The Success of Dell’s Business Model

“Dell model allowed the company to reinvent the PC industry – without inventing anything.” (Jones, 2003)

Dell Inc. is an American computer and hardware company founded by Michael Dell in 1984 with just $1000. He initially started by selling custom-built computers directly to the customer which was traditionally not common. In fact, Dell became the first company to do bypass the middlemen. This was the start towards the business model that sparked its success.

Direct Sales to Customer

From the get go, Dell was determined to innovate not just in its technology but also its marketing strategy. In the mid 1990’s, Dell was one of the first companies to sell computers online. By having early-mover advantage both in its customisability and marketing strategy, sales grew from $1 million a day in 1996 to $50 million a day in 2000. Dell soon became recognised as No 1. PC Company in the United States partly because of this business model.

Customer orders are sent directly to Dell without middlemen in between which significantly increased its profitability. Moreover, by having direct sales Dell was able to accurately track and forecast demands for certain items and react faster than other companies when demand shifts between product to product.

Efficient Supply Chain Management

Dell was and is still well known for having a small inventory which worked hand in hand with the direct sales model. As Dell was able to accurately track which products were selling more, they were able to optimise its production as well as distribution. There was less waste for Dell and this reduced the costs of the products to the consumer. This allowed Dell to become a Low-Cost leader in the booming PC Industry.

Consumer Customisation

Through letting customers pick and choose which parts they would like in their PC, Dell was able to easily satisfy the customer’s needs (as the customer chose what they wanted!). Consumers would either call directly to Dell Sales or select different options on their website. This further compounded Dell’s efficient supply chain management as everything was ‘build-to-order’. Dell did not need to keep old stock and its streamlined supply chain allowed for reasonable times between order and the product’s arrival.

Evidently Dell’s core principles that formed its business model had overlaps that ultimately increased Dell’s revenue stream. Firstly, having direct sales, prices were cheaper and sales forecasts were more accurate. Secondly, by letting consumers custom-build their computers meant that customer satisfaction was high and kept the supply chain streamlined. Finally, Dell’s efficient supply chain, they were able to utilise their accurate forecasts to further reduce costs for the consumer and increase its market share in the PC industry.

 

 

 

References:

Chaffey, D & Ellis-Chadwick, F 2016, Digital Marketing: Strategy, Implementation and Practice, sixth edition, viewed 29 August 2016.

Jones, K 2003, ‘The Dell Way Michael Dell’s famous business model made his company the world’s premier computer maker. Now he’s branching into new fields and taking on virtually every other hardware manufacturer. Can “the Model” stand the strain?’, CNN Money, 1 February, viewed 29 August 2016, <http://money.cnn.com/magazines/business2/business2_archive/2003/02/01/335960/&gt;

Kraemer, KL, Dedrick, J & Yamashiro, S 2000, Refining and Extending the Business Model with Information Technology: Dell Computer Corporation, viewed 29 August 2016, <http://www.indiana.edu/~tisj/readers/full-text/16-1%20kraemer.pdf&gt;