Dells Failure in Retail Distribution
This rapid success of the Dell Computer Corporation has interested business analysts the world over. The paper from the Harvard Business School is an analysis of the meteoric rise of this company until 1994. It delves into the factors that made the company a success and the kind of strategic decisions that the management of the company needed to make at various junctures. One such strategic decision that the management made was to shift from its existing "Direct Made to Order" business model to a more hybrid model that combined it with a retail presence. Yet, by 1994 Dell realized that it wouldn't be able to sustain itself and withdrew from the retail distribution channel.
Our paper will analyze the reasons behind its exit from the retail sector and why it failed where its competitors such as Compaq succeeded. It also delves into some of the expansion strategies that Dell should pursue in other countries.
We hypothesize that Dell's failure in using the retail channel can be attributed to the following:
Conventional retail channels and pre-configured computer models did not allow the company to leverage its most effective competitive weapon: mass-customization of products. Moreover, Dell's stock configurations could not command their accustomed price premium while sitting on retail shelves because they were insufficiently differentiated from competitors' offerings.
Dell experienced a sizable increase in its capital costs, as it had to maintain 60-day finished goods inventory for the channel, whereas before it needed no finished good inventory.
Companies such as Compaq had existing relationships with retailers which Dell found difficult to emulate in the short time that it made its foray into the retail sector.
We shall now attempt to explain our hypotheses further with some cogent arguments.
Let us begin with a look at Dell's USP; its business model. Dell's Direct Model was based primarily on the following
Direct customer
Our paper will analyze the reasons behind its exit from the retail sector and why it failed where its competitors such as Compaq succeeded. It also delves into some of the expansion strategies that Dell should pursue in other countries.
We hypothesize that Dell's failure in using the retail channel can be attributed to the following:
Conventional retail channels and pre-configured computer models did not allow the company to leverage its most effective competitive weapon: mass-customization of products. Moreover, Dell's stock configurations could not command their accustomed price premium while sitting on retail shelves because they were insufficiently differentiated from competitors' offerings.
Dell experienced a sizable increase in its capital costs, as it had to maintain 60-day finished goods inventory for the channel, whereas before it needed no finished good inventory.
Companies such as Compaq had existing relationships with retailers which Dell found difficult to emulate in the short time that it made its foray into the retail sector.
We shall now attempt to explain our hypotheses further with some cogent arguments.
Let us begin with a look at Dell's USP; its business model. Dell's Direct Model was based primarily on the following
Direct customer