Introduction
Dell is among the reputable and well-known companies in the computer industry. Although it was started as a small company by an undergraduate student at the University of Texas, it is presently a huge corporate organization with thousands of employees. Presently, the company provides numerous products and services to meet the needs of its customers.
This paper presents research about the Dell Company. The issues discussed include the kind of market the company belongs to, price elasticity of demand for goods and services sold by the company, type of income elasticity the company faces, closest competitors, close substitutes or compliments, whether the demand for the company’s products is growing, ability of the company’s labour force to be trained in order to increase productivity and reduce the production cost, the profitability of the company, and how profits can be improved.
Dell’s Market Type
Every business enterprise has a desire to grow and be the best in the industry it operates in. Drawing from a study by Pride, Hughes & Kapoor (2009), there are four types of markets in which a company can find itself. Apparently, the different markets are characterized by different features and are there to ensure that companies strive to deliver quality products and services to customers. The four markets can be identified as perfect competition, monopolistic competition, oligopoly, and monopoly. Unlike the other markets, a perfect market is characterized by a very high level of competition. The different types of markets are described as follows.
In perfect competition, the competing firms carry out their business operations under market conditions that require them to deliver quality products and services at the existing market prices. In a perfectly competitive market, there are many producers who offer similar products to consumers. Consequently, there are many substitutes. In addition, there are very few barriers to entry into perfectly competitive markets. A monopoly is characterized by the presence of only one producer of products or services. Typically, it is quite difficult for new firms to enter the market due to very high entry costs. Entry may also be hampered by social or the prevailing political conditions. Unlike in perfect competition, the number of firms that comprise the market in an oligopoly is quite small. As a result, firms can easily manipulate commodity prices. Similar to a monopoly, there are many barriers to entry into an oligopoly, and this creates a situation where market control is only left to a few firms.
Under monopolistic competition, there are many firms that present consumers with dissimilar products. Moreover, firms are free to enter and leave the market as they wish and especially when market conditions do not favour them. The first characteristic is similar to that seen under perfect competition. For this reason, each firm that operates under monopolistic competition is bound to male its own independent decisions.
The second characteristic is that the products of firms are differentiated from each other. Despite the fact that products or services may have enough in common to be grouped together as one commodity, they are sufficiently different from one another to be regarded by consumers as not perfect substitutes for each other. Apparently, it does not matter if the products are physically identical as long as they are perceived as differentiated in the minds of consumers. Considering that the products of the firms in this market are imperfect substitutes for each other, the typically monopolistically competitive firm is not a price taker. Arguably, commodity prices can easily be increased without affecting the level of sales. A firm can also lower the price of its commodity in order to sell more. Generally, the demand curve for a monopolistic competition slops downwards.
Unlike in perfect competition, the demand curve for the monopolistic competition is not perfectly elastic. The final characteristic of monopolistic competition likens the industry to perfect competition rather than to monopoly. If supernormal profits are being earned by existing firms, new firms will enter the industry. In the same way, firms will leave the industry if subnormal profits are being made. Figure 1 presents a demand curve for a firm in monopolistic competition. As can be seen from the curve, the firm will be in short-run equilibrium, selling quantity qo at price po, and earning a post supernormal profits which serve as an incentive for new firms to enter the industry. As firms gain entry into the industry, the demand curve is shifted downwards until that point where only normal profits are realized.
The market structure that perfectly fits the Dell Company is monopolistic competition. The Dell Company operates in the computer industry, which is characterized by very few dominant firms. Barriers to entry exist such as numerous patents that are held, as is the case with the Dell Company. Despite the fact that the products sold by Dell are similar to those sold by other competing firms, they are not identical. Generally, Dell has been able to differentiate itself from competing firms through its products, customer care, and technical support offered to clients. Considering that there are competing firms that sell products similar to those sold by Dell, the company can not be classified as a monopoly. In addition, there are other firms in the computer industry that have also patented their products.
Price Elasticity of Demand for Goods Sold by Dell
According to Hatten (2010), the price elasticity of demand is an important measure of how much the quantity demanded by consumers is affected by changes in price. Drawing from the study by Hatten (2010), the quantity demanded tends to be more elastic if close substitutes are available, and if the product is a luxury and not a necessity. Demand is also affected by how narrowly the market is defined, and if buyers can take time to react to changes in price.
As stated earlier, firms in a monopolistically competitive market present consumers with products that may be similar but distinguishable. The fact that the products are similar implies that it is possible for consumers to get a cheaper alternative from a competing firm. Consequently, demand is quite elastic, and the quantity demanded is very sensitive to price changes. A decrease in price will result in increased demand and vice versa. Furthermore, computer products are considered to be a luxury by many consumers. This is clearly demonstrated in figure 2, which presents an elastic demand curve. The figure shows that when demand for a product is elastic, as is the case with computer products, a decrease in price will lead to an increase in demand and vice versa (Hatten, 2010).
Type of Income Elasticity Faced by Dell
Holding other effects of demand constant, income elasticity of demand refers to the percentage change in quantity demanded as a result of a percentage change in income. Income elasticity of demand can be positive or negative and falls into any of three possible categorizations. When the income elasticity of demand is more than 1, this means that the product is generally not affected by changes in price. Income elasticity of demand that is positive but less than 1 implies that the product is income inelastic and income elasticity of demand that is negative indicates that the product is inferior. Dell deals with computer products and demand for computer products is income elastic. For this reason, the number of products demanded may not increase as a result of consumers experiencing a rise in income.
Dell’s Closest Competitors
Dell’s main competitors are International Business Machines Corporation (IBM), Hewlett-Packard (HP), Gateway, and Lenovo Group Limited. As pointed out earlier, these companies operate in a monopolistically competitive market environment. While their products are similar, they are not identical. Like Dell, its competitors are in the business of supplying the market with computer products and services.
Considering that all competitors are dealing with similar products, Dell must do everything possible to differentiate itself from the rest of it has to survive. To a certain extent, this has happened, and the company has been able to distinguish itself in several areas.
Close Substitutes or Compliments for Dell
Many firms in the computer industry are concerned about substitutes and compliments. This is mainly because many of the key players in the industry have remained loyal to Microsoft software and often use similar products that can easily be substituted. Unfortunately, this is a major source of competition among key industry players. Dell, HP, and Gateway are examples of firms that rely on similar products. For this reason, it is very easy for consumers to get a substitute or complement for Dell.
In light of the above challenge, it is imperative for Dell to devise a strategy that will create a clear distinction between its products and those of competitors in order to remain competitive. While this is a major task, it is the only means through which the company can survive in the market and defeat its competitors. Dell must work extremely hard to see to it that it puts mechanisms in place that will help it to deliver above the standards of its competitors.
Demand for Dell’s Products
Generally, the demand for Dell’s products has been o the rise. This has made it possible for the company to register increased revenue and high profits. The apparent growth in profits ad revenue can be attributed to the fact the company has been paying so much attention to the enterprise market rather than depending on the personal computer market. Demand for Dell products has also been caused by the desire among business enterprises to get rid of their old technology in order to benefit from the use of modern technology. Demand for Dell’s products is also being driven by the rising demand in developing countries whose uptake of computer products and services is slowly increasing. The increased demand for Dell’s products can also be attributed to the company’s ability to come up with new products that excite consumers.
There are other factors that are responsible for the increased demand for Dells’ products. One such factor is the strength of the company’s distribution and supply chain management. Rather than relying on third party providers to distribute its products, the company has opted to interact directly with consumers and hence eliminate the need for the middleman. The company is also working very hard to enhance the value of services delivered to its customers. Through its process innovation, Dell has also been able to retain its existing customers and attract new customers. Furthermore, the company is always keen to harness feedback from customers which is later used to assess the current status of operations in the organization with a view to improving the quality of services to customers.
Despite the fact that the company’s management is positive that the growing demand for its products will continue, efforts must be made to research and come up with ways of making sure that the quality of products and services is superior to that of competitors. It is important for the company to be aware that its competitors are also working hard to deliver high-quality products and services that can attract the interest of customers. Dell should, therefore, not remain complacent and think that customers will be happy.
The ability of Dell to Train its Labor Force
Dell is capable of training its labour force for improved performance and reduction of costs, and it can do this through many existing opportunities. As explained earlier, the company has been very innovative in its operations. To reduce costs, for example, it has decided to get rid of the middleman and deal directly with the customers. Undoubtedly, this leads to a huge reduction in the cost of distribution. In addition, it acts as an incentive to customers since the company is able to offer its products and services at reduced costs. Dell should, therefore, take time to train its employees and equip them with skills necessary to run an efficient distribution and supply chain system designed to work without the middleman. The company is also keen to delight its customers and has made a decision to harness feedback from them.
However, for this to happen, it is important to ensure that all employees are well equipped to deal with any issues that are encountered. Employees should be sensitized about the need to handle customers with care, and the company should ensure that they are properly trained to do so.
The profitability of the Dell Company
Over the years, Dell’s profitability level has been increasing, and this is bound to increase as the company continues to come up with innovative ways of offering improved products and services to its customers. A key strategy that has played an important role in helping the company to increase its profitability is the elimination of the middleman from its distribution system. By interacting directly with customers, Dell has been able to drastically reduce its operating costs. Interacting with customers has also made it possible to know exactly what the customer needs. Among other benefits, understanding what the customers need has helped Dell to build customized products that meet the specifications of the customers.
Through its innovations, Dell has also been able to come up with unique products that have attracted new customers while making it possible to retain its existing customers. While it is almost obvious that the company’s profitability will continue to grow, it is important for Dell to come up with new strategies that will enable it to continue offering quality services to its customers.
Suggestion for Improving Profits
Dell has several strengths that can enable it to operate effectively in a very competitive environment. As has been pointed out, the company has been able to reduce operating costs through the elimination of the middleman in its distribution and supply chain system. In its new strategy that enables it to deal with customers directly, Dell has a great opportunity of understanding its customers and providing them with products and services that are customized to meet their specific requirements.
To ensure that the company can enjoy the benefits associated with its new marketing strategy, it is absolutely necessary to gather as much information from customers as possible through a feedback mechanism. The information collected from customers can then be used to analyze their requirements and determine what the company should focus on. By so doing, the company will be able to delight its customers and even attract new customers. Certainly, the strategy is meant to ensure that the company is able to deliver high quality products and services to its customers while increasing its profitability at the same time.
Despite its celebrated success in the market, it is important for Dell not to take its competitors for granted. Sufficient time should be spent by the company to understand the operations of competitors and figure out how to benefit from strategies that are working for them. This must, however, be done without watering down the quality of services that Dell is currently offering its customers.
As earlier mentioned, it is also vital for Dell to dedicate time to training its labor force. For any company to succeed in its operations, focus on employee development is mandatory. A deliberate move by Dell to equip all its employees with requisite skills is thus a crucial consideration. A well trained work force will make it possible for the company to deliver high quality products and services to customers. Delighted customers will end up serving as the company’s ambassadors and this will eventually translate into new customers getting on board and profits increasing.
Conclusion
Without a doubt, Dell is one of the giant companies in the computer industry. It is among the oldest and very innovative companies that have continued to delight its customers with quality products and services. While this is the case, there is a price to pay for being at the top and the company has an enormous task of ensuring that its customers are not disappointed. Any dissatisfaction will lead to loss of customers and the company may find it difficult to survive in a competitive market setup.
As has been explained in this paper, Dell has many opportunities to improve efficiency and ensure that its mode of delivery translates it into a company that is admired by many. The company should make every effort to train its labor force and improve their efficiency. While it is advisable to retain strategies that have enabled the company to differentiate itself from competitors over the years, Dell should continue coming up with innovative ways of delivering services to its customers.
References
Hatten, T. (2010). Small Business Management. Boston, MA: Cengage Learning. Web.
Pride, W., Hughes, R. & Kapoor, J. (2009). Business. Mason, OH: Cengage Learning. Web.