Dell's Foray into Consumer Electronics
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Case Code: BSTR253 Case Length: 21 Pages Period: 2003-2007 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.400 Organization: Dell Industry: Information Technology and Related Services Countries: US Themes: Business Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
"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?"
- 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."
- 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.
However, many analysts were skeptical about Dell's chances of succeeding in the CE market, which had several strong players. They reasoned that CE, which required a combination of factors like design, technology, and branding, to succeed, was different from computers, where productivity and service counted for more. By the end of 2004, Dell revealed that it was not doing well in its CE business and that its revenues from the business remained insignificant. Later, in November 2005, Dell made the CE division, which till then was a stand-alone unit, a part of the Software and Peripherals business. However, Dell confirmed that it did not intend to abandon its CE business. In fact, it even introduced new products. Even so, it seemed that the company had failed to successfully replicate its highly cost-efficient business model in the CE market. Analysts felt that Dell's failure to make headway in the CE market was a victory for other CE companies (Sony, Panasonic, etc) and CE retailers (Best Buy, Circuit City, etc). Toward the end of 2006, it looked as though Dell's computer business was also under threat with the company reporting falling sales, even as most of its competitors were seeing good growth rates....
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