analysis

Dell's profitability declined in 2009 by almost 15% compared to 2008, however profitability in 2010 is about 18% above 2009 (YahooFinance, 2010). According to Dell's Quarter 4 report 2011 (Quarterly Earnings Report, 2011), Dell is profitable, strong, and solid year 2010. The organization has financially improved significantly and has expanded enterprise services. Dell continues to seek methods and implement strategies that would cut cost of production. In 2008 Dell outsourced a major part of their production operation in attempt lower cost. Dell has experienced some loss in 2008 and 2009 due to the slow economy; however the company is fighting its way back up again. Based on the last financial statement from Dell, the company is profitable and has a healthy cash flow with low debt (YahooFinance, 2010). There is projected growth for 2011. There is an expected revenue increase of 14-19percent for Fiscal year 2011 (Williams, 2010).

SWOT Analysis

The biggest strength that Dell has to offer is its brand recognition. Dell is a preferred brand over its competitors for hardware. A strong brand image such as Dell's promotes greater trust in the company's products and services (Datamonitor, 2010). One of Dell's weaknesses is that they do not have strong research, development and engineering (R&D) compared to the competitors (Datamonitor, 2010). The company does not spend as much as the competitors on R&D, and therefore the organization have fewer patents compared to the competitors. Dell has recently entered the smartphone business in 2009; they also partnered with China mobile which is a large telecommunications company. Dell is growing their PC business in countries like China and India. Dell encounters threats from many different segment of the business. Dell competes with the competitors for price, quality, service, technology, brand recognition, and in many other areas. In 2006 Dell recalled a significant amount of notebook batteries because of defect. Dell manufactures complex machines, and there is always the threat that there could be defect.

Recommendations

My recommendations to Michael Dell are to invest more in research and creating new products. I would also recommend that Dell continues to conduct market research, gathering information about the competitors and the customers, to make changes in their product and services. Giant technology corporations are expected to keep up sales in 2011; however the instability in the economy in the United States and in Europe could prevent sales growth. Companies must continue to differentiate themselves to ensure growth (Reuters, 2011). I would recommend that Michael Dell immerse in marketing on social media websites, this is a low cost method of marketing and it can reach a wide range of customers. This strategy will help Dell to overtake Hewitt Packard. In 2010 Facebook reported over a 103 million, utilizing the social media websites for marketing is advantageous (Corbett, 2010).