Promotional Pricing is Dell

7/30/2019 Promotional Pricing is Dell

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Promotional pricing is Dells biggest advantage. On any given day

Dell is putting on at least one promotion, if not more. I have seen

Dell television commercials, product magazines, newspaper

inserts, print advertisments, and countless internet ads. Dell is

constantly is the consumers mind when it comes to purchasing anew computer. I purchased my own laptop because of Dells

March Madness promotion. I was looking for a new computer

anyway but I was taking my time to do a fair share of research

before my purchase. The March Madness promotion went on for

ten days and had a select individual promotion for each day. The

daily promotions only lasted for that one day, so this promotion

added the effect of scarcity into the equation. In addition to

scarcity, only that days promotion could be seen so theconsumer had to take a chance with not knowing what the other

daily promotions would be. I actually ordered my own computer

on the very last day of promotions. All of these promotional deals

have a close end-date or limited time offer. The good thing

about Dell is that even if one attractive promotion passes, there

is a good chance a similar one will start again in a few weeks.

Dell prices their computers as one of the lowest brands in the

industry. The prices are configured depending on the parts that

are included in each individual computer. There are regularcomputers offered but consumers are also able to customize their

own which of course is now an expected part of web 2.0.

Consumers can also choose to spend more to upgrade their hard

drives, battery life, virus protection software, warranties and

much more. In addition, consumers can end up spending

hundreds more by the luring sidebar full of mice, printers,

speakers, webcams, and other products that they can add on.

$20 doesnt seem like so much when you know you are alreadygoing to be paying over $700, and that is a fact that Dell has

taken advantage of very well.


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.

Dells strategy of diversification into other consumer electronic products like

televisions, printers, digital cameras etc. has also seen mixed success.

Desktops and Notebooks still account for 85% of Dells revenues.

Dells stock has been taking a pounding and has been steadily loosingground over all this news, which is not surprising since Wall Street does not

really need a lot of bad news to loose faith in a company

But the short-term cost to Dell could be high: reduced profitability.

"It's very apparent that in the last quarter Dell traded profitability for market

share,"IDCanalyst Roger Kay said Friday. "It was very deliberate."

Dell iscurrentlythe No. 2 computer maker worldwide, with 12 percent marketshare. And it's the No. 1 PC maker in the United States, with 16.9 percent market

share.

Dell's opening gambit in price began last year.

"Toward the end of the year, I saw Dell step forward to really get aggressive in

pricing,"ARSanalyst Toni Duboise said. "Dell is by far the first to pass on the

benefits of lower component prices, and that is important in this heightened stateof competition."

Using Dell's entry-level Dimension L series consumer desktop and high-end

OptiPlex 300 corporate PC as examples, Duboise showed how dramatically Dell's

average selling prices have fallen since June.

Between June and October, the OptiPlex price dropped 40 percent and another 2

percent between October and January, she said. During the same period, the

Dimension's price dropped first 18 percent and then another 21 percent by

January.

Once the PC leader heralded for its direct sale, build-to-orderapproach, Dell has since adopted a bigger retail focus and an
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outsourcing manufacturing plan that has not delivered on itsturnaround promise.

According to an IDC report cited by UBS, Dell lost more than apercentage point of its worldwide market share in the fourth quartercompared to the same period a year ago. Even worse, Dell's grip onits home market was even weaker. Dell's U.S. market share fell fourpercentage points to 22% in the most recent quarter.

To help offset the decline in its PC stature, the firm has been pushingin new directions. Last year Dell made a $3.9 billion deal forPerotSystems to boost its IT services efforts.

Can Dell regain its market leader position from HP?

In 2006 however, Dell faced several problems. Many customers

complained about long delays in supplies. Recall of Sony battery cells in itslaptops brought undesirable media hype to the company. Increasingdiscontent of customers led to a slowdown in sales. Consequently, Dell lostits market leadership to Hewlett-Packard Co. (HP). Industry analysts feltthat, with Dells competitors also improving their supply chains andmatching Dells direct model, the company had been losing its competitiveedge. Dell will have to bear additional costs with its foray into retaildistribution thereby minimizing its cost advantage. Besides, profit marginsof Dell will drop further since it will have to offer incentives to compete withHP in retail stores. Though Dell spruced up its product design and range

but Apple is clearly far ahead of it. Many experts feel that such newinitiatives will only distract Dell from its supply chain operations.


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Dell topped HPs sale in the notebook PC segment for

the first time in India. The worlds top PC maker alsograbbed the No. 1 spot in India, in the particular

segment, for the first time in the last quarter. Dells

market share forthe quarterremained at 26.3 per cent.

Nevertheless, HP remained strong at its numero uno position considering

the overall market (notebook and desktop). As per an IDC report, HP

handled the maximum shipment of personal computers with 16.2 per cent

market share. Dell remained second with 13.6 per cent market share. Acer

followed HP and Dell with 10.4 per cent of the total shipments.

The IDC report further revealed that Indian PC market witnessed a strong

year-on-year growth of 25.7 per cent in the third quarter of the current

fiscal. Overall shipments (sales) remained at 19.7 lakh units.

Sale of Desktop PCs continued to be the bulk of the PC sales accounting

for almost two-third of total PC shipments. Desktop sales touched 12.7

units during the quarter, posting a growth of 14.6 per cent. However, the

notebook segments was seen to be catching up really fast as shipmentsgrew 52.8 per cent during the period to 6.9 lakh units.

HP opens up market share lead on Dell during fourth quarter

ByEric Bangeman| Published 4 years ago
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PC market share numbers for the fourth quarter of 2006 are out from GartnerResearch, and once again, they do not paint a pretty picture for Dell. For thesecond consecutive quarter, Dell saw negative year-over-year growth as itsworldwide market share in terms of units shipped dropped 8.7 percent from thefourth quarter of 2005, from 16.4 percent to 13.9 percent. The story in the US wasthe same, although Dell managed to hold on to its number one position.

Rival Hewlett-Packard saw 23.9 percent growth during the same time periodworldwide, moving nearly 11.7 million PCsover 2.2 million more than it didduring the fourth quarter of 2005. HP also made up ground on Dell in the US,moving closer to knocking its biggest rival off of its market share perch there. HP's4.05 million shipments and 25.3 percent market share in the US marked a 16percent increase from the previous yeara marked contrast to Dell's -17.3 percentslide.

Lenovo, Acer, and Toshiba rounded out the worldwide top five. Lenovo saw 9.3percent year-over-growth, slightly ahead of the market's 7.4 percent growth. Incontrast, Acer and Toshiba both grew by leaps and bounds: 33.1 percent and 24.5percent respectively.

Data source: Gartner Dataquest


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For the entire year of 2006, the worldwide PC market grew 9.5 percent worldwidecompared to 2005. Despite having two bad quarters back-to-back, Dell stillmanaged to end up atop the worldwide market share figuresbut just barely. TheRound Rock, Texas-based PC maker shipped 38.05 million units during 2006, up3.5 percent from 2005. HP was a close second place with 38.03 million, up 19.2percent from the previous year's 31.9 million. Lenovo's growth of 10.9 percent was

just over the market baseline of 9.5 percent, while Acer and Toshiba saw growth of37.1 percent and 27.3 percent respectively.


In the US, Dell and HP still dominate with HP continuing to close the gap on Dell,which saw its market share drop to its lowest position in four years. For the fourthquarter of 2006, Gateway found itself in the number three position with 7.1 percent

of the market, selling almost the same number of PCs as it had the previous year.Toshiba moved into the number four spot ahead of Apple, capturing 5.3 percent ofthe market compared with 4.2 percent during the last quarter of 2005. Apple is inthe number five position, moving from 3.7 percent market share to 5.1 percent.

Apple was the leader in terms of US market share growth during the fourth quarter,moving 30.6 percent more computers than it did the previous year. Toshiba was


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second with 22.3 percent, HP third with 16.0 percent, while Gateway and Dell sawnegative growth of -1.1 percent and -17.3 percent respectively. Overall, US PCmakers shipped 3.2 percent fewer machines than they had a year previously.


Aside from Dell's big slide and the strong growth of some of its competitors, thebig story during the last quarter of 2006 was pricing. Most of Dell's competitorsgained ground with aggressive discounting, but the low prices were aimed atsomething other than the competition. "In the consumer market, the PC industrybattled for wallet share against other consumer electronics products, such as gameconsoles and flat panel TVs," said principal analyst Mikako Kitagawa of GartnerDataquest's client computing markets group. Some of the price cutting was alsointended to convince consumers to buy PCs during the holiday season instead of

waiting for Vista's launch at the end of this month.

2007 should bring more of the same in terms of growth, and Dell shouldn't expectpressure from the competition to relent at all. The launch of Vista at the end of themonth may spur the market a bit throughout the year; whether it will prove to beenough to reverse the overall decline in the US remains to be seen.


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Price: Dell's product pricing reflect the affordability of the local consumers.

For example basing plants in Xiamen, China Dell has been able to provide

products and services at the local prices without incurring additional costs to

price. Price reasonability and the availability of support, after sales services and

parts have alleviate Dell's position from others

. Loss of Share to HP and Acer

Dell has lost significant market share in the notebook & netbook segment (18% in2005 to 12.0% in 2009) to HP and Acer. Declines will likely continue goingforward due to continuing competitive pressures, particularly in lower priceddesktops and notebooks where competitors with well-recognized brand names (likeHP, Acer etc.) offer aggressively priced products and more relevant feature sets.

2. Higher Average Prices for Dell Could Spell Additional Share Losses

Dells overall average selling prices have been higher than those of its competitors,which appears to be a conscious decision to realign its pricing strategy, concentrateon solution sales, and drive a better mix of products and services. The decision ishampering Dells top-line revenue growth, however, as consumers select morecompetitively priced Acer and HP products.

But Recent Sales Improvement Could Counter This Trend

Despite its recent loss of share to Acer and HP, Dell might be regaining itsposition. For Q310, Dell increased PC shipments by 9.3% over the same periodlast year (including notebooks, netbooks, and desktop computers) while HPs salesdeclined by 0.2% and Acers by 0.7% over the same period. [2]

Among the top five manufacturers, Dell, Lenovo and Asus saw solid growth whileHP and Acer dipped.

Potential Upside Scenario

We currently project declines for Dells share in notebook and netbook sales.

However, if Dell is able to counter this forecast and continue its recent salesimprovement trend, there could be a significant upside to the companys stock

value.


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To highlight this sensitivity, we estimate that a 3% increase in Dells market share

of notebooks & netbooks through our forecast period, vs. our current projection ofa 1% decline, would generate 10% upside to the $19.25 Trefis price estimate forDells stock.

NowDell is engaging the channel through distribution. In a deal signed twoweeks ago with Ingram Micro and Tech Data, Dell is offering 14 desktop andnotebook units from its business-class Vostro line through distribution giantsIngram Micro and Tech Data. Dell says solution providers can buy direct fromDell or through distribution. The benefit of buying through a distributor is havingone source for comparative brand pricing, a broad line of products for buildingholistic solutions and credit. Distribution, in theory, often offers better pricing thanwhat manufacturers charge end users, but slightly more than what solutionproviders can get direct from suppliers.

Dells pricing conflicts with the channel are nothing new. Dells 2002 attempt at awhite box program proved disastrous. The company offered solution providersunbadged Dell PCs for resale, but there were a lot of problems with the model.

First, the white box versions were often more expensive than Dell-brandedsystems. Second, the removal of the Dell label made the systems less desirable tocustomers. And third, Dell only offered a limited selection of low-end PCs to itspartners.

HasDelllearned its lesson about pricing products for the channel?

Since the computer manufacturer re-entered the channel nearly 18 months ago, itsdodged issues of conflict for what it offers registered partners for prices onproducts and what customers can find by shopping direct on Dells Web site.

NowDell is engaging the channel through distribution. In a deal signed twoweeks ago with Ingram Micro and Tech Data, Dell is offering 14 desktop andnotebook units from its business-class Vostro line through distribution giantsIngram Micro and Tech Data. Dell says solution providers can buy direct fromDell or through distribution. The benefit of buying through a distributor is havingone source for comparative brand pricing, a broad line of products for buildingholistic solutions and credit. Distribution, in theory, often offers better pricing thanwhat manufacturers charge end users, but slightly more than what solutionproviders can get direct from suppliers.

Dells pricing conflicts with the channel are nothing new. Dells 2002 attempt at a

white box program proved disastrous. The company offered solution providers
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unbadged Dell PCs for resale, but there were a lot of problems with the model.First, the white box versions were often more expensive than Dell-brandedsystems. Second, the removal of the Dell label made the systems less desirable tocustomers. And third, Dell only offered a limited selection of low-end PCs to itspartners.

Has Dell learned from the past and is the company really looking to equip itspartners with competitively priced systems that cant be under-sold by Dell.comand the company's many competitors? Channel Insider checked out the prices ofthe new Vostro systems sold through distribution against the prices of comparablesystems available direct fromDell andfrom Dell competitors.

Dells foray into the distribution model consists of the companys Vostro product

line, with approximately 14 desktops and notebooks available. The Vostro product

line is aimed at business users and sport mid-level features and performance.Vostro should have particular appeal to the small business user due to affordablepricing and competitive software bundles.

Dells price leader via distribution is the Dell Vostro 220 desktop, which has an

MSRP of $469.99. Tech Data is offering the Vostro 220 (P/N 464-2127) for$451.21. That system comes with a Core 2 Duo E7300 (2.66 GHz) CPU, 1 GBRam, 160 GB Hard Drive, DVDRW (R DL) optical drive, GMA X4500HDvideo, Gigabit Ethernet and Windows Vista Business with an XP Pro downgradeavailable.

An equivalent system available from Dell Direct prices at $478, just a few dollarsmore than the MSRP of the distribution-level system. Interestingly, building thatconfiguration at Dell.com generates a warning that 1 GB of RAM isnt enough forWindows Vista Business edition.

While on the surface, it looks like Dell is taking the right approach in regards topricing for the channel, but one needs to consider Dells frequent specials and

offers. For example, Dell.com is currently offering a Desktop Deal Vostro 220s

equipped much the same as the distribution system, with 2 GBs RAM and a 19-inch LCD monitor included for $559. Solution providers buying throughdistribution are going to find it difficult, if not impossible, to compete with thatoffering.

Those looking to compete with Dells pricing may turn to Lenovo or Hewlett-Packard for similarly equipped systems. Lenovos ThinkCentre A57 9702, when

equipped similarly to the Vostro, costs about $470; an HP Compaq Business
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Desktop dx2400 costs about $540. This shows that on the bottom end, Dell canbeat most other vendors when it comes to basic pricing.

On the other hand, system builders may be able to under-sell Dell by carefullychoosing components. For example, a system builder should be able to build acomparable system for about $435 using an Intel E7300 CPU, Intel DG31Motherboard, Antec case/PSU, Maxtor 160 GB hard drive, Corsair RAM, Lite-onOptical drive, generic keyboard, mouse and Windows Vista Business Edition.

Comparing notebook computers is a little easier. Here, Dell offers a Vostro 1510Notebook (P/N 464-3400) for $747.55 through Tech Data. That unit has a MSRPof $892 and features a 2.1 Ghz Intel Core 2 Duo T8100 CPU, a 15.4-inch display,2 GBs RAM, 160 GB hard drive, DVDRW optical drive, GMA X3100graphics, gigabit Ethernet, 802.11b/g wireless, biometric fingerprint reader and

Windows Vista Business with XP Pro downgrade available. On Dells Web site,the T8100 CPU is not offered on the Vostro 1510, forcing buyers to select theT7250 CPU. That said, the Dell Direct Vostro systems come with 3 GBs RAM andcan be configured pretty much the same otherwise. Dell.com prices the similarlyconfigured Vostro 1510 at $780, slightly more expensive than the distributionversion of the notebook.

At this time, Dell did not have any Dell Deals on the Vostro 1510, meaning thatuntil a special offer develops, the best place for a solution provider to buy theVostro 1510 is through distribution.

Of course, Dell is not the only notebook manufacturer. Toshiba offers a similarlyequipped Satellite Pro S300 for $799 and Lenovo offers an SL500, with a P7370Intel CPU (2.0Ghz) for about $680a bit cheaper than Dell, albeit with a slightlyslower processor.

In our tests, Dells pricing against both distribution and competitors either doesnt

conflict or is within a reasonable variance. Even so, solution providers will have topay careful attention to Dells specials when pricing systems. Those not looking

to sellDell productsmay have some work cut out for them, where it may bedifficult to beat Dells prices feature by feature.

Prudential said Dell remains focused on correcting its consumer-pricing

strategy and optimizing earnings per share and cash flow, potentially at the
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expense of some revenue growth over the next few quarters and beyond.

The firm consequently lowered the fiscal 2006 revenue estimate for Dell to

$56.4 billion from $56.57 billion and lowered the fiscal 2007 revenue

estimate to $64.03 billion from $64.75 billion. It also lowered the pricetarget on Dell to $39 from $47.

Can Dell Computer conquer the world?

As PC sales slow worldwide, the Round Rock, Texas-based company has embarked

on a broad campaign to gain market share by cutting prices, according to analysts.

In the past, the company focused on keeping profit margins high, leading to

strong profitability, robust revenue growth and relatively high average selling

prices on its PCs. Now, with the maturation of the PC market, Dell is undercutting

competitors in price to rapidly gain market share.

But the short-term cost to Dell could be high: reduced profitability.

"It's very apparent that in the last quarter Dell traded profitability for market

share,"IDCanalyst Roger Kay said Friday. "It was very deliberate."

Dell iscurrentlythe No. 2 computer maker worldwide, with 12 percent market

share. And it's the No. 1 PC maker in the United States, with 16.9 percent market

share.

Analysts now expect Dell willpassCompaq Computer as the No. 1 worldwide PC

maker during the first quarter.

The short-term results of the price-cutting are apparent.

Making life miserable

Dell's pursuit of market share puts many competitors in a defensive position,

according to analysts.
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"Dell has a way of making life more miserable for people who are already in a bad

way," Kay said. "For example, when Compaq, HP or some other another company

has a big inventory of imminently aging equipment hanging in the wrong place,

Dell has a habit of dropping prices and making that inventory even more

valueless."

Smaller companies will face even greater problems and may have to face the

ultimate question of whether to continue to participate in the PC market.

Far worse for competitors may be Dell's determination to undercut them in price

in higher-margin products like servers and storage systems.

"The aggressive pricing environment in PCs is now spilling over into the enterprisemarket with Dell pricing its high-density rack servers at sub $1,000 and NAS

(network attached storage) products at 6 cents per megabyte," Kumar noted.

Dell (NSDQ:Dell) is squeezing itself with its hyperaggressive price cuts,and mounting pressure from Hewlett-Packard (NYSE:HPQ), Lenovo andsystem builders could force the direct PC giant to take a different strategy,channel executives and industry analysts say.

Dell isn't necessarily the lowest-cost computer provider at thetableanymore, and that factor contributed to the companys announcement Tuesdaythat it expects to miss earnings estimates for its most recent quarter,partners said.

They are getting banged by HP and others in certain accounts, said onesolution provider who partners with Dell in public-sector accounts.

Dells model was to go out and underbid competitors and then raise themargins over time," said the solution provider, who requested anonymity.

"But a lot of accounts no longer have long-term contracts and just keepbidding deal by deal, and Dells chance of raising margins down the roadisnt happening. Lenovo and HP are starting to match them on price, sothey are getting squeezed.

Dells different pricing strategy
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In an attempt to gain more market share, Dell Inc. decided to leverage itscost advantage and initiate aggressive price competition in late 2000. The marketleader slashed prices up to 20%, forcing competitors either to follow suit or losesales. Several computer markers matched Dells prices at the outset, but could not

afford to continue the battle beyond a few months. Most of the competitors wereforced to lay off employees. By late 2001, the market share of Compaq, HP, andGateway had eroded, whereas Dells share increased by almost one-third. Prior tothe price war, Compaq was the market leader and had been aggressively cuttingprices as well as reducing its inventory and increasing its direct-sales efforts.Unable to keep up with Dell, Compaq was acquired by HP in 2001.

HP and IBM originally declared the price war irrational, electing to

concede market share rather than lower prices and harm profitability. However, HP

changed its tune when it dropped prices two years later in an attempt to win backmarket share. HP was willing to concede profits on PCs in order to sell peripheralequipment, such as printers. Its PC profit margins hovered around 1%, compared toa remarkable 8% for Dell. Kevin Rollins, the successor to Michael Dell as CEO,complained that HP tactics were going to result in unprofitable growth in anunsustainable to protect tangentially related business. Industry-wide PC prices fellby 9% in the first 9 months of 2003 but quickly relinquished the lead again in2004. And IBM exited the desktop and notebook PC business, selling the large

majority of its operations to a Chinese firm, Lenovo. By 2005, Dell Inc. wasselling one-third of all the PCs, notebook, and servers in the U.S. and one-sixth ofall those sold globally. In Fortune magazines compilation of the most admiredcompanies that same year, Dell was #1 in America and #3 in worldwide.

Dells pricing strategy to earn greater market share

As PC sales slow worldwide, the Round Rock, Texas-based company hasembarked on a broad campaign to gain market share by cutting prices, according to

analysts. In the past, the company focused on keeping profit margins high, leadingto strong profitability, robust revenue growth and relatively high average sellingprices on its PCs. Now, with the maturation of the PC market, Dell is undercuttingcompetitors in price to rapidly gain market share. But the short-term cost to Dellcould be high: reduced profitability. "It's very apparent that in the last quarter Delltraded profitability for market share," IDC analyst Roger Kay said Friday. "It wasvery deliberate." Dell is currently the No. 2 computer maker worldwide, with 12
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percent market share. And it's the No. 1 PC maker in the United States, with 16.9percent market share. Analysts now expect Dell will pass Compaq Computer as theNo. 1 worldwide PC maker during the first quarter. The short-term results of theprice-cutting are apparent. On Thursday, Dell missed its lowered fourth-quarterestimates by a penny. At the same time, operating margins fell to 18 percent from21.3 percent in its third quarter. Dell also lowered first-quarter revenueexpectations to $8 billion--an eight percent drop from the fourth quarter--thecompany's first-ever sequential revenue decline. During a Thursday conference callwith the media, Kevin Rollins, one of Dell's two vice chairs, said the company inthe short term would continue to pursue market share over profitability
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