On 13th July Dell announced several changes to its pricing strategy. According to the release, Dell plans to drastically reduce its use of mail-in rebates and other short-term promotional offers that are a regular feature of Dell's overall strategy. Instead, customers will be able to avail the reduced prices immediately. This is definitely a step in the right direction since it makes it easier for customers to compare and choose products. What is driving Dell to make all these changes? A look at all the recent news (mostly bad) about Dell makes for some interesting reading.

Although Dell is a clear market leader in the PC industry, the first three months of 2006 saw Dell loosing a considerable share of its US PC market to its rivals. Dell's first quarter performance is testimony to its falling share of the market. Its revenue grew by 6 percent, while HP's grew by 10 percent. Research firm Gartner reports that PC sales of HP spiked from 13.8 percent to 14.9 percent while Dell's dipped from 16.9 to 16.5 percent last year.

Dell has been very aggressive with its pricing strategy bringing the PC industry to the brink of a price war. The prices of PCs have been dropping at a faster pace than ever before. Intel dropped prices on most of its chips further fueling price drops from PC makers. Intel's close rival AMD is yet to reach an agreement with Dell on a partnership. I think it will be interesting to see what happens when AMD and Dell launch a PC together, since Dell's rivals HP and Gateway are already selling PCs with AMD chips.

Internally, Dell has largely lost the edge that it had in the early 90's with its efficient supply chain model since all its rivals have caught on to that bandwagon. Early advantages obtained by off-shoring its technical support operations have been a challenge to maintain for Dell. A growing number of service complaints have forced Dell to re-look at its offshore strategy and they recently announced an investment of $100 million in initiatives to improve its customer support infrastructure.

Dell's strategy of diversification into other consumer electronic products like televisions, printers, digital cameras etc. has also seen mixed success. Desktops and Notebooks still account for 85% of Dell's revenues.

Dell's stock has been taking a pounding and has been steadily loosing ground over all this news, which is not surprising since Wall Street does not really need a lot of bad news to loose faith in a company. For other (non Wall Street gibberish speaking) people like me, there is still hope. Personally, I've not had any bad experiences with my 2 Dell laptops, although the news of a laptop bursting into flames is a bit scary.

Having studied Dell and its strategy for my MBA Strategy class, I have come to appreciate the way Dell turned a relatively simple model into an industry leading force. I believe that Dell can survive this downward trend. The second quarter has traditionally been a bad time for PC makers since there is no back to school buying or holiday season during this time of the year. The new pricing strategy and huge new investments in customer support will definitely show positive results in the third quarter.

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