Reasons why Dell has been successful
In the recent years, there are several arguments that illustrate why the business operations of Dell Company have flourished. For instance, Dell prefers to sell directly rather than indirectly to consumers. Unlike its rivals, Dell applies the just-in-time technique which allows it to conduct operations within the minimum inventory level in the industry. Additionally, the company is focused on employing cost-cutting strategy in its business processes such as overhead expenses and staff reductions. Based on the metrics, the firm’s overhead are nearly 11.5% of the dollar currency. On the other hand, firms such as Gateway, Compaq, and Hewlett-Packard have overhead expenses that amount to 16%, 21% and 22.5% respectively (Backus & Cabral, 2001).
Dell is recognized as the leading PC provider in the industry because of their prowess to enter into heavily discounted contracts with preferred suppliers. Contrariwise, it is highly centralized and situated in areas where incomes are moderately low, and this depicts that cost reduction initiatives can be pursued rigorously (Backus & Cabral, 2001). Also, the firm does not face huge creation write-offs when new mockups appear on the market. The large capacity of products they trade, when even at a stumpy margin, means they can make considerable profits.
Contrast the competitive advantages that come from having low costs vs. having a good knowledge about costs.
Dell uses cost leadership strategy which is effective for the firm to obtain premium prices for its products. In the contemporary world, direct selling has permitted Dell to avoid intermediaries such as wholesalers and retailers, thus reducing costs. In the long term, Dell Company can enjoy higher economic profits (Backus & Cabral, 2001). Additionally, it is not a mandatory for Dell to attract numerous clients for it to achieve a certain level of profit. Dell Computer primarily realized market share by possessing inventories low and only building computers to order via applying Differentiation strategies.
The IT giant prefers to research more on the consumer value to understand the market. Often, the corporation takes into account the client’s willingness to pay, the intensity of the competition, the proposed delivery dates and costs (Froeb, 2015). For instance, there are some occasions where the representatives may prefer to offer the unique discount if the consumer is willing to purchase in advance or typically delay them based on which would imply a lower cost for Dell. Dell further lowered its operational costs with the unveiling of its website where tailored purchases could be done online.
Dell’s unique abilities can be expressed by its mode of direct selling and its efficient manufacturing base. Relocation of supplier’s products in proximity to the company’s manufacturing activities has made inventory system quick and easy. Moreover, restricting inventory and manufacturing lines has numerous cost advantages over its key competitors (Froeb, 2015). The efficient use of resources finalized over the period presumed that it was able to become more profitable than competitors such as Compaq. Dell’s extensive sales, service and support network were significant aspects that were competitive advantages of Dell. Direct selling has assisted the company about financial, human resource and customer management and the presence of their factories and websites has helped them to respond easily to the needs and of their clients or target market.
Which one is more difficult for Dell’s competitors to imitate?
Dell's capabilities are long-lasting and challenging to imitate, and the IT giant firm lingers to innovate to keep its market leadership in the future by leveraging its economies of experience. Though in the recent times, Dell’s rivals have strived to upgrade their sourcing, distribution, and distribution systems. Also, the global PC manufacturers could not entirely compete with the dominance of the Dell even though some persons had suggested that the firm’s business model was easy to imitate. The main argument was that the challenge was coaxing value out of the business model itself. Gateway has a database system to gaze at Dell’s prices. Companies such as Compaq, IBM, and Hewlett-Packard have struck a deal to instruct dealers to coincide with the Dell price quote regardless of the price (Froeb, 2015).
The complication of building an effective supply chain and production system could not be adhered immediately by Dell's competitors. Moreover, Costly changes in infrastructure and relocation of facilities is an economic restriction to competitors. A lot of measures have to be put in place to imitate the company’s business model. Furthermore, Imitating Dell's model necessitates investment in technology and head-hunting and recruitment of experienced workforce. Dell also created a very sound brand value and loyalty, which other businesses can only obtain very slowly at the high expense (Froeb, 2015). Nonetheless, this will not discourage the competition in the tremendously unpredictable PC industry.
How would you comment on the following quote: “By matching Dell’s prices, we are getting the benefits from flexible prices without incurring the costs of setting up a detailed cost information system?
When matching Dell prices, one can estimate quite reasonably how much it would require supplying a given model today or in another period. The conditions for this to occur will include predicting alterations in the cost of memory clips. In its database, the corporation has a system of cost information that is effective in pricing decisions. As expressed above, Dell Corporation should continue to operate under its direct selling model for it to be the leading PC manufacturer globally.
References
Backus, D., & Cabral, L. (2001). Pricing at Dell. Firms and Markets Mini-Case, 2.
Froeb, L., McCann, B., Ward, M., & Shor, M. (2015). Managerial Economics. Cengage learning.
