Dell Business Model
Dell Business Model
Dell has experimented with many business models as it seeks success in a competitive market. Dell early success is owed to the direct sales model that cut out middlemen and slashed inventory (Dell and Fredman, 2010). The model enabled Dell keep its operating costs lower than those of competitors. Dell became a first-mover when it used the internet to increase its direct sales in the early 1990. In just under one decade, the PC firm had increased it sales from $1 million to $54 million by the year 2000 (Kim, 2006). From the success of the direct sales model, Dell was free to experiment with other innovative business models. In 2000, Dell announced its venture into the IT consulting business which enabled the firm link its customers with Enterprise resource specialists and developers (Dell and Fredman, 2010). In a parallel initiative, Dell also introduced a B2B marketplace which is hoped to use for the supply of discounted office goods and services. However, the B2B initiative was not successful as the firm had hoped.
However, by 2005 Dell’s direct sales model was becoming unattractive due to market changes. In 2005, Dells share price declined by as much as 30 per cent while traditional rivals like Hewlett Packard continued to record strong growth. According to Choppra and Meindl (2006), the market for Dell’s customized products and direct sales had grown thin between 2000 and 2005. Dell’s trouble was mainly due to the high cost of transport associated with the direct business model. Dell could also not avail their products instantly at stores like rivals who preferred selling through reseller networks. Customers also valued customization (the basis of the direct sales model) lesser. Standard model PCs could complete most of the tasks needed by consumers and were thus more preferred than consumers. Standard model PC could be shipped and stored in inventory as they needed no pre-configuration before being sent to consumers.
According to Choppra and Meindl (2006), the Market changes forced Dell to adopt a hybrid business model that made use of the direct sales channel and resellers. The direct sales model provided for a wider variety of products while resellers were used to distribute Dell’s increasingly standardized products. Despite market changes, Dell continued experimenting with a customization-led business model. Since Dell early success was linked to the high level of product customization provided by the company, Dell’s obsession with customizing products is justified. The PC manufacturer launched a user participation site named ideastorm (Dell and Fredman, 2010). Customers could suggest the kind of products or product improvement they needed on their Dell products. Dell would take some of the ideas and use them in new products and later provide feedback to customer on how it had used their ideas. For ideas it did not use, Dell would explain to the customers why their ideas were not used. Here Dell was experimenting with yet another business model that had a high level of customer involvement.
The evolution of Dell’s business model illustrates the need for firms to experiment and discover appropriate models that fit their industry. Dell early online direct sales model enabled the company increase its sales volumes phenomenally. However, Dell was able to adapt its model to changes in the market and adopt hybrid model that was able to handle customer demands.
Chopra, S., & Meindl, P. (2004). Supply chain management: Strategy, planning, and operation (2nd ed.). Upper Saddle River, NJ7 Pearson Prentice Hall.
Dell, M. Fredman , C 2010. Direct From Dell: Strategies that Revolutionized an Industry. HarperCollins.
Hong, P., & Jeong, J. (2006). Supply chain management practices of SMEs: from a business growth perspective. Journal of Enterprise Information Management, 19(3), 292-302.
Kim, D. (2006). Process chain: A new paradigm of collaborative commerce and synchronized supply chain. Business Horizons, 49(5), 359-367.