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Michael Dell started his PC company in his dorm room in Texas in…
Michael Dell started his PC company in his dorm room in Texas in 1984. He recognized he could build a quality product at lower prices by just using market available components, beating established manufacturers’ pricing and exceeding their computers in performance and quality.
This unique selling method which Dell initiated created a high-value high quality custom-built (make to order) Personal Computer, which would be sold directly though mail-order to knowledgeable buyers via computer-magazine advertisements. Dell focused on having a easy return policy and excellent customer service. The company soon developed a brand reputation for delivering quality at competitive pricing.
How did Michael Dell do this? In fact, it was by accident………Dell would be the first to admit a ‘build to order’ mentality was a result of a lack of capital and some desperation. The typical build to stock business model was just not within his capitalization capability, so a different strategy was needed.
“Well, we started the company by building to the customer’s order…We didn’t do it because we saw some massive paradigm in the future. Basically, we just didn’t have any capital….” Michael Dell
In an era of high interest rates compared to today, Dell was able to keep costs low by avoiding the typical retail distribution channel. This meant not incurring costs of warehousing, inventory storage and being able to limit expensive inventory carrying costs. He was also able to virtually eliminate costly obsolescence that a typical PC retailer would face during this period of rapid technological change. Dell faced limited amount of obsolescence costs as his build to order customer model would be better suited to shortened product life cycles.
Although this supply strategy turned out to be an accidental haven for growth, Dell faced a daunting task of maintaining product competitiveness and price advantage. With an incredible 10MB hard drive, advanced Intel® 8088 processor spooling at a mind boggling 8MHz (8 million cycles/second), Dell introduced its first full computer system, the Turbo PC in 1985 (pictured. While these specs were heart stopping then, by todays standards are Gigahertz behind modern systems. Still the Turbo PC truly launched Dell into the world of premium PC production.
The product story continues. 1989: mobile computing laptop. 1991: Laptop colour screens 1994: lithium ion batteries! The internet came calling in 1996 and they were one of the first to adapt their mail order model to the web and used it for sales, ordering, and later e-commerce. By 1999, Dell replaced Compaq as the leading seller of PC’s in the US.
Dell was declared a world-leading e-commerce company in 2007.
In later years Dell grew into a broader technology firm, with a focus on PC’s and the low cost of customization was still appealing. Yet, the market was changing as the market matured. Less people were opting for the custom order solution and were seeking baskets of product innovations and features, bundled into convenient packages. As customization and build to order waned, PC buyers were looking for see-before-buying approach. The solution…a new bricks and mortar conventional make-to stock retail strategy. Imagine this….a pioneer in e-commerce now goes reverse-trend and adopts the “so called aging and dying” retail store strategy to maintain and grow its market share?
Did this strategy work? Despite all the retail naysayers in the world and the advent of Amazon empire, here is a fact: It took DELL 13 years to reach $6 billion in sales. Yet, it took only 6 quarters (1 ½ years) to reach an additional $6 billion with new retail channels.
Question:
1. What were the early ‘order winners’ for Dell during its early growth? How would the older customers of Dell react to seeing a Dell computer in a retail store today?
