DELL COST LEADERSHIP STRATEGY

DELL                                                                           

Dell, Inc. is an American multinational computer technology corporation based in 1 Dell Way, Round Rock, Texas, and United States, which develops, sells and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 103,300 people worldwide. Dell is listed at number 41 in the Fortune 500 list.It is the third largest PC maker in the world after HP and Lenovo.

Dell has grown by both increasing its customer base and through acquisitions since its inception; notable mergers and acquisitions including Alienware (2006) and Perot Systems (2009). As of 2009, the company sold personal computers, servers, data storage devices, network switches, software, and computer peripherals. Dell also sells HDTVs, cameras, printers, MP3 players and other electronics built by other manufacturers. The company is well known for its innovations in supply chain management and electronic commerce.

Dell most certainly has a cost leadership strategy. The company does generate big innovations or gets into technology markets in the introduction stage of the product life cycle.

DELL COST LEADERSHIP STRATEGY

Dell uses efficient cost structures to protect their markets from the competitors by responding to competitors’ move of making in-roads in the market space by reducing prices. Such reactive response may makes Dell inward focused. Better way to strategically position Dell on advantage of cost is to increase market share by transforming from lowest cost producer to lowest cost supplier of products. This way the company translates its cost advantage into price advantage for its customers and thereby improves the market share. The prospect of increasing the market share provide great opportunity for Dell to leverage the economies of scale coupled with the ruthless cost cutting measures it plans to execute. More the competitive space it occupies which also means that more competitors eliminated effective are economies of scale and as a result the costs are driven still lower

  In fact Dell pursuing cost leadership strategy target mass markets with proven products. Dell has sufficient control over in-bound supplies and logistics. Their cost effectiveness starts from the premises of their suppliers. This is important as major costs are incurred in the inbound supply chain.

Dell pursuing cost-leadership strategy attempts to gain a competitive advantage primarily by reducing its economic costs below its competitors.

References                 

Competitive Advantage, Michael E. Porter, 1985

Cost Leadership Strategy and Experience Curves, Raphael Amit Strategic Management Journal, Vol. 7, No. 3 (May - Jun., 1986), pp. 281-292 John Wiley & Sons.

The cost is reduced by

§  Passing distributor and retail dealer that reduce marketing and sale cost by eliminating the markup of reseller.

§  Building to order greatly reduced the cost and risk associated with carrying large volume of both and finished goods.

§  Cutting out the intermediaries between manufacture and consumer.

SWOT Analysis of DELL

STRENGTHS

• World’s largest PC maker.
• One of the best known brands in the world.
• First PC maker to offer next-day, on-site product service.
• Direct to customer business model. Uses latest technology.
• Dell has remarkably low operating cost relative to revenue because it cuts out the retailer and supplies directly to the customers.

WEAKNESS

• A huge range of products and components from many suppliers from various countries.
• Computer maker and not the computer manufacturer, making DELL unable to switch supply.
• Dell lacked solid dealer / retailer relationships.
• No propriety technology

§  For one, customers cannot go to retailers because Dell does not use distribution channels.

OPPURTUNITIES

§  Diversification strategy by introducing many new products to its range.

§  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.

THREATS

• Competitive rivalry that exists in the PC market globally.
• New entrants to the market pose potential threats.
• The threat to become outmoded is a pulsating reality in a computer business.
• Price difference among brands is getting smaller.