Dell's Foray into Consumer Electronics

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Case Details:

Case Code : BSTR253
Case Length : 21 Pages
Period : 2003-2007
Pub Date : 2007
Teaching Note :Not Available
Organization : Dell
Themes: Business Strategy
Industry : Information Technology and Related Services
Countries : US

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"It (consumer electronics) involves understanding emotions and user experiences, and we spend a lot on R&D figuring out what consumers want. Can Dell re-create that sort of environment or understand that kind of experience?"¹

- Hideki Komiyama, President and COO of Sony Electronics, in 2004.

"It's a blue-ribbon day for consumers whenever Dell gets into a market. It's going to be fun to see how the consumer electronics industry evolves."²

- Kevin Rollins, President of Dell Inc., in 2003.

Introduction

In November 2006, Dell Inc. (Dell) released its unaudited financial report for the third quarter of 2006-07. According to this report, Dell earned close to 16% of its revenues from its Software and Peripherals business, in which consumer electronics (CE) products like LCD TVs accounted for a minor share.

This seemed to confirm what several newspapers had reported about Dell's CE business - that though Dell had become the fourth largest consumer electronics retailer in the US (for 2004 and 2005), the sales of Dell-brand electronics products through the e-store had not been very encouraging.

Dell was established in 1984. It initially sold computers, mainly to large business corporations and government offices, through catalogs and over the telephone. It customized its products to the customer's specifications and ensured delivery within 3 to 4 business days. In the mid-1990s, Dell started selling its computers to small and medium enterprises and individuals. Over the years, the company grew rapidly and in 2001, it became the largest computer manufacturer in the world.

In September 2003, Dell decided to enter the CE market. With US corporate spending on information technology dipping, Dell hoped to cash in on the CE market, which was seeing strong sales, especially in products like LCD/plasma TVs and mp3 players.

Dell was also attracted by the high margins on some of these products. In addition, the CE market did not have any major players who used the direct marketing model, which Dell had used so successfully to sell computers. It hoped to capture market share in the CE market by replicating its efficient built-to-order direct distribution model.

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1] "Push into living room is a gamble,"http://news.zdnet.com, January 09, 2004.

2] "Dell to dive into consumer electronics market,"www.usatoday.com, September 25, 2003.