As one of the largest computer manufacturers in the world, Dell Computer Company has grown tremendously since its incorporation in 1984 by Michael Dell. Dell’s Direct Model, which is largely responsible for the success of the company, provides a fast, cost-efficient, and customer friendly means of production and distribution. Now, in a market that is ever changing, competitors are challenging Dell with new and unique products in an effort to overcome the superiority of the Direct Model. The growth and development of laptop computers is a primary area in which Dell can work for continued success, despite the threats posed by its competitors.
SWOT (Strength, Weaknesses, opportunities and threats) analysis provides a basis for crafting a strategy that capitalizes on the company’s resources, while taking advantage of the best opportunities, and defending against the threats to its well being. In developing a new laptop computer, Dell would like to target three specific segments. The first, business executives generally receive their computers from their employer through a direct relationship with a manufacturer or a supplier. The second, college students, generally buy their computers through the school they attend. This is very much like the way in which business executives receive their computers, in that the individual is limited to the options chosen by the institution. Finally, Dell would like to explore the option of creating a laptop as a replacement for home desktop computers. Each of these market segments poses its own challenges and possibilities. In analyzing Dell’s strengths and weaknesses relative to these markets, as well as the opportunities and threats provided by the macro-environment, a clear picture can be drawn to aid in the development of the new product.
Clearly, many of Dell’s strengths come as results of the Direct Model. The model itself could be considered one of the company’s greatest assets. However, a few specific advantages are gained through the Direct Model relative to the laptop market.
First and foremost, the Direct Model allows consumers to fully customize their laptops. The market is becoming more educated, and now more than ever individuals want a product that can target their specific needs. In the case of laptops, this means that customers want more options in terms of both performance and portability. By cutting out the retail seller as a distributor, Dell has made it possible for each buyer to order directly from the factory, thus giving them the opportunity to fully customize their product. In addition to this customization, the Direct Model yields relatively fast delivery. This allows customers to place their order, and receive their customized computer often within days. Both of these Direct Model benefits are great assets in targeting the home-user market segment mentioned above.
Dell has also an advantage in their inventory turnaround time, and in their well-controlled relationships with suppliers. These business features create large cost savings, which Dell can pass on to its customers. The final result is a customized, low-priced computer delivered to the customer’s doors within days.
One of Dell’s great strengths in targeting the business executive category is that roughly 75% of all sales revenue comes from large businesses and government organizations. In other words, Dell has already created relationships with large companies, and this provides most of their business. These companies, in turn, pass the relationship on through their employees, providing them with Dell products. Here again, Dell has the ability to customize their products to cater to whatever needs the business or individual may have. This, combined with their extensive business relationships, puts them in good position to target the business executive segment with new products.
Dell’s biggest weakness is attracting the college student segment of the market. Dell’s sales revenue from educational institutions such as colleges only accounts for a measly 5% of the total. Dell’s focus on the corporate and government institutional customers somehow affected its ability to form relationships with educational institutions. Since many students purchase their PCs through their schools, Dell is obviously not popular among the college market yet.
In terms of the home user, Dell’s greatest weakness is that buyers can’t physically touch or see the product they want to purchase. While the Dell Direct Model provides many great opportunities, its greatest disadvantage is that customers can’t go to retailer, try a few different products, and walk home with a computer all in a single trip. The very thing that differentiates Dell from its competitors, customization, also creates a problem in that consumers can’t go out to buy a Dell as simply as they could some other brands. Many computer buyers are wary of a product that they can’t personally examine before purchasing. Furthermore, an anxious buyer would have to wait a number of days before their computer was delivered. This is the price that must be paid for customization.
Personal computers are being purchased and used more ever than before. The markets for laptops, in particular, are growing much faster than that of desktop computers. This general trends lends itself is a great opportunity for Dell’s laptop business to grow in all segments.
Another great opportunity for all of the targeted segments relates to the first trend that was mentioned. Customers are becoming more educated about personal computers, as an increasing number of them are second-time buyers. Consumers who have purchased computers in the past know what they want, and Dell can cater to them. The Direct Model can provide the framework for consumers to make truly personalized computers in a relatively hassle-free environment. This trend toward more educated buyers provides a great opportunity in this respect.
Increased communication and technological integration also create great opportunities for Dell. Customers can now go onto the internet to personalize their computer, place an order, or even just to get information. This is more efficient for both Dell and the customer, and its benefits are many. For one, the ability of a customer to go to an “online store” can, in some respects, make up for Dell’s lack of physical retail stores. The continued advancement in these technologies will surely bring similar opportunities.
The internet also provides Dell with greater opportunities since all they have to do now is to visit Dell’s website to place their order or to get information. Since Dell does not have retail stores, the online stores would surely make up for its absence. It is also more convenient for customers to shop online than to actually drive and do purchase at a physical store.
One of the biggest external threats to Dell is that price difference among brands is getting smaller. Dell’s Direct Model attracts customers because it saves cost. Since other companies are able to offer computers at low costs, this could threaten Dell’s price-conscious growing customer base. With almost identical prices, price difference is no longer an issue for a customer. They might choose other brands instead of waiting for Dell’s customized computers.
In a volatile market such as personal computers, threats abound. Computers change in a constant sometime daily basis. New software, new hardware and computer accessories are introduced at a lightning speed. It is essential for Dell therefore to be always on the lookout for new things or introduce new computer systems. The threat to become outmoded is a pulsating reality in a computer business. Not only that, companies must produce products that are high in quality but low in price. This is one challenge that Dell contends with.
The growth rate of the computer industry is also slowing down. Today, Dell has the biggest share of the market. If the demand slows down, the competition will become stiffer in the process. Dell has to work doubly hard to differentiate itself from its substitutes to be able to continue holding a significant market share. Technological advancement is a double-edge sword. It is an opportunity but at the same time a threat. Low-cost leadership strategy is no longer an issue to computer companies therefore it is important for computer companies to stand out from the rest. Technology dictates that the most up-to-date and fastest products are always the most popular. Dell has to always keep up with technological advancements to be able to compete.
Finally, the quick pace of technological advancement, while generally being a tremendous opportunity, is also great threat. Now that the low-cost leadership strategy is becoming less applicable to computer companies, brands names must differentiate themselves from their competitors. In the laptop market, this is largely based on technology and product design. The newest, fastest, most efficient technology, and the most durable, user-friendly product is going sell. If a company fails to keep up-to-date with innovations in technology, they will quickly see a decline in performance.