Competitive Strategies Case Study

Dell Inc.: Facing Formidable Challenges in the US Consumer Market

Abstract:

Dell, in 2005, was the number one seller of PCs (desktops and notebooks) worldwide with a 17.8% market share and $50 billion in annual revenues. The company’s direct business model which eliminated the need for middlemen was a major factor contributing to this success. However, with the corporate PC growth declining from double digits in the 1990s to single digits post 2001, Dell entered the consumer PC segment with its Dimension desktop and Inspiron notebook line in and the consumer electronic segment with digital TV, MP3 player and Axim handhelds in 2003. Consumer business was seen as a key revenue driver by Dell’s management which announced an ambition plan to increase revenues to $80 billion by 2007.

However, 2005 proved to be a challenging year for Dell. Not only did the company struggle in the consumer electronics segment leading to the withdrawal of MP3 players but even in its core PC segment, Dell was cornered by traditional rivals such as Hewlett Packard and Gateway and new competitors such as Lenovo and Acer. This resulted in lower average selling prices for Dell’s products and adversely impacted its operating margins. With Dell encountering problems on various fronts, its share price declined to $29 in October 2005; it’s lowest in two years, leading to the question of whether Dell’s direct business model could ensure further success in the changing scenario.

Pedagogical Objectives:

• To discuss the trends in the US PC market
• To understand how Dell had achieved growth through its Business model.

Keywords : Dell Inc.; Michael Dell; Personal Computer; Desktop; Note Book; Consumer Electronics; Competitive Strategies Case Study; Direct business model; Acer; Gateway; Hewelett packard; Apple Computers; Sony; BestBuy; Windows Media Center; XPS

Contents : 
Dell’s Business Model
Dell’s Foray into Consumer Electronics
Problems in the PC Market
Dell’s Revamp of the Consumer PC Line