Matching Dell
1. Why has Dell been so successful despite the low computer industry profitability?

Despite the low profitability in the computer industry, Dell was capable of propelling themselves to the top and establishing great success. We know that this company’s success is not something that happened over night, and it was something that must have evolved over time as the company grew. What evolved was the company’s management structure. Dell knew that if something was too big it was impossible to manage well. So in 1994 Dell classified its customers into two separate accounts; large customers and small customers. As the company grew, by 1996 Dell split the large customers into three separate groups; large companies, midsize companies, and government and educational institutions. However, Dell knew that further categorization would be necessary as they continued to grow, and in 1998 the company was split into 8 separate categories; Global enterprise accounts, other large companies, Federal, State, Local, Educational, Small companies and consumers.
Seven out of eight of these categories were all businesses. For Dell, having such a large business market this created tremendous opportunity for them. Not only were they able to reap the benefits of standard company “consumer” upgrades, but they were also capable of identifying unique opportunities that existed within each customer category, within these businesses. They did this by assigning representatives for each category that served as primary support for that channel. These individuals were classified as “relationship buyers,” and were customers that were highly likely to place repeat orders. Dell capitalized on the opportunity it saw and invested in their representatives. The representative’s spent their time learning and understanding the needs of that particular customer account, they assisted these customers in configuring their information systems, and further promoted services and products offered by Dell.
The rest of Dell’s customers, who were not classified as a “relationship buyers,” were classified as “transaction buyers.” Dell’s transaction buyers typically consisted of their smaller to medium sized businesses, in addition to their home user accounts. They provided them with an 800 number they can call to speak with a sales representative regarding new products. However, Dell did not focus on this market spectrum.
Lastly, Dell took their services and products to another level when they created Dell.com. Their website provided transactions buyers with product information, pricing, placing an order, and the access to support information. Furthermore, their websites went above and beyond for their relationship customers. For their relationship customer, every customers would have their own customer designed premier page that was secure. Employees under there consumer account can log in and find pre-approved configurations that have been approved by their employer for purchase. This extra services provided Dell with an additional $10 million per day in revenue.

2. Prior to the recent efforts by competitors to match Dell (1997-1998), how big was Dell’s competitive advantage? Specifically, calculate Dell’s advantage over the team of Compaq and a reseller in serving a corporate customer.

As many of us know, a competitive advantage is when a company successfully drives a wedge between consumers and their willingness to pay for their product or service and the cost this service or product is to produce it. The wider the wedge, the larger a company’s competitive advantage.
The first thing Dell did to create their competitive advantage was creating a “direct model” distribution system. This system allowed them to take an order directly from their customers, produce their customer’s customized product and then ship it to their customer within a 36 hour time frame. The direct model made it possible for Dell to keep their inventory expenses low, as they stored