Case 1: Dell Computers
By the time Michael Dell enrolled at the University of Texas in 1983, he was already a successful entrepreneur. Although his initial academic interest was not business, Dell launched a venture selling random-access memory (RAM) chips and disk drives for IBM personal computers out of his dorm room. When his business grossed $80,000 a month the following year, he decided to drop out of college and focus on his new enterprise full-time.
Dell decided to build and market IBM clones directly to consumers rather than through retail outlets. His direct marketing strategy resulted in price reductions of about 40% below retail prices. International sales offices were added in 1987 and Dell went public the next year. In 1991, Dell began to allow select retailers to sell its PCs at direct-mail prices, a strategy it would abandon several years later. In the following years, the firm opened markets in Latin America, Japan, and Australia. Dell also began manufacturing servers.
In 1996, Dell began selling PCs through its website. Growth continued, and in 1998, the company increased manufacturing in the Americas and Europe and added its first production and customer facility in China. Growth continued and in 2004, founder and chairman Michael Dell was succeeded as CEO by company president Kevin Rollins. Michael Dell remained as chairman, however, and retook control of the company from Rollins in 2007.
Dell began selling its PCs through retail stores again in 2007, a marked shift in its distribution strategy. Since that time, the firm has also made a number of acquisitions and has shifted most of its manufacturing activities from Austin, Texas, and other U.S. locations to facilities in Mexico and Asia.
Dell has operations primarily in the United States, Canada, Latin America, Europe, the Pacific Rim, Japan, Australia, and New Zealand. Dell offers PCs, servers, storage devices, and a wide variety of hardware components, as well as integration, training, and support. Although the firm has sought to develop a number of new products, desktop PCs account for approximately 50% of revenues, with notebook computers accounting for approximately 25%. Dell has grown aggressively in parts of Asia, including India, China, and Malaysia. Today, Dell is the world’s third largest supplier of PCs behind Hewlett-Packard (HP) and Lenovo.
Case Challenge Questions for our Discussion
Although Dell began selling PCs through retailers in 2007, the firm continues to rely heavily on direct sales to end users. How did and does Dell’s marketing strategy differ from that of its major competitors such as HP and Lenovo?
Sales of personal computers grew rapidly in the 1980s and early 1990s but have leveled off in the 2000s. Is it possible for Dell to continue to grow in such a heavily saturated market?
Will Dell face significant problems of CEO succession when Michael Dell eventually leaves the firm?
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