Ch. 3Ch. 3Building and Editing the Channel Value Chain I: Building and Editing the Channel Value Chain I:

The Key PrinciplesThe Key Principles

I. Industry: PC ; Company: Dell

1984 1988 1994

Direct

Dealer/VAR/SI

Retail

25%

70%

5%

24%

68%

8%

18%

58%

24%

Total Units 7.7Million 9.23Million 15.60Million

Table 3-1: PC Channel Share in the U.S.

Ch. 3Ch. 3Building and Editing the Channel Value Chain I: Building and Editing the Channel Value Chain I:

The Key PrinciplesThe Key Principles

2001 2003 2005

Direct inbound

Direct outbound

Internet Direct

Dealer/VAR/SI

Retail

Others

23%

18%

8%

28%

19%

5%

19%

23%

13%

22%

20%

4%

17%

25%

12%

20%

21%

4%

Total Units 46.07Million 52.70Million 64.14Million

Table 3-2: PC Channel Shipment Share in the U.S.

Ch. 3Ch. 3Building and Editing the Channel Value Chain I: Building and Editing the Channel Value Chain I:

The Key PrinciplesThe Key Principles

II. More than Timing: Secret of Dell’s Success 1. Ability to Time the Market 2. Very Tight Configuration of Value Chain (Supply Chain and Demand Chain)

III. How Dell Builds and Edits the Channel Value Chain 1. Value creation starts with the customer. 2. Benchmark offerings against key competitors 3. Channel capabilities and demand chain requirements influence each other.

Ch. 3Ch. 3Building and Editing the Channel Value Chain I: Building and Editing the Channel Value Chain I:

The Key PrinciplesThe Key Principles

Principle 1: Value creation starts with the customer. 1. Need for market segmentation = SOD ex) Dell: Transactional or Relational

Principle 2: Benchmark offerings against key competitors - Calibrate your capabilities and costs ex) Dell: Foray into retail in early 1990s

Ch. 3Ch. 3Building and Editing the Channel Value Chain I: Building and Editing the Channel Value Chain I:

The Key PrinciplesThe Key Principles

Principle 3. Channel capabilities and demand chain requirements influence each other. ex) Dell: Need to target large companies for growth Chip sets by Chips & Technologies; Premier Pages

Translating Principles 1. Dell is a masterful retailer. Do you agree?

2. Your intermediaries are your customers? Do you agree?

Ch. 4Ch. 4Building and Editing the Channel Value Chain II: Building and Editing the Channel Value Chain II:

A Framework for Getting StartedA Framework for Getting Started

Six-step Framework (example: Alpha Company)

Step 1: Start from the perspective of the end-user customer.

Step 2: Prioritize and segment customers by demand-chain needs.

Ch. 4Ch. 4Building and Editing the Channel Value Chain II: Building and Editing the Channel Value Chain II:

A Framework for Getting StartedA Framework for Getting Started

Six-step Framework (example: Alpha Company)

Step 3: Measure the (current) channel’s capability to serve those needs.

Step 4: Benchmark key competitors. Customers’ Other options

Ch. 4Ch. 4Building and Editing the Channel Value Chain II: Building and Editing the Channel Value Chain II:

A Framework for Getting StartedA Framework for Getting Started

Step 5: Configure and evaluate new capabilitiesThat address customers’ needs.

Step 6: Evaluate alternative channel options and shape one that best fits the insights from the prior steps.

Ch. 4Ch. 4Building and Editing the Channel Value Chain II: Building and Editing the Channel Value Chain II:

A Framework for Getting StartedA Framework for Getting Started

Three Archetypes of Channel Systems

1.Vertically Integrated

2.Third-party delegated

3.Composite (Partially Integrated)