Channel Strategies: Dell and Eureka Forbes

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In October 2011, IDC1 and Gartner Inc.2 reported that US-based information technology company, Dell Inc. (Dell), had recorded a drop in market share to 12 percent for the third quarter of 2011 compared to the 12.6 percent recorded in the same quarter of 2010.3 According to Dell, the lackluster performance was due to a decrease in demand from consumers and the increasing sales of tablets and smart phones manufactured by competitors such as the Hewlett-Packard (HP) Company4 and Apple Computers Inc.5 (Apple). Industry observers opined that the decrease in the sales of Dell's products was contrary to Dell's position from the 1990s to 2003 when the company had stood as the largest producer of Personal Computers (PCs) in the world.

Analysts had reported that Dell had earned more than its rivals and was also the only company to consistently report positive margins on PCs. According to Dell, much of its success was attributable to its direct selling model. While a majority of PC makers sold through resellers, retailers, and distributors, Dell was in direct contact with its customers. It took orders from them, built PCs according to their specifications, and directly delivered their PCs to them. Some industry observers noted that all its rivals had copied the direct selling model. However, no other PC maker could equal Dell's performance through the mid-2000s.

Though Dell became a market leader in the PC market due to its direct selling model, it started facing decreasing sales from the mid-2000s. Much of the decline was attributable to its direct selling model, according to analysts. Some industry observers felt that Dell's focus on only the direct selling model had led to its fall and given an edge to its competitors who sold through resellers and retailers. Some analysts attributed Dell's decreasing performance due to the change in leadership at the company (Michael Dell (Michael), founder and CEO of Dell, had stepped down from the post of the CEO in July 2004). To arrest the decline in its sales, Dell decided to sell its PCs through retail stores such as Walmart Stores Inc.⁶ and Carrefour S A.⁷ In addition to this, the company also started a formal channel partner program for value added resellers⁸ (VARs).

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1] IDC, based in Massachussetts, USA, is a market research and analysis firm specializing in information technology, telecommunications, and consumer technology markets.
2] Gartner Inc., based in Connecticut, USA, is an information technology and advisory firm.
3] Amar Toor, "IDC and Gartner: Lenovo Leaps Past Dell for Second Place, Still Trails HP for the Gold," www.engadget.com, October 17, 2011.
4] Hewlett-Packard Company, headquartered in Palo Alto, California, USA, is one of the leading manufacturers of PCs, printers, network management software, servers, etc.
5] Apple Inc., headquartered in California, is an information technology company catering to the computer hardware and software and consumer electronics industry.
6] Wal-Mart Stores, Inc., headquartered in Bentonville, Arkansas, USA, is a discount store chain and is the largest retail stores in the world in terms of revenues.
7] Carrefour SA, headquartered in Levallois-Perret, France, is an international hypermarket chain and is the second largest retail stores in the world in terms of revenues.
8] A value-added reseller (VAR) is a company that adds some feature(s) to an existing product(s), then resells it (usually to end-users) as an integrated product or complete turn-key solution. This practice is common in the electronics industry, where, for instance, a software application might be added to existing hardware.

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