Dell Case

Dell emerged in the mid-1980's, during a period of unimaginable expansion in both the

popularity and purchasing of Personal Computers. During the late 1990's, personal computer purchases

soared as a result of lower prices, easy availability, and the rise of the internet. Just about every family

bought a PC for use at home and many jobs began involving computer skills at the work place.

Consumers were demanding PCs and Dell burst on to the scene with its direct to consumer business

model and grew rapidly. Before Dell, computers were delivered to customers through three channels:

1) Retail Stores 2) Distributors (smaller resellers) 3) Integrated Resellers

Dell quickly exploited a fourth avenue, direct sales to the customer. This strategy enabled Dell

to hold less inventory, improve customer satisfaction, and also increase their ability to provide custom

configured machines in a timely fashion. Previous customizable computers were bought through IBM.

IBM was selling the "Model 0", a barebones computer, delivered to an intermediate who would load the

computer with the desired options. This created transportation and logistics costs and increased lead

time. Dell's model was a switch in paradigms, and it worked. In 1998, Dell was selling mainly to

businesses and the government (77% of sales). At this time, this segment was purchasing just over 42%

of all PC's in the U.S. Dell began selling to everyday people and their profits soared further

profit margins to 5% in 1993 as sales increased by an annual rate of 42.65%. Dell

experienced stiff competition in price cuts on computers sales from Gateway and other Computer

makers, which resulted in a decline of the sales growth of 20.95% and a loss of over 1%. Dell reacted to

its immediate growth by restructuring its divisions by putting customers into categories of larger and

smaller firms initially, and then by globally accounts of each division. The increase in sales averaged

51.44% over the next four years. The strategic changes paid off with an increase in profit margin of 4%

and 5% in 1995 and 1996 respectively and 7% and 8% in 1997 and 1998 respectively. The return on

assets,