20
Jul

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.

Comments

Amhed Herrera July 22, 2006 - 11:11 pm

But what can Dell do? They’ve started to fiddle with the idea of retail, opening stores in Dallas and New York, similar to Apple’s stores where you can test out the products before you decide to buy them and you have product specialists to assist you on a pre-configured system that you can take home right away or a custom designed computer that ca be later shipped or picked up in the same store.
Dell still has the highest recognition in product quality in the western hemisphere (at least that’s my perception) so I doubt that they can loose any more market share for now. I think they can make up for what they’ve lost in the retail sector: Most other brands have minimum presence in stores like BestBuy or CompUSA. The tricky part here is to guarantee customization on-site.
Either way, I love the price drops. Having bad experiences with Acer and Gateway in the last two years, I hope my recently order Intel Duo will bring me some peace of mind.

Mahesh Pillai July 25, 2006 - 6:29 pm

A day after this article was posted, on July 21st, Dell announced that its revenue and profits would be below expectations for its second fiscal quarter sending its stock into a spiral.
What has changed in the PC market since the 90s is the consumer preference for retail buying which is growing at a much faster rate than the overall PC market. Like you said, Dell has started making inroads into the retail market, but the pace is slower since their primary focus is still very much on the direct model through their website.
Their commercial PC market is also caught up in an upgrade cycle that won’t start till 2008. There is an interesting article on zdnet (http://news.zdnet.com/2100-9595_22-6097185.html) about this.
I think the key for Dell now will be to grow in the retail channel, improve their customer support, and develop healthy partnerships with AMD and Intel.

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Prateek June 9, 2017 - 5:33 am

That was great piece of information, Guillermo Montes. I think dell is going aggressive with it’s pricing. Lucky Patcher

Ajay June 9, 2017 - 5:37 am

Since Dell has a already a great customer service infrastructure as well great reputation, i think they are ending promotional offers for good. Lucky Patcher

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