Dell’s strength includes direct route to market, its relationship with suppliers and pricing strategy.
Direct Model: Dell's business model is the envy of many competitors. Most other competitors are in the process of developing a direct market strategy but the transition from existing sales channel is not simple. Dell continues to gain market share by using its knowledge about its customers.
Supplier Relationships: Dell’s integrated supply chain allows it to keep only four days of inventory. Component price in computer industry falls almost 6% a week. The company can provide the component price decline to its customers quickly. Moreover, Dell shares demand information with suppliers, so ensuring that inventory is kept to minimum. Dell also increases cash flow by effectively paying suppliers after customers have paid invoices.
Pricing: Dell has developed a process whereby they can assess the lowest possible price within an hour. Dell’s e-commerce infrastructure allows dynamic pricing strategy, whereby the same product and service can be sold at different prices, depending on the buyer. PC demand is seen as price elastic (prices drop, demand increases). Dell’s price cutting strategy aims to keep demand away from competitors. Ultimately, by denying them market share, more consolidation will occur. Gateway’s withdrawal from European market and consolidation of HP and Compaq are indications that PC market is in the process of consolidating. In addition, Dell should be able to capitalize on the uncertainty surrounding the early HP/Compaq merger.
Dell’s weakness includes limited R&D, its reliance on Microsoft and Intel and it’s relatively week service business.
R&D: Dell’s traditional business model is based on a risk-averse approach to the marketing new products. Dell does not invest significantly in R&D and relies on supplier to provide lowest possible price and inform Dell of developments in product roadmap.