Dell Computers was founded by Michael Dell in 1984 and has its corporate headquarters in Round Rock, Texas. Michael Dell’s winning idea was to sell computer systems directly to customers, allowing him and his company to understand customer needs well and therefore to provide the customer with the most appropriate computing solutions. Dell still practices the direct business model, saving time and cost by bypassing retailers and passing on the cost savings to the customer. Dell takes pride in its ability to provide customers with the most up-to-date technology more quickly than its competitors that still rely on slower indirect distribution channels.
Dell has a major presence on the internet, having launched dell.com in 1994. By 1997, Dell was generating $1 million daily in online sales – the first company to achieve this mark. At dell.com, customers can put together their own computer system, order it online, and track its flow from manufacturing to shipping. Dell also offers its premier.dell.com Web pages, allowing business and institutional customers to conduct online business. Currently, Dell receives about two billion page requests per quarter, covering 81 country sites, 28 languages and dialects, and in 26 different currencies.
The Computer Industry
The market for personal computers has been growing rapidly for several years with little end in sight. As of the end of the year 2000, approximately 120 million PCs were sold worldwide. Projections for the next five years of industry sales are as shown below:
Market Size (in millions)
The PC industry has four major competitors: IBM, Dell, Compaq, and Hewlett-Packard (HP). All four make and sell competitive mid-range performance PCs, with the typical configuration for home or small business use costing approximately $1000. Dell’s variable costs per unit total about $800, and it is believed that competitors face a similar variable cost structure. The Executive would be priced competitively, at about the same price level of $1000.
A recent study of the home/small-business PC market found that most customers considered two important non-price attributes when selecting a PC, flexibility and performance. Flexibility refers in this situation to a PC’s ability to run several different kinds of software, to be easily connected to printers and other peripherals, suitability for business as well as educational or game use, and so forth. Performance, by contrast, referred to speed of internet connection and internal calculations, support of the highest-end software programs, and reliability and accuracy of calculations (the study was done soon after the infamous Pentium “bug” was found, which caused a very small percentage of numerical calculations to be slightly wrong). Using familiar customer survey methods, the consultants conducting the study found the perceived positions of each of the four major brands on the two key non-price attributes. In the same survey, customer preferences were also gathered, and these were used to identify “ideal brands” and assess the number and size of customer benefit segments in the marketplace. Three segments were identified. Segment 1 (about 20% of the market) prefers highly flexible PCs, Segment 2 (about 50% of the market) likes high-performance machines, and Segment 3 (about 30% of the market) values a combination of the two attributes. The results of the study are summarized below.
Size of Segment Relative to Market
Ideal Brands by Segment
Dell’s Marketing Budget
As its product line has expanded and competition has continued to be fierce, Dell has allocated...
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