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Saturday, February 05, 2005

Dell - Don't Give Way For The Niche Players

Nicholas Carr writes, "Dell shouldn't dismiss Apple's design driven success" .Markets historically evolve past commoditization to value style and special features. Excerpts with edits and my comments added:

Until now, Dell has been able to use pretty much the same strategy in selling computers to consumers as to business buyers: Offer functional, standard machines at cutthroat prices. Focus relentlessly on cutting supply-chain costs – like the classic Model T strategy. Like Dell with PCs, Ford Motor came to dominate the car market a century ago by turning the automobile into a cheap, mass-market product.and beating competition by operational efficiency. By the early '20s, sales of Ford's drab but well-built Model T surpassed those of all other U.S. auto makers combined. As consumers began to take cars' basic functions for granted, they started seeking a little pizzazz in their vehicles. An unadorned black roadster was no longer enough - everyone suddenly wanted a stylish set of wheels. Niches proliferated. Fashion mattered. General Motors President Alfred P. Sloan saw the change coming. Popular consumer products, he understood, tend to evolve through three phases:
Phase I: They start out as luxury goods, expensive to produce and pitched to a small, elite market.
Phase II : As maturing technologies and economies of scale drive down manufacturing costs, they become mass-market commodities.
Phase III : Once they're established as affordable necessities, consumers start looking beyond the price tag for distinctive designs and features. Form begins to trump function.

While Ford continued to churn out one-size-fits-all Model Ts, GM introduced a string of attention-grabbing Chevrolet models with smart new features. It also began tweaking its models every year, following the lead of clothes designers. By 1926, Chevrolet was stealing market share from Ford. By 1927, Chevys were actually outselling Model Ts. The market had gone, to use Sloan's terms, from "mass" to "mass class." A similar shift is looming in the home computer market. Now that basic computing functions are mature and well-established, consumers can be expected to start demanding a higher fashion quotient in their digital devices - just as they do for other commonplace appliances like refrigerators, TVs, coffee makers, and speakers. Buying just another colorless box will become steadily less appealing. The market is already showing early signs of such a transformation. After years of erosion, Apple's market share is beginning to grow again, thanks to distinctive products like the iMac, iBook, and, yes, Mac mini. As computers keep moving from home offices into living rooms, the demand for sleek, striking designs will only grow.
Finally in 1927 ford announced it was discontinuing the Model T and would close down its main factory in order to revamp it for a new line of more attractive models. But the carmaker's glory days were over. It would never again come close to dominating the market the way it had just a few years before. Ford's fall stands as a cautionary tale for all companies that have thrived by riding the commoditization wave of a new consumer product. If Dell wants to continue to rule in the home as well as the workplace, it may need to class up its act. Rather than dismissing fads, Dell should try starting a few.
My Take :I think that this is all the more important in the technology industry when three more additional factors come into interplay:

A. Fast advancing technology
B. Dropping prices
C. High level of innovation and newer products getting developed due to
intersection and convergence
D. Truly global industry
E. Very high market potential for penetration and replacement
F. Relentless efforts to bring low cost PC like negroponte's low cost PC

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
"All views expressed are my personal views are not related in any way to my employer"