Matching Dell - Case Summary

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Matching DELL

IBM Market Leader in Mainframe –market share 61%, starts PC business in ’81, in 2 yrs market share is 42% IBM Strategy :
• Purchase PC components as against manufacturing inhouse (Main frame) • Open Architecture : OS – Microsoft, Microprocessor – Intel , reason, to encourage application developers and enhance Peripheral market • Sales :

o Largely corporate clients - thought its huge sales force o Retail clients through value added resellers – handled, installations, configured SW,customer networks and service part of responsibility • Competition : Apple with propriety architecture had 20% market share, Compac enters in ’82, Dell in ’84, • Competitors strategy :: use resellers for large corporate accounts, due to lack of sales force • 1986- IBM moves to propriety architecture with PS/2 line and rejects 386 chip • 1980-90 – PC performace improved and chip price declined, o New technology advancement of 386DX and Pentium II processors were significant o Windows 3.0 launched in 1990, commonly called Wintel architecture o PC Sales declined in 1990 due to US recession

• Post 1990
o Demand picks up due to economic growth, and technology like computer Networking, email and WWW. o PC prices decline to less than 499USD, 45.5% of US household owsn PC in 1998 ▪ Modular architecture prevalent for HW and SW, PC differed depending on configuration ▪ Most HW components sourced my numerous companies and highly competitive, however the Microprocessor was controlled by INTEL with 90% share, similarly for OS , Microsoft owned the market and even 80% of the productivity SW, like word processor, ▪ HW and SW started selling as integrated bundle ▪ PC customers were of 4 types

• Individuals (33% of Market)- buying depended on evaluations provided by consumer Reports • Educational institutes (5% of Market) • Small business and offices (22-23%of Market) – No MIS team, but had extensive experience, • Large/Midsize business and govt (37-38% of Market).- Had MIS team, spending 8-12K USD per annum to support each PC, multiple brands of PC led to maintenance and support problem - accounted for • 2 groups of buyers, one buying Apple others WINTEL, apple more successful in Individuals and educational institute ▪ Channels : in 1998 and portion of sales

• Retailers : 22%(US)17%(EMEA)26% (APAC) • Distr/Reseller 41%(US)63%(EMEA)49%(APAC) • Direct29%(US)18%(EMEA)23% (APAC) • Others7%2%1%

• Retailers such as ComUSA took direct delivery from manufacturers, spent on retail display in stores and on sales people, constrained with space and thin margins • Large distributers :supplied computers to 100,000 resellers, who were responsible for configure, install service , support, their recommendations mattered for purchase. • Manufacturer provided buy back for channel inventory and price protection, costing them 2.5 cent of Revenue, and another 2.5 cent for Advertisements. • PC’s tool 4-5 weeks from Manufacturers to consumers ▪ Manufacturing :

• Basic assembly line to assemble 250,000 PC per year can be set up for USD 1 million, contract manufacturers in Asia were also available. • Average manufacturing cost USD 800-900, which would sell for USD 1000 • However component prices declines 25-30% per year ▪ Marketing and Sales

• Apple, HP, IBM spent 2-3 % of sales in advertising, • Sales force : IBM-25,000 workforce,

Dell branded PC’s started...
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