Abstract

Improving Channel Management, Adjusting to Regional Characteristics

With the expansion of Dell's distribution sales, it can be expected that advantages and disadvantages of the co-existence between direct sales and distribution sales will gradually become evident. As for the consumer-end, the multiple channels will lead to more diverse and flexible choices for customers, and will provide a direct stimulus for Dell's sales volume. However, regarding distributors, there will be customer source conflicts, and concerns regarding internal price competition. How Dell designs models whereby all channel types generate reasonable profits and capture channel players' brand loyalty will directly impact Dell's performance in retail sales. Therefore, Dell needs to have detailed market segmentation and comprehensive policies in its main sales channels and after-sales service provision in order to maintain strong operations.

Furthermore, due to differences in terms of basic infrastructure and IT knowledge, each region differs in terms of consumers' reliance on distribution channels and their purchase models. Channel management thus needs to be adjusted according to the local characteristics of each market. For example, in emerging markets, using regional distributors is an important way of expanding sales in third- and fourth-tier cities and expanding vendors' market shares, due to these distributors' advantages in terms of local knowledge and their existing networks. This is also one of the major factors in Dell's aggressive expansion of the Partner Direct program.

Dell's use of marketing resource subsidies to replace the discount method does not have any significant benefits for distributors with their own specific client base. Meanwhile, periodic checks of its processes and technologies increase administrative costs for these companies. Therefore, it is important for the company to find ways to attract channel companies and provide benefits for SI/VAR companies.

Brand Re-positioning

With corporate IT spending becoming more cautious, the growth momentum in the consumer PC market is still a focus area of major PC brand-name vendors. However, PC product lifecycles are becoming mature, and the segmentation in terms of performance of consumer models is becoming less clear. Therefore, identification with brands and the price implications this has, as well as customer loyalty, are becoming important factors impacting vendors' profit performances.

Besides Dell's focus on the consumer notebook PC market, HP has re-positioned Compaq in mid-range to low price ranges and with a focus on young consumers. The company hopes to rekindle consumer interest in Compaq through Compaq's past brand characteristics including youthfulness and consumer features. Lenovo aims to adjust the structure of customer revenue. While expanding its consumer PC market operations, it resolutely abandoned the IBM brand and renewed its market efforts with Idea Pad. Using dual brands and trying to lessen the enterprise image of its products highlight these vendors' efforts to capture a larger share of the consumer market.

Brand value, besides affecting consumer purchases of products with mainstream specifications, also has significant importance in the high-end market, where consumers' identification with brands is a key factor in their purchasing decisions. Dell, therefore, expanded its marketing efforts for the Alienware brand.

Brands to Rely Even More on Channel Partners and Contract Manufacturers for Gray Markets

In distribution channel management, Dell has aggressively tried to lower costs related to conflicts between different levels. This leads to more competitively priced end-products. Acer, which is strong in distribution operations, lets its ODM/EMS partners ship directly distributors, and with revenue sharing, it reduces administrative costs related to supervision of end-market channels. Brands, while relying on distribution channels, also try to streamline channel structures. Besides lowering management burdens, this also enables vendors to rapidly react to changes in end-market demand.

Regardless of retail point deployment or technology and marketing resource subsidies, and making its commercial partners official collaborators, all these actions aim for expansion into third- and fourth-tier cities, and even fifth- and sixth-tier cities. This could enable vendors to overcome hurdles such as economic development levels and basic infrastructure. White-box and gray markets are particular focus areas of vendors in this regard. Besides using pricing strategies, channel operations are also used to better serve customers and strengthen product lines in each market segment. Data on channel sales and special specifications will become important references for vendors' future product design.

At the same time, as branded vendors gradually close down their own production capacities, and aggressively develop diverse product mixes, time-to-market considerations will force vendors to rely even more on ODM and EMS companies, which possess rapid mass production and design capabilities and global shipment capabilities. After-sales services which in the past were handled by local headquarters, which used a unified method for sending products out for maintenance, are gradually also outsourced to ODM and EMS companies. For contract production companies, besides having to deal with customized demand, they also have to face increased challenges in terms of after-sales service provision for products featuring shorter time-to-market. Local PC brands have dense networks, and can complete repair services within short periods of time. Whether contract manufacturers will be able to provide similar after-sales services will be an important factor in major brands' efforts to expand their share of gray markets.

Appendix

List of Companies