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Strategies
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Rivalry among the world’s makers of PCs was quite strong in 2000. As the CEO of Gateway put it in January, "The environment in which we are operating is tough and getting tougher." Competitive pressures, which had been mounting since 1997, had prompted a number of companies to alter their strategies for competing.
The Attempts of Several Manufacturers and Retailers to Clone Dell’s PC Strategy
Dell’s competitors—Compaq, IBM, Packard Bell NEC, and Hewlett-Packard—were shifting their business models to build-to-order manufacturing to reduce their inventories and speed new models to market. Compaq launched its build-to-order initiative in July 1997 and hoped to cut costs 10 to 12 percent. Compaq’s revamped assembly plants were able to turn out a custom-built PC in three to four hours and could load the desired software in six minutes. Packard Bell NEC’s program allowed customers to place orders by phone. But all three were finding that it was hard to duplicate Dell’s approach because of the time it took to develop just-in-time delivery schedules with suppliers, to coordinate their mutual production schedules, and to shift smoothly to next-generation parts and components as they appeared on the market. It took extensive collaboration to plan smooth technology transitions. Compaq and Hewlett-Packard had spent 18 months planning their build-to-order strategies and expected it would take another 18 or more months to achieve their inventory- and cost-reduction goals.
At the same time, such computer retailers as Tandy Corporation’s Computer City, CompUSA, OfficeMax, and Wal-Mart Stores had gotten into the build-to-order, sell-direct business. CompUSA was offering customers two lines of desktop computers that could be ordered at any of its 134 stores, by phone, at its Web site, or through its corporate sales force; its goal was to undercut Dell’s price by $200 on each configuration. Wal-Mart was offering build-to-order PCs made by a contract manufacturer at its Web site.
Dell was seen as having the right strategy to appeal to customers well versed in PC technology who knew what options and features they wanted and who were aware of the price differences among brands. According to one industry analyst, "Dell is everybody’s target. No matter who you talk to in the industry, Dell is the brand to beat."33
The Moves of PC Makers to Broaden Their Business
Several leading players in the PC industry made moves in late 1997 and early 1998 to expand into selling more than just PCs in an effort to improve profitability. The sharp declines in the prices of PCs had crimped gross profit margins and prompted such companies as Dell, Compaq, Gateway, Hewlett-Packard, and IBM to view selling PCs as an entrée to providing a bigger lineup of products.
To move beyond simple PC manufacturing, Compaq in late 1997 acquired Digital Equipment Company (DEC), which derived $6 billion in revenues from providing a range of PC services to corporate customers. Both Hewlett-Packard and IBM had always viewed the PC business as part of a larger portfolio of products and services they offered customers. A substantial portion of Hewlett-Packard’s revenues and profits came from sales of servers and printers. IBM derived a big portion of its revenues from mainframe computers, software, and technical and support services.
Dell, Gateway, and several other makers of PCs for the home market had begun offering Internet access service to purchasers of their PCs. Gateway’s chairman, Ted Waitt, explained, "We’re about customer relations a lot more than we are about PCs. If we get a 5 percent margin on a $1,500 PC, we make $75. But if we can make $3 a month on Internet access, that’s another $100 over three years. Three years from now, I don’t think just selling PC hardware will allow anyone to have a great business."34 PC makers were also selling printers, scanners, Zip drives, assorted software packages, and other computer-related devices at their Web sites to boost revenues and overall margins. Several PC makers had begun leasing PCs to individuals and households and to finance PCs on low monthly payment plans in hopes of getting the customer to trade in the old PC for a new PC later when the lease expired or the last payment was made.
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Strategies
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