Dell versus Hewlett Packard on the Market - Essay Example

Dell vs. Hewlett Packard In 2007, Dell had a total market share of 28% in the US and 14.9% in the international market. Dell’s product range includes laptops, PCs, PC components, DVD drives, printers, MP3 players, scanners, LCDs, Plasma screens, cameras, memory cards, data storage devices and speakers. Dell products are sold in more than 170 nations with sales in 60 countries accounting for 95% revenues. The strategic position of the company is a low-cost leader among the PC vendors as it works closely with its suppliers to cut costs. The mission of Dell is to cut its costs through its supply chain by incorporating the use of internet and e-commerce technology in everyday business practice. Michael Dell, the founder of Dell Inc. who owns 10% of the common stocks, customers, suppliers and the stockholders are the major stakeholders. EXTERNAL ANALYSIS Threats The global recession brought tough conditions on loans in 2008 as banks became more cautious about lending. Investors are also hard to find as the people do not have liquid cash in hand. Therefore it is hard to find investments for expansion in such conditions. The dollar has sunk in comparison to Euro to a new low and oil prices have risen to above 100$ per barrel. A depreciated exchange rate means that the imports cost higher to the US. Consumers are shopping conservatively and are trying to avoid shopping because of shortfalls in income and higher unemployment. The unemployment rate has plunged to 10% which means that every 1 in 10 American in unemployed. The consumer expenditure was down by 4.3% in 2008 since the last year. Youngsters, who are the main target market of Dell, are facing difficulties in finding jobs. This is because the companies are hiring more experienced and trained personnel instead of youngsters. This means that the target market of Dell has reduced income. The instability of government policies could affect the business environment in the US. Policy changes such as corporate tax rate and interest rates changes by the Fed could affect all the firms present in the US. Opportunities The demand of data storage was on high as the use of computers increased. The demand was huge from the industrial side as there was a trend of recording and storing data in data drives. The consumers wanted high-speed data storages which ensure data protection and recovery features. Almost all the nations were going through a financial crisis in 2008 which forces the businesses in the global arena to cut down their costs in order to survive. This was forcing the companies to shift to cheaper options in the market such as Dell rather than Cisco. Dell was selling its products at a 250% less price than Cisco. The incomes of the household consumers were also down in 2008 which forced them to purchase products of lower price. Many businesses are closing down because of the financial crisis. This has reduced the number of customers for PCs and other computer products. However, the trend for purchasing consumer electronics and gadgets has increased in the recent years. In the gloomy financial period also, the demand for new innovative and technological products is increasing day by day. The financial condition of the economies of Asian countries has not been so bad and therefore they consumers and businesses are demanding new computer products. The increase in awareness about branded PCs and computer product is increasing in these countries. The demand for customized products is increasing globally as the customers are drifting away from standardized products. The consumers prefer products that feature functionality according to their needs. Customized products also allow the consumers to not to pay for any of the unwanted features. INTERNAL ANALYSIS Strengths The biggest strength that Dell has is that it bypasses the retailers and provides products directly to the consumers. It allows the company to save the margin that the retailer would have kept in case Dell sold through a retailer. Therefore Dell can sell its products on a lesser price than other PC sellers which makes sales through the retailers. It has a unique business model which allows it to pass the benefit of retailer margin saving to the customer in terms of reduced prices. Selling directly also allows the company to directly interact with the customers and hence understand their expectations and needs. This allows the company to add new features or change their products according to what the customers want and give them a better service. The second greatest advantage that Dell has is that it provides customizable products to the consumers. It allows the customer to purchase only those features in PCs and other products that they want. This is a great strength of Dell as none of the other manufacturers allow consumers to build their own PCs. Direct selling allows the company to have no finished goods inventory as products are manufactured when ordered by the consumers. Dell is America’s favorite PC brand now as it has the greatest market share now overtaking HP. Dell’s products are cheaper than those available in the retail stores and the Dell people also provide home delivery. Dell has a strong supply chain network which allows the manufacturer to never fall short of inputs and allows Dell to gain efficiency. This in turn allows the customers to receive products, after getting assembled, at the promised time. Dell could save up to 6% of its costs by not outsourcing the assembly of its products. Weaknesses The company has an image of low-cost products and when the consumers have to buy premium product, they approach other brands such as Apple and HP. The consumers have a perception of low quality for Dell as the prices are low. More brand conscious consumers and quality oriented consumers look for other brands when they shop for PCs and computer products. Another major weakness is that Dell products are only sold through direct selling and not through retail. The advantages of retail are not exploited by Dell which allows multiple products to be bought by the consumer at a time. Limited advertising and promotions and non-existence of retail sales do not allow Dell to promote their products amongst the consumers. Consumers are not demonstrated the added features in PCs and new technologies in direct sales which reduces the opportunity to make more sales. The products are assembled after the product order is placed by the consumer. This does not allow same time or same day delivery of the product instead it takes 3 to 5 working days to a minimum for Dell products to be delivered. Other manufacturers maintain inventory of finished goods because of which they have an advantage over Dell. Another disadvantage the Dell has is that it has not been able to enter the markets of Asia and other high growth developing countries where the selling prospects are higher than ever. The presence of Dell is there but Dell is not selling directly to the consumers in these countries. Critical Success Factors on the Industry One of the most important factors for the success in the industry is a good relationship with suppliers. Dell believed that it was better to partner with its reputable suppliers than to integrate backwards. Dell picked the best of its suppliers and maintained partnership until they could provide the best quality components. Another success factors is the commitment to just in time delivery to the consumer. Dell could assemble the products according to the customer configuration in the same day because of efficient assembly line innovations. The manufacturer which provides the greatest flexibility to its consumers in choosing the needed PC configuration, are successful in the industry. Dell is the leader in customized products as they are only assembled on demand. CURRENT ‘PROBLEM’ DIAGNOSIS Although Dell achieved ISO standards in quality of products, but in 2008, Dell failed to achieve the quality standards as it incurred warranty cost charges of more than $300 million. This was because of a problematic part from a vendor that failed to give its performance. Therefore the supplier selection process is not very robust for Dell. Because of providing cheaper products than the market, Dell’s products are thought to be of low quality by a novice user. This contributes negatively to the image of the company in the market and in the minds of the consumers. Dell gets a disadvantage because the premium users and brand conscious consumers go to the competition for higher priced products. The customers who want the PCs urgently and cannot wait for even a day or two for delivery; they go to other manufacturers such as HP and Acer who have inventories of finished goods. The consumers in other countries, where Dell’s assembly plants are not available, do not get the products according to their needs. In fact Dell’s customizable configuration strategy does not work in the nations which do not have Dell plant. Dell is dependent upon direct orders from consumers. The consumers in some countries such as China are hesitant in placing orders over internet and phone calls and are reluctant to make payments before they get the product. Other manufacturers with retail sales were better off than Dell in these countries because they consumers had no time lag in making the payment and getting the product. GENERATION OF STRATEGIC OPTIONS 1. A strategic option that Dell might consider is that expand its strategy of selling to retail sales as well. In the countries where other manufacturers are taking the lead, Dell should provide assembled products to retail shops in these countries. This will allow Dell to cater to the needs of all the customers in these regions. The customers who want to get a customized PC according to their needs may go to the Dell website and order their configurations. Whereas the consumers who want the products from a retail store and the customer cannot wait for 4 or 5 days, that customer can sacrifice on the customized configuration and purchase a PC from a range of PCs which matches his requirements. 2. Dell should increase its prices slightly on the premium products that an ordinary person does not buy. This will allow greater revenues as well and increase the quality of Dell products in customer perception as well. Dell should not increase the price of products that are only purchased by the customers who are savers and are not brand conscious. Pricing should not be the same for everyone, the person willing to pay more should be charged more in order to get higher turnover. In the developing countries where the incomes of the households are not very high, Dell should reduce their profit margin and should only distribute with intent to get a penetration and higher market share. 3. In order to enhance the quality of its assembled products and Dell should be very careful in selecting its suppliers. Dell should also make sure that the components supplied by its suppliers are not faulty and will not cause problems for the customers. To avoid repetitions to such huge warranty claims, Dell should make sure that the quality test process is more robust. The procurement department should be paid more and more competitive and talented people should be employed. This is because the cost saving and the quality of the finished goods are highly dependent upon the procurement department processes. Evaluation of Strategic Options The first strategy will be the best for Dell as this will help the organization take up the top spot in the international market of PCs. This strategy will also be in line with Dell’s mission and business model. The needs of new customers will also be met with this strategy; the customers do not want to place orders on the internet or phone. The customers who want personalized configurations may order on the internet. This will give options to the consumers to choose the channel of sales. The second strategy will be very complex for Dell’s simple business model and may cause problems as the prices charged will be different from different types of customers. If the customers find out about the prices differences, the company’s reputation might get hut in a way which will be irreparable. The effect on the perception of customers and their demand will be different can the effect cannot be easily predicted. Dell will be on a risk if it increases prices to meet the market prices. This strategy is also not in alignment with its business model. The third strategy will not have any fierce effects on the business and might not help Dell to increase its market share in the international market. Hiring exceptional procurement personnel will be very expensive for Dell and the return on investment will also not be very high. The goal of strategic change is to achieve a greater market share, whereas this strategy focuses on the increase in quality of the products through selecting the suppliers more carefully. DESCRIPTION OF SELECTED STRATEGY This strategy will involve partnering with retail companies and retail shops in the developing countries where the share of Dell is falling. The fall in share is due to the direct sales channel and the customers in the developing countries are more comfortable with the existing sales channel which is retail. In countries like China where the consumers save for up to 2 years before they could get a PC, they are not willing to trust the internet or phone calls for purchase of PC. Moreover they are not willing to make their payments before they can get the actual product. Another problem is that these consumers want to test the product before they purchase it. They want to get a look and feel of it physically at a retail store as they cannot decide by looking at the pictures at the websites. Dell will have to study the different markets in selected countries where it is deciding to sell through the retail channel. Then they will require assembling PCs according the most preferred configurations and send it to the retailers, who are promised a share of profit. In this way, Dell will be able to get hold of the market share in the international arena. Dell will need to increase it’s per day productions for which it will have to increase the number of suppliers and employees. Another plant will also be required in the future when the demand for its PCs in the international market gets very high. CONCLUSION Dell will not be able to sustain the competitive advantage of direct selling to the customers and providing customized configuration of PCs. It will not be long before HP will also offer its consumers customized configuration on its products. If Dell is able to take on HP in the global arena, HP can react by offering the customers customized configurations. Therefore Dell will face problems in sustaining this competitive advantage in the future if it tries to overtake HP in the global market. HP will surely react if Dell’s market share rises quickly and try many new strategies. This strategy could be one of the HPs new strategies to increase sales which will not allow Dell to sustain the competitive advantage for a very long time. Read More