Channel of Distribution Analysis of Dell & HP.
I. Executive Summary.
Channels of distribution are critical to the success of a manufacturer. A well designed channel creates time, place and ownership utility for the consumer and can augment the manufacturer's product. Distribution channels may move product directly from the manufacturer to the consumer, or make use of intermediaries between the manufacturer and the consumer.
This report consists of two parts: Part 1 explains some of the major concepts relating to distribution channels, and Part 2 relates the findings of a case study of the computer industry. The first section of the case study explores Dell's use of direct channels and Compaq's use of indirect channels in Canada. We will see how Dell uses the direct model to easily allow the customization of computers for consumers, and how the direct model allows Dell to operate with very little inventory through the use of a just-in-time inventory system. Compaq uses indirect channels to utilize the ability of its wholesalers to efficiently move its computers from its manufacturing plant to retailers where customers expect to be able to shop for computers.
The second section of the case study focuses on how emerging economies differ in terms of direct and indirect distribution channels with respect to Canada. In terms of extending its products to emerging economies, Dell believes that its direct model is adequate to work in any country. However, some cultural issues need to be assessed prior to implementing its channel model. In terms of indirect distributors, the Indian personal computer (PC) market has revamped its channel relationships to focus on national and regional wholesalers and reducing its use of local wholesalers. The Indian PC wholesalers erred in assuming that distribution to rural parts of the country would succeed. They did not consider the other parts of the marketing mix in their distribution strategy; for example, having a product available in a market will only translate to sales if the
Channels of distribution are critical to the success of a manufacturer. A well designed channel creates time, place and ownership utility for the consumer and can augment the manufacturer's product. Distribution channels may move product directly from the manufacturer to the consumer, or make use of intermediaries between the manufacturer and the consumer.
This report consists of two parts: Part 1 explains some of the major concepts relating to distribution channels, and Part 2 relates the findings of a case study of the computer industry. The first section of the case study explores Dell's use of direct channels and Compaq's use of indirect channels in Canada. We will see how Dell uses the direct model to easily allow the customization of computers for consumers, and how the direct model allows Dell to operate with very little inventory through the use of a just-in-time inventory system. Compaq uses indirect channels to utilize the ability of its wholesalers to efficiently move its computers from its manufacturing plant to retailers where customers expect to be able to shop for computers.
The second section of the case study focuses on how emerging economies differ in terms of direct and indirect distribution channels with respect to Canada. In terms of extending its products to emerging economies, Dell believes that its direct model is adequate to work in any country. However, some cultural issues need to be assessed prior to implementing its channel model. In terms of indirect distributors, the Indian personal computer (PC) market has revamped its channel relationships to focus on national and regional wholesalers and reducing its use of local wholesalers. The Indian PC wholesalers erred in assuming that distribution to rural parts of the country would succeed. They did not consider the other parts of the marketing mix in their distribution strategy; for example, having a product available in a market will only translate to sales if the
References: CMP Media LLC. (2005). "Compaq CEO Bets the Company on the Indirect Channel." [online]. Available from: http://varbusiness.com/sections/98pages/pfeiffer.jhtml, July 10, 2005. Darrow, Barbara. Zarley, Craig. (1991)."Compaq 's Distributors." [online]. Available from: http://www.crn.com/sections/breakingnews/breakingnews.jhtml?articleId=18828735&, July 7, 2005 Farhoomand, Ali F Indian Express Group (2002). "Technology Channels Keeping with the Times." [online]. Available from: http://www.expresscomputeronline.com/20020325/channels.shtml, July 8, 2005. Jones, Kathryn. "The Dell Way." Business 2.0, Feb 01, 2003 Lapide, Larry McCaffery, Richard. (1999). "Compaq Gets Lean With Distributors." [online]. Available from: http://www.washingtontechnology.com/news/14_4/federal/546-2.html, July 7, 2005 Pelton, Lou. Strutton, David. Lumpkin, James. "Marketing Channels: A Relationship Management Approach." McGraw-Hill Irwin, 2002. Ramstad, Evans. "Computer Savvy: For Dell, Success In China Tells Tale Of Maturing Market" The Wall Street Journal, July 5, 2005 Rangan, V