Friday, May 25, 2007

Dell’s Dilemma - Part Two

This is part 2 of my Dell's Dilemma series. In part 1 you can find how Dell Inc's business model is different from others and in this post I'm analyzing why Dell's business is (or appears to be) at risk.

Pros and Cons of dealing direct with Dell...

Advantage Dell:
The main features and advantages Dell and its customers have due to Dell’s Direct to customer model are:

1 Cheap product: Dell’s products have always been cheaper than competition for given configuration, due to Dell’s unique business model (explained in Part 1), hence a cost conscious customer would always prefer Dell.

2 Highly Customizable: Just like an assembled PC, Dell allows its customers to choose the exact configuration they want and pay for only those features required. Other PC vendors usually release several pre configured models which can not be customized beyond a limit. (I find that even Dell customization has some limits, explained later)

3 Built to Order: Dell units are assembled only after an order is confirmed. This gives you fresh technology, directly from factory to your home. In other companies, products do spend some time in shelf, in factory, in warehouse, with distributor/reseller etc before you pick it up.

1. You can’t see or feel the product before buying.
2. You can’t just lift a model, pay and take home. You will have to wait for few days to few weeks from the time you decide to buy and till it gets delivered.
3. No service centers where you can take the system and get it repaired. You need to fix the system using telephone help given by Dell

Dell Logo
Why Dell Sales declined?

Here are some simple reasons why Dell’s popularity is declining over a period of time…(Prices are quoted in INR)

Note: Majority of Dell's business comes from huge corporate accounts who continue to prefer Dell. Below points are from a viewpoint of an individual customer (Home users, and SMEs (Small and Medium enterprises)...

1. Fall in price deference: Because number of units of PC/notebook being sold has increased, the additional expenses Dell’s competitors had is getting leveraged across a large number of units, hence the additional expense per unit is minimal (Assume Rs 30000 per month is spent in running a showroom. If only 1 Notebook is sold then this entire 30 k needs to be recovered from this one notebook, in which case Customer will not buy at all (if he has to pay 30K extra for no apparent reason), if just 30 units are sold per month, each would have costed Rs 1000 extra (In this case customer will weigh his options and may or may not choose to buy from that shop), while if 100 units can be sold per month, extra cost per unit is just around Rs 333 which is negligible for a 30k to 50k product and the customer will not hesitate to buy. As other vendors are reducing their margin and focusing on volume, the Dell’s advantage in terms of cost is falling.

2. Non technical customers: Traditionally those who used desktops and notebooks were technical (Hardware/Software professionals) people who had enough technical understanding of the product so that they could understand the configuration, could use, maintain or do simple trouble shooting themselves with minimal help and choose Dell mainly because of cost advantage. But of late computers have become very common and everyone can afford to own it. But many people who are not well versed with computer architecture (say people like Doctors, lawyers, accountants) would rather choose to physically see a laptop in a showroom, see if the performance and features are good enough for them and then buy then and there. In other words, not everyone can decide between complex system configurations.(Dell website gives some basic explanation, which is not good enough) Most of us have simple understanding that higher the numbers better the configuration, few of us have understood that Dual Core is better than Solo (Thanks to Intel’s intense ad campaign), but tell me, can you suggest me which one should I choose out of Intel Centrino T5300 (1.73 GHz, 533 Mhz FSB) and T5500 (1.66 GHz, 667MHz FSB)? We’re used to measuring clock speed, but few realize why FSB is critical. Is Core Duo sufficient or should insist on Core 2 Duo? What about Sata Rosa? Without physically experiencing, can you tell me if geforce 7400 is enough for the games I intend to play or do I really need 7600 (They are 256MB and 512 MB graphics card from NVIDIA respectively). Microsoft says 512MB RAM is minimum for VISTA, while PC vendors suggest 1GB. Shall I go with 1GB or should I really invest another 10k and opt for 2GB? Unless one has some technical understanding, deciding on a optimal configuration is very challenging. If you accept all recommended configuration at Dell’s website, the price almost doubles the initial quotation. So many people who do not understand much of system hardware prefer Non Dell brands, partly because they can check the product before buying, and partly because they go by resellers recommendation.

3. Lead time: people want everything fast and instant these days. If it takes week’s time from the time they decide to buy and till the product gets delivered, it discourages them.(It takes 10 to 30 days depending on mode of payment, availability of parts etc) Lot of things may change in the meanwhile: I may change my mind, I may get a better deal elsewhere, technology may change, price may fall, but once you commit, it is near impossible to change.

4. Dell discourages down selling: While choosing the configuration, Dell tempts you to go for higher configuration (This is called up-selling) but heavily discourages you from choosing lower configuration. For example, they give you an option to upgrade to Windows Vista Home Premium from Home Basic but do not allow you to choose Windows XP (which should be cheaper than Vista), or do not allow me to buy a naked PC (PC without an OS). (Most of the PCs sold with Free DOS/Linux are eventually upgraded to some version of Windows, pirated ones in most cases, but that can’t be a reason why Dell should mandate that all notebook buyers should buy it with Vista. If I have some Microsoft employees as friends I get Vista at much discounted price and may choose to install it myself, or if I choose to continue with Widnows 2000 i bought few years back, it is my choice. I'm not bound to buy every latest product MS releases...Do you agree?)

Also I found while customizing an Inspiron model that for a T5300 based system, I have no option of choosing a 533 MHz RAM and I have to opt for 667 MHz RAM only. (A 533 MHz FSB processor can’t make full use of 667 MHZ RAM and I would rather save some money by opting for 533 MHz RAM, but I don’t have that option.

5. Limited Customization:
Note: Whatever I write below is based on the experience I had at Dell website while attempting to customize. Once you raise a request Dell Inc will assign an executive who will facilitate further customization, which may nullify some of the points mentioned in point 4 and 5.
Latitude model has finger print reader option but Inspiron series doesn't. Similarly you'll face many such restrictions when you try to customize your Dell. In most of the cases I don't have an option of choosing 1 Single memory of 1 GB (instead of 2 x 512 MB layout)(What difference does that make? It makes lot of difference while upgrading: Motherboard will have 2 RAM slots - if both are occupied by one 512 MB RAM each, if I have upgrade later from 1GB to 2GB there'll be no free slots, while if I opt for one single RAM of 1GB, second slot will be free)Ideally Dell should allow me to customize A to Z with any possible combination (as long as the combination is feasible), but that is not the case.

So there're many limitations in Dell's customization and it might discourage few, who are very specific about what they want.

6. No fancy features: Dell has been very very slow in introducing most of the value added features its competition has incorporated (Such as face recognition of Lenovo, fingerprint recognition, Swivel Monitors and Tablet PCs by HP, detachable DVD drives of thinkpad, Blu Ray Disc reader by Sony Vaio etc). So except that you have the option to choose highest possible configuration, there won’t be much you can boast about your Dell machine. (Dell will be launching Tablet PCs by end of 2007 in India, Dell Latitude model has an option of Finger print reader, XPS model comes with rotating Webcam, and Dell would soon launch ATG in India (All Terrain Grade rugged notebooks which meet military standards in their build), but most of them are not available in combination.

June 27, 2007 update: Dell's new inspiron 1420 series (and 15xx series) is featuring multi colour bodies and also Blu Ray writer option (at INR 32000, not sure how many will opt for it), Some Dell Latitude Models have some unique features like analog battery meter (to check how much power is left, without having to switch on the notebook) and Wi-Fi detector, which blinks when a network is available...

7. No service centers. Today most of the people who use PCs and notebooks are non technical people, who do not have the time, patience or technical skills to fix a problem in their system themselves. While techies would even enjoy troubleshooting and experimenting on their systems themselves these people would rather hand it over to a service centre person, tell the problem they face and get it fixed by experts. But dell expects everyone to fix their problems by internet/telephonic information. Most of the people are not comfortable with this option and do not even give Dell a consideration since it doesn’t have a physical presence (I read somewhere that Dell has tie up with Wipro and PCS in India to provide service to Dell customers, but not sure of this as I don't find anything official about it)

8. Increasing non corporate, non technical customers: So far, majority of Dell’s customers were corporate accounts, who had dedicated departments to take care of Computer Hardware. But of late individual consumers who buy a PC/laptop for personal use are on the raise and for these people, after sales support is a primary consideration, in which Dell fails to impress. These individuals approach a consumer electronic showroom or such shops while buying laptops and salesperson there shows all available models but never mentions that there’s a company called Dell. Even if customer inquires, he tries his best to discourage a prospective buyer from opting for Dell, by highlighting all disadvantages of Dell. So not having some ground staff to promote Dell is diverting several potential customers.

9. No finance options: Today many people buy goods on credit. In any showroom you can find one representative of some finance company readily available, if you prefer credit. If Dell expects everyone to make full payment upfront (even before one sees their product and wait for weeks. It doesn’t give easy credit options, and this diverts another set of potential customers (Dell do have Dell Financial Services in some countries. But I don’t think that is operational in India)

10. No one to bargain or argue with: Most of us love to bargain with the shopkeepers and feel happy if we can get some extra discounts/some freebies. Also if somethin goes wrong many people prefer to walk into the showroom and question the people there. With Dell, these are difficult. (Dell will assign a salesperson to assist you in executing your order with whom you can bargain a bit. And if something goes wrong and Dell refuses to fulfill its obligations (extremely unlikely, I'm just exporing a possibility) legal actions are very difficult since the sales is purely online

Note: Dell's credibility has been very good, and most of the customers are happy with Dell (except few business users who are using the notebooks given by their company which doesn't fit their personal usage needs). Dell does good pre sales and post sale follow up and keeps its customers happy. Dell is setting up an assembly unit in India (in Chennai) which is expected to be operational from late 2008 (Currently Indian orders are assembled in Malasia and shipped to India, Dell products should be further cheap once they're assembled in India)(Note: The Hindu report dated 26th June 2007 says Chennai unit will be operational within months, my sources indicate it may take longer. This post doesn't intend to discourage people from buying Dell, but only analyses why potential customers may not prefer Dell.

These are some of the reasons I've figured out why Dell's model is at risk. Can there be a solution? Standby for Part 3 (Expected in mid- June)
Part 1 | Part 2 |If Dell were to sell motorcycles...(fun)| Comparision of Notebook Brands: Dell vs HP vs Sony vs Others


Thilak Kumar M said...

Good one Bro.. Especially the Dis advantages of the model was well researched.

Shrinidhi Hande said...

Thanks. Advantages and disadvantages of a particular model may change w.r.t time (depending on competition, pricing, configuration etc). My post was more generic, it is about Dell as a company and not specific to any one or two models

hari said...

Excellent analysis, Shri. I like the overall professionalism in your writing. Too many people introduce their personal biases while reviewing. This is quite an objective report.

Shrinidhi Hande said...

Thanks Hari.

Its against my principle to give biased opinion. I do give straight forward opinion along with supporting evidence and logic. I usually give both positive and negative aspects and let people decide.

Anonymous said...

Hi Nidhi... A very good comparo and analysis.. Specially the downward customization part where they dont allow you to get wat u want.. That is one of the sole reasons why i opted out of buying a Dell and the other one is the main thing which is you cant touch and feel the computer before buying which is a very big disadvantage... I only had to see a compaq laptop and go thru the features and i decided to go for it then and there which was not possible with Dell..
And to answer you query on limited customization, Dell has this policy of Insipiron for home users and Latitudes and Vostro Series for Business users.. So they offer fingerprint reader as an extra security measure for business laptops for data protection since its more important to business users from Dell' point of view.. If they allow you to have fingerprint reader on the so called home PC series (inspiron) they will not be able to differentiate between the two categories and not be able to charge more for the business series. It was a nice read - Abhi

Shrinidhi Hande said...

Thanks Abhi for the comment.

There can be other differences between business and home laptops-Business users need a lighter model, with international warranty, less focus on entertainment features and higher battery life. Home users often need more entertainment...

Ashish Kanak said...

One of my personal experience.
- Paying by Cheque is a tough option while buying Dell laptop.While for other off-the -shel laptops it is just like any other mode of payment.

--Ashish Kanak

Shrinidhi Hande said...

Yes, Dell won’t process the order unless check is cashed. Other vendors who accept check may deliver the laptop on trust if you make partial cash payment and give some address/ID proof.

Thanks for the comment

Anonymous said...

I really liked the article, and the very cool blog