HOLY ANGEL UNIVERSITY

SCHOOL OF BUSINESS AND ACCOUNTANCY

YMANECON
Group Mini-Case Study: Pricing at Dell

In Partial Fulfillment of the Requirements

for Managerial Economics

Submitted by:

Gabarda, Chezka Sayra D.

Lim, Charmaine Diane G.

Marzo, James Allen P.

Nuqui, Eliciah Q.

Reyes, Maxene M.

Turla, Aicon Jermaine L.

Professor:
Ma. Lina T. Ramoneda

February 21, 2024

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Viewpoint

In examining the "Pricing at Dell" case, researchers take a close look at the business from its
point of view in an effort to come up with workable plans for continued performance in the
face of industry obstacles. Established by Michael Dell in 1984, Dell has become a key player in
the field of personal computers. Despite the economic downturn in the PC sector in the early
2000s, Dell's profitability remained stable, demonstrating the strength of its efficient business
model. The business model central to Dell's success which involves selling directly to customers
instead of through traditional retail channels. By establishing direct connections with
customers, this tactic strengthens market presence and loyalty to the brand. In addition, Dell
stands out from its competitors due to its strict cost-cutting policies, which keep it running with
a lean organizational structure and relatively low overhead costs. With the ability to make
dynamic pricing decisions based on up-to-date market data, Dell's real-time cost information
system is a tremendous advantage. Dell is able to maintain its competitiveness and adapt to
changes in the industry because of this skill. Despite efforts by rivals to imitate Dell's business
strategy, their lack of success highlights Dell's distinct market position. Through case analysis,
researchers investigate possible courses of action to maintain Dell's success while taking
customer and company growth into consideration.

Objectives

To secure its future in the market, Dell must act quickly due to fierce competition and shifting
market conditions. In "Pricing at Dell," the mini case, the short-term goal is to deal with the
pressing issues surrounding pricing strategies to keep profitability and competitiveness.

Dell’s pricing strategy is to ensure profit maximization. It is seen that Dell is seeking to sell as
many products as they can to achieve high revenues. Their main objective is to maximize
long-term profitability through the increase in market share and lowering costs as much as
possible and to establish a sustainable and effective pricing strategy that aligns with the
company's overall business goals and ensures long-term growth and profitability. This may
involve investing in pricing analytics, developing pricing models, and continuously monitoring
market trends to make informed pricing decisions.

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 Statement of the Problem

In today's fast-paced technological landscape, the personal computer (PC) industry presents
both opportunities and challenges for established leaders like Dell. While Dell has long been
known for its innovation and market dominance, sustaining this success requires a thorough
understanding of evolving trends and consumer preferences.

Therefore, the students seek to answer the following questions:

1. How can Dell continue to be competitive in the personal computer market? What
approaches can it take?
2. To maintain its success, how can Dell adjust to challenges and changes in the
industry?

Areas of Consideration

Strength:
1. The business model of direct selling.
- Dell manufactures computers on demand and sells them straight to
the client maintaining their already meager profit margin to themselves compared to using
independent dealers.
2. Environmental record.
- Dell was among the first IT businesses to establish a global recycling program for IT
equipment and computer peripherals. It participates in several green programs and has
garnered multiple honors for being an environmentally conscious company. This is
advantageous when working with public and government institutions.
3. The strategy of customizing products
- Dell gives its customers the option to personalize their laptops to suit their own needs and
preferences. These services offer significant value to customers and give Dell a competitive
edge.

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 Weaknesses:

1. Commodity-based goods.
- Dell's revenues are mostly derived from computer, particularly laptop, sales, which are
commoditized products. Computer hardware items have a relatively low profit margin.
2. There are too few retail establishments.
- Some customers may be concerned about the limited amount of Dell retail locations because
the majority of their purchases are made online. It is difficult for consumers to trust the
things displayed online, reducing the probability of purchasing the product.
3. Low Research and Development Investment.
- The company spends a significantly lower percentage of its revenue on research and
development than its key competitors, missing an opportunity to build outstanding goods for
the smartphone and tablet industries, as well as master new skills and competencies.

Opportunities:

1. Expand the services and business solutions divisions.

- Dell provides a wide range of services, including cloud computing, security, and
infrastructure. It also provides enterprise solutions such as servers, networking, and storage,
which are currently Dell's most profitable business lines. Dell should focus on increasing these
categories because they have higher growth potential and profit margins.
2. Grow their presence in emerging industries.
- Emerging economies are the most rapidly expanding markets for laptops, tablets, and other
electronic gadgets. Dell has a decent presence in these markets, but it should increase its
value as the company's market share declines.
3. Educated buyers.
- The first trend mentioned represents another significant opportunity for all of the targeted
segments. Customers are becoming more knowledgeable about personal computers, with an
increasing number of them being purchased for the second time. Consumers that have
already purchased computers understand what they prefer and Dell can provide their needs.
In a relatively simple setup, the Direct Model provides a foundation for customers to build
custom PCs. In this regard, the move to more educated purchasers represents a big potential.

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 Threats

1. Pricing.
- One of Dell's most significant external dangers is that the pricing differential between brands
is decreasing. Because other firms can provide low-cost PCs, Dell's growing price-conscious
customer base may be jeopardized.
2. Smartphones and tablets are becoming increasingly popular.
- Consumers frequently prefer tablets and smartphones to laptop computers since they are
more affordable and have much increased capabilities. The increasing demand for prior
devices depletes Dell's primary income source, laptops.
3. Reduced profit margins on hardware products.
- Dell's primary source of income is the sale of hardware items, which will see price increases
in the future as a result of increased raw material costs. This will increase Dell's costs and
further reduce its profit margin.

Alternative Courses of Action

Advantages

- The abundance of data in various fields and the computer's processing power have opened up
numerous possibilities for trend analysis applications. Trend forecasting relies on reliable data,
making it open to comprehensive inspection for validation. Centering Dell's business goals on
the consumer, gathering pertinent, authentic data on successful strategies, equipping them with
insights to pursue growth opportunities, and minimizing risk through market intelligence can be
crucial for executing effective plans for Dell's success.
- Dell can gain significant expertise in their products by pursuing this alternative course of action.
The company can improve its primary qualities, giving it a competitive advantage.

Disadvantages

- When the business environment changes or cyclical trends are mistaken for long-term effects,
the accuracy and dependability of forecasts based on historical data are compromised. Dell can

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 generate various scenarios based on alternative interpretations of the facts. They should only
partially depend on forecasting tools or marketing information.
- A drawback of this alternate approach is that restricted demand may hinder profit generation.
The company's expansion aspirations may need to be improved.

Recommendation

Based on the thorough analysis of the results, Dell should only do two things in securing their
long-term success: maintain and improve. Given their spot in the thriving industry of PC along
with their competitors, Dell is in a great position to maintain what it has. Moreover, as much as
the PC industry evolves and advances, Dell should also cope and adjust with these changes.

Given their strength in establishing price and cost related schemes, Dell should also take into
consideration other substantial aspects affecting their profitability and customer loyalty factor,
such as diversifying their offered products and services so customers would have more
available options as the PC industry is highly competitive and a rivalrous market. Dell should
develop something new in the face of the market to entice more customers. Thus, rivals would
have no chance in getting close to what Dell can put forward.

Mini Case Questions

A. Why has Dell been successful?

A number of key components of Dell's pricing strategy, as described in the NYU Stern case
study, have contributed to its success. Dell has been able to maintain economic viability by
offering reasonable prices due to their focus on (1) cost leadership, which is attained through
effective supply chain leadership and operations. Dell can maintain strong profit margins while
offering competitive prices to its consumers by keeping costs low. Further, a key element in
Dell's success lies in their (2) Direct Revenue Model, which does away with middlemen and
sells to customers directly. Dell can lower expenditures and provide customers with
competitive pricing by eliminating the middlemen. Dell can sell directly to customers, cutting
out agents consisting of wholesalers, retailers, and distributors. This methodology aids in cost
reduction and expedites delivery. (3) Just-in-Time Manufacturing, by only producing goods as

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 they are ordered by customers, the just-in-time manufacturing approach allows the business to
reduce the cost of inventory. This lessens the possibility of overstocking and enables Dell to
react swiftly to fluctuations in demand. This strategy minimizes the chance of becoming
obsolete and cuts down on excess inventory. It has grown its share of the market in the fiercely
competitive PC industry by attracting price-conscious customers with (4) competitive pricing
on its offerings. With Dell's (5) Build-to-order approach (Customization), clients can tailor
their computers to meet their own unique needs. In addition to raising customer satisfaction,
this aids Dell in more effective inventory management, which reduces costs that can be passed
along to customers. Another edge over competitors is Dell's emphasis on (6) Innovation. A
robust research and development team at the company continually works on emerging
technologies and goods. Dell can differentiate itself from rivals by providing cutting-edge goods
and services because it stays at the forefront of advances in technology.

When these elements worked together, Dell could manage to offer premium products at
competitive prices without sacrificing operational effectiveness, which helped the company
succeed in the market. This response's citations are drawn from the NYU Stern case study on
Dell's pricing policy. Success does not happen overnight. It is not based solely on what business
model or strategies one uses in the market, but it ultimately depends on how well-versed in
business management these models and strategies are applied by capable executives who
prioritize the best interests of both the company and its clients.

B. Contrast the competitive advantages that come from having low costs vs having a good
knowledge about costs. Which one is more difficult for Dell’s competitors to imitate?

I. Low Costs
Dell's commitment to cost efficiencies has been fundamental to its success, as
evidenced by its ability to maintain profitability even during industry downturns. The case
study shows Dell's cost leadership strategy, which enables the company to offer competitive
prices while preserving healthy profit margins. For instance, it mentions that Dell's overhead
amounts to 11.5 cents of every sales dollar, significantly lower than its competitors' figures,
such as 16 cents at Gateway and 21 cents at Compaq. This reveals Dell's ability to minimize
overhead and operational expenses, a key driver of its cost advantage.

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 Notably, the case study also emphasizes the cost control measures implemented
across all aspects of Dell's business operations—where the culture of discipline and efficiency
embedded throughout the organization is evident. These includes:

● Careful management of suppliers to secure favorable pricing terms

● Continuous optimization of operational processes to eliminate waste and
inefficiencies.
● Strategic initiatives of reduction of the staffs aimed at further lowering overhead
costs

Hence, these efforts not only strengthened financial resilience but it also positioned
the company as a leader in offering competitive prices to customers, given the lowered costs.
Accordingly, Dell has improved its operational effectiveness by minimizing waste and
increasing inefficiency. Therefore, there is a sustained profitability and success with their
position in the technological sector in the long-term.

II. Knowledge About Costs

It is explicitly mentioned that Dell representatives have access to real-time cost

information—enabling the company to monitor cost trends, anticipate fluctuations, and
adjust pricing and production strategies accordingly. This thorough understanding of costs
empowers Dell to make informed business decisions and strategic investments, giving it a
competitive edge in various areas. These includes:

● Pricing decisions
● Supply chain management
● Product development

For example, Dell representatives have access to timely cost information and
significant flexibility in pricing decisions, considering variables such as buyer willingness to
pay, competition, and cost. They can utilize this information to offer special discounts or

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 incentives, such as advanced ordering or significant purchases, based on cost considerations.
Additionally, Dell's system of creating "cost packages" based on up-to-date information from
suppliers and internal operations enables accurate estimation of supply costs for different
models.

Utilizing this data enables Dell to make informed decisions, maximizing profitability,
improving operational efficiency, and preserving competitiveness within the market. This
capability to closely track cost trends and adapt strategies accordingly ensures Dell's agility in
responding to market shifts and customer needs, thereby fostering continuous growth and
prosperity in the realm of the technology sector.

Given the contrasting competitive advantages of low costs and good knowledge
about costs, the researchers came up with low costs as the more difficult strategy for Dell’s
competitors to imitate. Over the years, it has been a challenge for Dell’s rivals to copy their
cost efficiencies scheme. Hence, Dell was able to secure and strengthen this core
commitment to sustain their profitability regardless of market decline instances, thus it would
be tougher for their competitors to copy their tactics. Furthermore, the researchers believe
that between the two (low costs and knowledge about costs), if competitors were to copy a
strategy, wouldn’t they go for a much easier and obtainable one? If that is so, low costs would
be bypassed, and good knowledge about costs is the scheme they would go to. This strategy
can be attained as it can be practiced and achieved with enough intellect about the pricing,
cost, and financial affairs in the market. Unlike the former which will need extra effort to
mimic as it incorporates detailed knowledge and specified skills not just on pricing and costs,
but also to the market industry as a whole.

C. How would you comment on the following quote: “By matching Dell’s prices, we are getting
the benefits from flexible prices without incurring the costs of setting up a detailed cost
information system.”?

Dell's success can be attributed to its competitive pricing strategy, which includes
offering affordable rates while keeping its costs low. As a result, other companies that follow
Dell's lead can produce goods at a lower cost, allowing them to increase their revenue

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without worrying about rising production costs. Some of Dell's rivals tried to imitate its
strategies as a result of Dell's success in the PC industry. The quote merely indicates that since
Dell's strategy was observed to have aided in the company's growth, other companies could
find it advantageous to learn from it. They even thought that since they were merely
imitating a winning strategy, they would not have to pay for the strategy's structuring or
implementation.

However if other companies try to copy Dell's pricing strategy without being aware of
and comprehending its cost structure, they can run into problems and face losses. Since every
business is different and has different strengths, weaknesses, and market positioning,
adopting Dell's pricing strategy blindly might not be the best course of action. Instead, it
would be more beneficial for other businesses to concentrate on comprehending their own
cost structures, recognizing their unique advantages and strengths, and using those to
develop their effective pricing strategies.

References:
Backus, & Cabral. (2003). Firms and Markets. Pricing at Dell. ‘

https://pages.stern.nyu.edu/~lcabral/teaching/dell.pdf

The Editors of Encyclopaedia Britannica. (2024). Dell Inc. | History, Technology, &

Facts. Encyclopedia Britannica. https://www.britannica.com/topic/Dell-Inc

Urrutia, K., & Urrutia, K. (2024). Dell’s marketing strategy. Voy Media

https://voymedia.com/dells-marketing-strategy/

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