After years of robust growth, Dell is facing challenges both home and abroad. Market share and profitability have declined with its previously successful direct-selling model under intense scrutiny. With China providing the litmus test, Dell faces three key challenges: to determine whether the direct selling model will work overseas and if so, when to switch from an indirect selling to direct selling model once it has entered the market, and lastly to how to do with consumers who are increasingly buying mobile PCs from retail stores.
Company in the U.S.
Direct Sales Model: Michael Dell created three golden rules: “never sell indirectly,” “zero inventory,” and “always listen to the customer.” These rules were supported by efficient manufacturing, supply chain management, and standards-based technology. Two competitive advantages: The competitive advantages by implementing the direct sales model were cost leadership and high visibility of customer demand. These enabled Dell to implement zero inventory, leading to cost savings hence more affordable prices to customers. www.dell.com: The website decreased the marketing cost because of posting the product information online. They also gained better idea of customer behavior through online.
Company global (including China)
Dell’s decision on whether or not to use the direct sales model in a new market relies on the “readiness” of the country/ region determined by criteria such as size of the market, availability of resources, sufficient local management resources, local acceptance of Dell’s direct selling model, suppliers’ ability to deliver parts on short notice and arrangements with carriers and operating costs. Therefore, before meeting these criteria, the company has been selling its products through retailers and distributors. Dell also launched toll-free sales and technical support telephone numbers to provide immediate local language assistance to customers.
Customers in China
Target Segment: Although Dell targets individuals and small businesses as well, many of its clients being corporate, government and educational customers (two thirds of demand in China). Gap: There is a large income gap in rural and urban areas. Affordability is the key in rural areas, whereas other criteria will be required in urban areas with large businesses and wealthier people. Payment type: In China, still many consumers pay by cash, which makes hard for Dell to implement online orders that were a significant sales element in the U.S. Buying method: Chinese customers are not used to ordering products via phones; they’d rather, see the products physically before buying. Online shopping was still uncommon. In line with global trends, demand was shifting from desktops to notebooks.
HP holds the highest worldwide market share of 18.10% as of 2006, followed by Dell’s 14.70%. In China however HP comes fifth with 6.3% share despite being in the Chinese market for 21 years. Lenovo is the top computer vendor in China with 32.9% market share and is also a well-recognized brand worldwide; it gained 7.3% market share worldwide. HP differentiates themselves from others by technology, while Lenovo focuses on low-priced, low-cost products.
Manufacturing regulations: It is a rule that if they do not manufacture their products in China, they are not allowed to sell them there. Transportation systems were underdeveloped and an obstacle for delivery. Direct selling was a new profession in China so it was difficult finding experienced staff. Government procurement involved bureaucracy and red tape.
Dell’s 4P’s Analysis
Dell’s area of expertise is desktop computers with the simple concept that by selling PCs directly to customers, Dell could best understand their needs and provides the most effective computing solutions to meet those needs. E-support Direct provided tailored...