A careful customisation of products for each market segment has propelled Dell to the third place in India in a short six years.
Some time in August, Dell launched its Latitude E series of notebooks. It was an important event and it chose three cities to showcase the new line: London, San Francisco and New Delhi. In New Delhi, the job was done by none other than chairman Michael Dell.
Dell, actually, was on holiday in India around that time, before leaving for Beijing to see the Olympics. That he decided to break his holiday and cut the ribbon speaks the importance of India in his scheme of things.
Second to Hewlett-Packard in the global sweepstakes, Dell has consolidated its position in the Indian personal computers (desktops and notebooks) market. It has overtaken Lenovo in the last few quarters and now ranks third after Hewlett-Packard and homegrown HCL. Its market share for the April-June quarter was 9 per cent (see table on page 2).
The Indian market for personal computers is more or less equally divided in three segments:
Institutional buyers, retail and small and medium enterprises. Instead of one-fit-suits-all,
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Dell has devised a separate strategy for each of the three segments.
Institutional market
Dell claims it is the leader in this segment with a share of 19.9 per cent. Six years ago, when Dell came to India, it decided to leverage its association with about 140 global companies to sell its desktops and notebooks. Several of these companies were headquartered in the US where Dell lords it over almost 50 per cent of the market. This helped Dell gain a foothold in the market.
Subsequently, Dell identified the information technology and IT-enabled services segment as its next engine of growth — large buyers of personal computers, though analysts say they pay nothing but rock-bottom prices. The wager was not misplaced. On an average, this sector has grown 35-40 per cent in the last five years.
Dell India has over 6,000 institutional customers now, compared with a mere 140 six years ago. Garde calls it the “relationship” market. He has a sales team of 350 focused on these customers and does not rely on independent dealers — the margins paid to them can add up to as much as 20 per cent. This perhaps gives Garde and his men enough cushion to offer better prices.
And what is Dell’s sales pitch? “Nobody offers customisation like we do in the given lead time,” says Garde, adding: “This is the power customers want.” Dell offers its customers a facility called Customer Factory Integration. Instead of the customer’s engineers putting images on each machine, Dell offers to burn it on each hard disc before shipment. This saves the company time and resources.
Not too impressed, a Hewlett-Packard executive says no other company has the breadth of products, channels or geographical coverage as Hewlett-Packard. “We have the ability to compete with other players under Hewlett-Packard’s global umbrella that stands for quality, business innovation and technology. We compete with a completely different set of competitors in consumer, commercial and entry level spaces.”
Dell may be strong in this segment but its rivals say too much dependence on it may backfire in the days to come. The economic meltdown is expected to slow growth in the segment and put a squeeze on profit margins. The signals are already there - growth in personal computer sales fell from 10 per cent in the first quarter of 2008 (January-March) to 8 per cent in the second quarter (April-June).
Garde is not too worried: “I personally met 50-60 CIOs in three cities recently and not one of them said IT spends would be cut. The mandate from CEOs is to improve productivity and get more out of the IT spend. They want to buy machines that consume less power and take less space."
Still, Dell has hedged its bets and has devised strategies for other segments as well.
Retail/consumer
At the moment, notebooks comprise about 30 per cent of this market, while the rest is desktops. It so happens, while desktop sales have been flat for a while, notebooks are growing at a blistering pace. All agree that the 20-25 per cent annual growth in this market is totally driven by notebooks. So much so, by the end of 2009, notebooks are projected to overtake desktop sales in the country.
And this is the core of Dell’s strategy for this segment. Unlike desktops, the brand plays a key role in notebook sales. Since they move around with notebooks, customers are conscious of what they are seen with — just like mobile phones. Thus, aesthetics, colour, size and looks play a crucial role in the purchase decision of customers.
Dell claims it offers more options than others on all these parameters. It recently started promoting its notebook battery which purportedly runs for 19 hours. Hewlett-Packard has since come out with a battery which, it claims, can run for 24 hours!
This theme plays on Dell’s communication strategy as well. To drive home the colour options, all the print advertisements it puts out are in colour. And while rivals Compaq, Acer, Lenovo and Toshiba have got Bollywood stars Shahrukh Khan, Hrithik Roshan, Saif Ali Khan and Vidya Balan, respectively, to endorse their brands, Dell has deliberately stayed away and focused its campaigns on personalisation of its products.
It seems to have paid off. A survey carried out by Clark, Martire and Bartolomeo, Inc in February this year showed that Dell had a high brand recall amongst customers in India, who associate it with high values, technology and customer focus.
That might be fine, but Dell still needs to reach its products to customers all across the country. Dell’s model of taking orders online only is going through some serious innovation and alteration in India, given the low internet penetration of less than 5 per cent in the country. Abroad, too, Dell products are now available in super markets.
Thus, Dell has tied up with 600 systems integrators all over the country who can take orders on its behalf. It will open shop-in-shops at Chroma, the Tata-owned electronics retail chain. Four are already up and running and more will follow. Customers can see the full range of Dell products here and place orders. For those who want a machine off the shelf, Dell products are also available at some retail stores.
Something more could be in the offing. In a pilot, the company has identified opinion leaders in some engineering colleges who will push their products. Bhalla is tight-lipped, but clearly more such experiments could happen in the near future.
The market could grow further if Dell offers finance options to its customers. Globally, Dell does have a finance arm called Dell Financial Services. But, in India, the company has refrained from any tie-up with a consumer finance company, though it has come up with such schemes on and off. Bhalla says that the cost of giving such an option is a deterrent. Clearly, he is not prepared to take a hit on his margins to gain market share.
| DELL'S PC MARKET SHARE IN | ||
| India | Q2, 2008 | Q2, 2007 |
| Total | 9.00% | 5.30% |
| Notebooks | 15.60% | 8.00% |
| Desktops | 6.30% | 4.50% |
The market is indeed competitive. Dell prices, on an average, are about 10-15 per cent above those of its rivals. Bhalla claims Dell packs more features in its machines than others at similar price points. Maximum sale, he adds, are congregated and the mid- and top-end models.
Sector experts are upbeat on Dell. Gartner Principal Research Analyst Diptarup Chakraborti expects Dell to overtake HCL in the desktop segment too by next year, courtesy its aggressive push in the consumer segment.
Small and medium enterprises
All told, there are about 7 million SMEs in the country. Out of these, about a million use information technology. Their annual spend on IT hardware is around Rs 13,000 crore. This market, industry experts will tell you, has a long tail. A large number of users are rapidly hooking on to information technology. This makes it an exciting market for hardware companies like Dell, though its current market share is really small — just 3.2 per cent.
Dell realised at the beginning that this market was different: small businesses had limited budgets and needed rugged products which could work under all circumstances. Most users in this segment were first-time users and wanted simple machines. Keeping this in mind, Dell introduced some four weeks ago its Vostro series — products developed specifically for emerging markets, especially China and India.
Normally, SMEs do not have their own dedicated IT staff and their orders are small — from one to about a 100 machines, though the average would be around 10. It is an expensive proposition for them to look after the maintenance of the machines on their own. So, Dell offers them full service support on its own and does not outsource this critical function. Moving forward, it might appoint some channel partners in upcountry markets to handle the service.
Most companies have a large number of dealers in each city. According to Gupta, this leads to intense competition and most dealers end up with a loss or wafer-thin margins. “Nobody makes enough money if there is over-distribution. The channel partners don’t get adequately compensated and the customers get confused,” adds Gupta.
As a result, Dell has decided not to appoint more than a handful of dealers in each city. There’s another benefit that flows in: Dell need not maintain multiple inventories in each city. Will that be enough to make it leapfrog ahead of rivals?
| WAITING FOR VENDORS Globally, Dell is an aggressive price warrior. It gets the elbow room to play with prices from its acclaimed supply chain. It starts production of a machine only after the order has been placed. As a result, its inventories are almost zero at any point in time. Stocks are kept by the vendors who supply it to Dell factories “just-in-time”. |
Though it has set up a manufacturing facility near Chennai, the supply chain is yet to take form here. Out of the 50 acres it owns, Dell has built on just 8-10 acres and left the rest to its global vendors. None has come so far. “The market in India needs to show hyper growth of over 25 per cent per annum for the next 5-10 years for these vendors to come,” says Garde.
The upside is clear: once its vendors too set up shop in Chennai, the real supply chain efficiencies will kick in for Dell. Till then, it has to leverage the efficiencies and economies of its global supply chain.
Meanwhile, Dell is globally flirting with the idea of outsourcing production to low-cost suppliers, especially in Asia. Several of its rivals already do that and a final call is expected to be taken soon.