Price wars are no fun for any of the players in a given market, just ask the airline
industry. But reading this article on BusinessWeek today, "Dell: Burned by a fire sale" gives rise to an interesting conundrum – who exactly is Dell competing with in their push to discount their boxes? Surely not their own customers?
According to the analysis, Dell has three key issues hampering it’s continued growth –
- Eroding market share, both globally and in the US, apparently the first time in memory of the analysts (but we won’t go there).
- Spending to increase customer support facilities undermining the revenues from deeply discounted sales
- Lack of differentation in their physical product – i.e. their design sucks and has no appeal
Interestingly enough, HP and Acer have been pointed out as increasing market share in the same time period. This seems reminiscent to me of the four year dip that Hoover showed in vacuum cleaner sales that mirrored Dyson’s rise in the same timeframe. Particularly when I know that the Acer I bought this past christmas just leapt out at me visually in the store.
It would be interesting to observe again in a year’s time where Dell is at, against HP and Acer, if the two continue their strides in incorporating design as a strategic tool. Just in the past few months, Acer has won numerous Red Dot design awards for a range of it’s products and HP’s launched a design driven marketing and branding initiative – "The Computer is Personal again".
It’s the second point that makes me wonder about a) Dell’s cost leadership strategy and b) the vicious cycle they seem to find themselves in. To quote the BW article,
Additionally, Dell is spending heavily to bulk up its technical-support and customer-service operations. For instance, it’s hiring more workers at call centers. While that spending may help attract and retain customers over the long run, it’s also eating into Dell’s bottom line.
Dell says the pricing strategy will help boost future revenue growth. During the quarter, "we continued to execute on our strategy to reinvigorate growth by making investments in our support infrastructure and product quality and by accelerating pricing adjustments," Dell CEO Kevin Rollins said in a statement.
The trouble for Dell is that unit volumes aren’t compensating for price reductions. Besides hurting Dell’s sales and profit, sluggish unit growth is also eroding market share, another key measure of overall health.
It was noted that Dell doesn’t have cost leadership anymore either, competitively, as Acer and HP among others, are noted to have been able to compete on value as well. So, why the continued push on discounting? Is it the GM way to success and increased revenue? Obviously not, and neither are the other players joining in to lead on price alone, each of them focusing on increasing topline growth through offering better designed products better suited to their customers.
I’ve written earlier about strategy and operational effectiveness, particularly about Apple’s choice of releasing new and fresh designs every so often. Design, in and of itself, of a product, is also an element of operational effectiveness. The key difference however, is that design adds value, even when pursued as a tactic within an overarching corporate strategy. Cutting your prices doesn’t. Carlos Ghosn’s famous keynote speech at the NYC Auto Show reiterated this for the automobile industry, perhaps it’s time for Dell to listen.
Ironically, they purchased Alienware, for their designcentric high end gaming machines, but allowed that pr opportunity to lapse. If at that point, they’d made a noise about integrating design, something that analysts were expecting at that time,
Rebecca Runkle of Morgan Stanley said the Alienware deal was evidence that Dell was making "the right investments".
design and hip branding are two important factors in the high-end
consumer and gaming PC segments and, quite frankly, Dell lacks in both
these areas," she said.
perhaps the news media would be willing to give them the time to recoup and reorganize in order to respond to changes in the market instead of predicting doom and gloom as they seem to be doing so.
It also makes me wonder whether we’ve reached the point of being unable to compete on price alone for a range of products. Whether there is a trend in a product’s lifecycle to undergo being a commodity before being branded once more? After all, even the number one cost leadership player is looking at stores that encourage higher margin purchases.