Dell CASE ANALYSIS

Since 1998, Dell has faced challenges by competing in an industry that is becoming increasingly commoditized. Decreasing growth in their primary market segment and lost PC sales due to the number of growing substitutes have contributed to Dell’s decreasing profits. In 1997 Dell had a substantial dual advantage over industry leaders, but in recent years the wedge between Dell’s costs and consumers’ willingness to pay has been reduced. Loss of industry attractiveness as well as competitive position due to increased rivalry has affected Dell’s profitability and performance over the last ten years.
As PC’s became more commoditized through 1998-2008, increased industry competition lowered the industry attractiveness. The rivalry between competing firms drove down prices as well as margins (Exhibit 9). Consumers began to become more interested in substitute products (such as smartphones and tablets), and the willingness to pay for PC’s dropped rapidly. Buyer power was also increased during this time period due to the increasing amount of information and options given to buyers. Cost competing company, Acer, has experienced increasing market share growth (Exhibit 2a), while the same is true for the differentiating company, Apple. Increased industry rivalry, increased buyer power, and high substitution threats have diminished the attractiveness in this industry. Dell’s competitive position in 1998 was tied to its “less costly” direct channel operations and consumer usability. As of 2008, direct channel sales have experienced a decrease while Exhibit 5a shows retail channels have increased (25.5% to 33.1%). Ratings in 2003 (Exhibit 10) show that although Dell still has outperformed IBM and HP (Compaq), the differences in the average ratings are quite small. As the industry became a commodity, competitors were able to match the overall performance and price of Dell. Dell’s advantageous inventory turnover and low carrying costs have been contested as more companies