In 1998, Dell had a competitive advantage in the personal computer industry. A competitive advantage means that a company earns or has potential to earn persistently higher rate of profit than its competitors. Dell’s competitive advantage is manifested through a few key financial and performance metrics. Between 1994 and 1998, Dells profits increased from $149M to $1.5B. They experienced significant growth, growing twice as fast as major rivals. Their market share tripled and they reported operating earnings that were greater than that of Compaq, Gateway, HP and IBM combined. Dell’s competitive advantage in 1998 was significant. It was in large part due to the evolution of the “Direct Model,” an innovative strategy presented by Michael Dell, who believed fighting competitors with robust dealer network was a tough challenge. The Direct Model enabled Dell to work directly with the end consumers. They provided high performance, customized PC’s at relatively low prices. At this time, most of Dell’s competitors were primarily selling through distributors or resellers. Although in the late 90’s a few competitors tried to emulate the direct to consumer model, they were unable to capitalize on the channel as effectively as Dell. Dell had two organizational capabilities which enabled the success of the Direct Model: a robust sales and marketing team that eliminated the reliance on distributors/resellers and a leading distribution process, both enabled by comprehensive information systems.
Dell’s sales and marketing team supported their competitive advantage by having a deep understanding of customer needs, selling PCs without support from resellers and providing superior customer service. Dell’s sales force was divided into two groups: outside and inside sales reps. Outside sales reps conducted market research in an effort to understand customer needs. As Dell grew, they leveraged this market research and continued to subdivide the customer base into more refined categories. In 1994, Dell’s customer base consisted of large customers and small customers. In 1996, large customers had been split into large companies, midsize companies, government and educational institutions. In 1998, these categories were again further refined. Dell’s superior understanding of their customers enabled them to align their products and services closely with their customers needs. This helped create strong customer loyalty and eliminated the need for resellers to extol the value of Dell’s products. In addition to outside sales reps, Dell also had a team of inside sales reps dedicated to their accounts. Inside sales reps were located in call centers and typically took orders and provided product and delivery information. They were also the primary sellers of Dell PCs. In comparison, IBM’s sales force only accounted for 5% of sales and resellers accounted for 70%; Compaq’s sales force accounted for 4% of sales and resellers accounted for 67%. The success of Dell’s inside sales reps further served to eliminate the need for resellers. Lastly, Dell’s inside and outside sales reps provided superior customer service thanks to a comprehensive online information system. Sales rep could logon to the system and immediately understand a customer’s entire purchase history. In 1998, Dell was ranked in the top three in all service and support categories, and took first place in support staff, web-based support and overall service/ support. Dell’s excellent customer service made it easy and convenient for customers to call or visit their website as opposed to visiting a store. Dell’s deep understanding of the customer base, the success of their sales reps and their superior customer service eliminated the need for resellers and distributors and enabled the success of Dell’s Direct Model.
Dell’s competitive advantage was also supported by a highly effective production and distribution process that was quick, efficient, and customized. Dell’s production lifecycle...
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