Case 4: Dell
Dell’s most important FSA is their direct selling. Other FSAs are their behavior with the customer and their high level of inventory. These FSAs can be summarized with the 3 golden rules of Dell: ‘never sell indirect’, ‘disdain inventory’ and ‘always listen to the customer’. The macro-level requirements for the direct sales model to be successful in Dell’s case are the customers’ behavior in the 1980s. The customers became very sophisticated and experienced technology users. They often knew exactly what they wanted and did not need intense personal selling. Next to that, mass customization was becoming viable as components became standard modules. The major advantages of the direct model, compared with the traditional strategy in the computer business are: firstly, closeness to the end users. This helped Dell better understand its users’ needs, forecast demand more accurately and build long-term relationships with end users. Secondly, they implemented the elimination of distributors. This helped to reduce selling costs and inventory costs through both accurate forecasting and integration with components suppliers. 2.
In 1995 Dell’s representative office in China had the responsibility of coordinating the relationship with their distributors. However, there was a vicious cycle of bounded reliability involved. Dell didn’t have the intention of keeping a long-term relationship with the distributors. At the same time, these distributors did not want to invest much in developing the market because they assumed that Dell would soon switch to its famous direct model. Dell’s initial failure should be blamed to the representative office in China because they made wrong decisions on the sales plan, the promotion strategies and most importantly on the relationship with their distributors. 3.
According to Arnold’s seven guidelines Dell made the following mistakes: * Dell chose the wrong distributors.