28-Dell Slips at the High End

Two years ago, Dell bought Alienware, the leader of the game-oriented personal computer business. Game-oriented PCs are the high-end of the market. They usually sell for several times the price of the average PC. A game-oriented PC is a Performance Leader product (see “Why Do Leaders Lead?” in the Tools/Perspectives section of StrategyStreet.com). In the computer hardware business, the differentiator at the high end of the market is Functionality. This Functionality includes both design and computing capability. If you have these two functional benefits, you can generate word-of-mouth among buyers and become a hot product.

Dell has slipped in this market. The Alienware products had to compete inside Dell with Dell’s original high-end line, called the XPS. The market has not been impressed.

There is not much surprise in this development. If a Standard Leader takes over a Performance Leader product, normally it adds value by maintaining good Functionality while reducing the Price. The Standard Leader creates a good Performance Leader value proposition by using its economies of scale to offer more Convenience at a lower Price, with Functions “good enough” to appeal to most of the Performance Leader customers. As an example, see Toyota’s Lexus product in the early 90s.

Most of the time the Standard Leader’s high-end (i.e., Performance Leader) product competes against smaller Performance Leader specialists, who offer somewhat more Functionality but at a much higher Price to make up for their higher unit costs. Often, they fail to thrive under the onslaught of the “good enough” Performance Leader products from the bigger Standard Leaders.

Dell was not able to maintain a high level of Functionality and did not put price pressure on the other, much smaller, high-end competitors. Where was its value in the market?

Posted 6/12/08

Update:

According to Statista, since reaching a high of more than 360 million units shipped in 2011, the PC market has declined every year since then to 2019. Major vendors like Dell, Lenovo, and HP have managed to keep their unit sales steady and managed to increase their market share in this period of declining shipments. However, the pandemic made the years 2020 and 21 banner years for the PC industry. Worldwide sales have recovered to close to 350 million unit.   In the fourth quarter of 2021, Dell shipped 28.5 percent of all PC units in the United States, an increase from the 26.1 percent share that the company held in the third quarter of 2021. Dell’s market share in the United States peaked at 31.7 percent in the first quarter of 2020.  Dell ranks third in the worldwide market. Lenovo leads the market, followed by HP at number two.

The Alienware product is considered one of the best on the market.  The high end gaming PC sales have grown from $10.7 billion in 2015 to $18.5 billion in 2020.  Dell’s sales in 2022 exceed $100 billion.  The consumer client solutions group had sales of nearly $16 billion in 2022  Dell suffered operating losses from 2016 through 2019 but has recovered profitability in 2020 through 22.  The Dell Alienware product in 2022 is a high-performing, quality built and well-designed product whose pricing is at the high end of the market.  It also has a good reputation for customer service.  It is a clear leader in the industry.

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