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Authors:Akiko Yamamoto Alhagsvgen 48 145 59 Norsborg Stockholm Tel.: 0735054312 Tutor: Leif Sanner Title: Global introduction of new products Case Study of Dell Problem: In order to survive in the tough competition, firms face the difficult and vital challenge which is to introduce a new product into a global market efficiently. Even though a product itself has a fine features and functions, failure on the introduction and marketing operation can result an unsuccessful product. Therefore, the manager must identify an optimal introduction strategy according to the conditions the firm faces. Purpose: There are two objectives for this study. First objective of this study is to investigate Dells operation regarding to global introduction of new products such as segmentation approach, its influence on the choice of introduction strategy and efficiency of the strategy itself. Second is to provide empirical framework in the field of global introduction of new product (the choice of waterfall or sprinkler strategy), which lacks in the earlier research and develop a deeper understanding. Method: We have conducted a qualitative research in order to provide inductive view of the relationship between theory and research, and develop deeper understanding of our empirical data. We have gathered both primary and secondary data. Our primary data contains personal interview with the marketing manager, Ted Schnbeck from Dell Sweden, and this data was used to analyse our empirical data. Our secondary data contains books, articles, and internet sources. Those are used mostly to derive better theoretical frame work. Result: We have reached the conclusion that the choice of the strategy regarding to global introduction of new products varies on the conditions the firm is facing. Therefore the segmentation approach as a method to fully comprehend conditions surrounding the firm is significant. Our empirical data, Dell is not an exception. Dell uses both individual and diffusion based segments to identify its target market, and the choice of the strategy (90% as sprinkler, rest to be waterfall strategy). In other words, the efficiency of those strategies is influenced by several factors which also influence the result of segmentations. Our result from analysis concluded that the most of the theories introduced are appropriate in real business, but some has less significance compared to others. In addition, we have figured out the importance of the nature of the product and therefore, it should be included into the condition as well. Lin Hui Allmogeplasten 17 724 80 Vsters Tel.: 0762615846 Chen Bo Allmogeplasten 17 724 80 Vsters Tel.: 0736364876
Table of Content
1. Introduction...........................................................................................................................1 1.1 Background ........................................................................................................ .... 1 1.2 Problem description ............................................................................................... 3 1.3 Purpose.................................................................................................................. . 5 1.4 Research questions................................................................................................. 5 1.5 Target group........................................................................................................... 5 1.6 Delimitations.......................................................................................................... 5 2. Literature review ..................................................................................................................7 2.1 Three Segmentation approaches ............................................................................ 7 2.1.1 Country-based segmentation........................................................................... 7 2.1.2 Individual consumer-based segmentation....................................................... 8 2.1.3 Diffusion-based segmentation ........................................................................ 9 2.2 Targeting and sequencing .................................................................................... 13 2.2.1 Targeting ....................................................................................................... 13 2.2.2 Sprinkler vs. waterfall strategy ..................................................................... 13 2.2.3 Sequence of entry.......................................................................................... 14 2.3 Condition favoring sprinkler or waterfall strategy............................................... 15 2.3.1 Life cycle of product..................................................................................... 15 2.3.2 Cross country diffusion and lead affect ........................................................ 16 2.3.3 Foreign conditions favoring sprinkler or waterfall strategy ......................... 17 2.3.4 Competitiveness of the foreign market ......................................................... 19 3. Methodology ........................................................................................................................21 3.1 Choice of company .............................................................................................. 21 3.2 Research purpose ................................................................................................. 21 3.3 Research strategy ................................................................................................. 22 3.3.1 Reasoning for qualitative approach .............................................................. 22 3.3.2 Steps in our qualitative research ................................................................... 23 3.4 Data collection ..................................................................................................... 24 3.4.1 Primary data .................................................................................................. 24 3.4.2 Secondary data .............................................................................................. 24 3.5 Reliability and validity......................................................................................... 26 3.6 Methodology critique........................................................................ ................... 27 4. Empirical data.....................................................................................................................28 4.1 Company overview .......................................................................... .................... 28 4.2 Dells customer groups ........................................................................................ 29 4.3 Dells targeted countries ................................................................................... ... 31 4.3.1 Asian - Pacific and Japan (APJ).................................................................... 31 4.3.2 Europe, Middle East and Africa (EMEA)..................................................... 31 4.3.3 Americas ....................................................................................................... 32 4.4 Dells product....................................................................................................... 34 4.5 Foreign market conditions facing Dell ................................................................ 35 4.5.1 Growth of the foreign markets...................................................................... 35 4.5.2 Innovativeness in the foreign market ............................................................ 35 4.5.3 Dells Competitive environment................................................................... 36
5. Findings and Analysis.........................................................................................................38 5.1 Dells global market segmentation ...................................................................... 38 5.1.1 Individual Consumer-based segmentation approach .................................... 38 5.1.2 Diffusion-based segmentation approach....................................................... 39 5.2 Dells conditions favouring sprinkler strategy..................................................... 42 5.2.1. Product life cycle of Dell ............................................................................. 42 5.2.2 Size of foreign market................................................................................... 42 5.2.3 Speed of market growth in foreign market ................................................... 42 5.2.4 Fixed cost ...................................................................................................... 43 5.2.5 Competition in target markets....................................................................... 43 5.2.6 Target market ................................................................................................ 43 5.3 Dells conditions favouring waterfall strategy..................................................... 44 5.3.1 Size and the growth of the market ................................................................ 44 5.3.2 Economic factors .......................................................................................... 44 5.3.3 Innovativeness............................................................................................... 44 5.3.4 Nature of the product .................................................................................... 45 6. Conclusion ...........................................................................................................................46 List of References....................................................................................................................48 Books and Articles..................................................................................................... 48 Web pages.................................................................................................................. 5 0 List of Figures..........................................................................................................................51 List of Table.............................................................................................................................51 Appendix: Interview Guide....................................................................................................52 Questions for Dell ................................................................................... ............... 52
1. Introduction
1.1 Background
It is widely acknowledged that there is nothing more difficult than to initialize and implement an order of new things. The introduction of a new product is no exception (Hultink, 1995). For most firms, the introduction of new products is the primary engine of growth (Stremersch and Tellis, 2004). Together with the increasing competition, there is an increasing number of key industries such as automobile and motorcycle production, agricultural equipment, aerospace, military hardware, telecommunications, electronics and luxury consumer goods have become global in scope. Firms in these industries originate, produce, compete and market their products worldwide (Business Week, 1990). Products made by foreign competitors have now penetrated almost every market in the free world. For example, 39 percent of Japans total exports, 36 percent of Koreas, 81 percent of Mexicos come to the United States (Iacocca, 1987). Similarly, major U.S. companies in various industries, such as aerospace, computer equipment, oil field machinery, medical equipment, and chemicals, export a significant percentage of their products overseas (Business Week, 1990). In order to transform a companys capabilities into competitiveness, the key for a multinational firm is to transform global challenges into new opportunities in the emerging global market place, in other words, new opportunities are the continuous development and introduction of new products and other elements of the marketing mix (Keegan, 1989; Samiee and Roth, 1992; Jain 1989; Zou and Naidu, 1993; Harris, 1994). Many large corporations are already involved in international markets and hence are making entry decision in the context of an existing network of international operation. But for small and medium size businesses who have not yet entered international markets, entry decisions constitute a critical step on the path of internationalization (Douglas and Craig, 1992) In rolling out new products across global markets, there are two major issues facing firms. The first issue is the degree of standardization of the product across different countries and markets (Samiee and Roth, 1992). The second issue is entry strategy choice which attentions need to be paid to the timing and sequencing of entry into international markets relative to competitor moves and the stage of market development (Douglas and Craig, 1992). Traditionally firms prefer introducing new products firstly in the domestic market and later on to the foreign markets, this concept has been suggested and supported by earlier studies, based on the International Product Life Cycle notion (e.g., Wells, 1968) and the pioneering work of Ayal and Zif (1979) a popular model has been developed by Ohmae (1985, 1987, 1989) suggesting for the global roll-over is the hierarchical or the waterfall model. However, over the past 30 years, strong evidence has showed that companies are increasingly using a big-bang approach of simultaneous launches in different parts of the world instead of a sequential approach of gradually progressing from the home country into the world. This has been found and explained in earlier 1
studies coming from Ohmae (1985, 1987) and Riesenbeck and Freeling (1991). The sprinkler diffusion strategy advocated by Ohmae recommends a simultaneous world attack, it is suggested that the waterfall diffusion strategy, that has required a multinational firm to enter one market first before entering the other markets is a conservative strategy that has worked well in the past, but is no longer effective. The present research of ours therefore lays focus on global introduction of new products. In particular we consider choices of sequential and simultaneous entry strategies to use in rolling out new products. There are two strategies for such rollouts: the sequencing waterfall and the simultaneous sprinkler strategies from which the terms are already referred before. In addition we consider three approaches to segmenting the global marketplace and each provides a different perspective on strategies for rolling out new products. As pointed out by Angelmar (2004), developing new offering for global markets requires a deep understand of segmentation of the global market, we believe that analysing and segmenting the global market is of importance as it is the first step on the path to Internationalization.
manufacturing, inventory, advertising, distribution, sales force and staff while a waterfall strategy a much lower investment and less risk of a failing introduction (Stremersch and Tellis, 2004). According to Gatignon and Van Den Bulte (2004), in a globalizing world, there are three questions that a firm with an innovation to bring to market must answer: (See also Figure 1) 1. Which segments should be targeted and how should these segments be defined? 2. Which country or countries should be selected for marketing the new product and in which order should they be entered? 3. What marketing launch strategy or strategies should be used to enter these markets? Include preannouncements, market entry commitment, distribution and product standardization? Our research however, is focusing on the first two questions about introduction of new product into the global market, the third question is more of a concern of marketing mix strategies and we consider that as a much more complicated issue and that is less directly relevant to our interest.
(Figure 1: Global marketing of new product) (Source: Gatignon and Van Den Bulte 2004)
1.3 Purpose
There are two objectives for this study. First objective of this study is to investigate Dells operation regarding to global introduction of new products such as segmentation approach, its influence on the choice of introduction strategy and efficiency of the strategy itself. Second is to provide empirical framework in the field of global introduction of new product (the choice of waterfall or sprinkler strategy), which lacks in earlier studies and develop a deeper understanding.
1.6 Delimitations
There are some limitations in this study. First of all, we do not concern those hypotheses proven wrong in the result of theoretical references, such as income inequality, masculinity, religion, economic roles in household, market penetration, but only those ones that were proven significant (Stremersch and Tellis, 2003; Tellis et al, 2003). Secondly, we do not concern product class (Tellis et al, 2003) as an influencing factor. According to Tellis et al (2003), products can be divided into two different classes such as white goods (e.g. kitchen and laundry appliances) and brown goods (e.g. entertainment and information products). In the study of international takeoff of new 5
products, it was proven that the brown products takeoff faster than white goods. However, our empirical case Dell produces only brown goods and not white goods, we can not concern the effect of this particular condition to the choice of waterfall or sprinkler strategy. Thirdly, we do not question the outcome of earlier studies in mathematical framework as they were proven so (e.g. Kalish et al 1994), but only examine them as a comparison to an empirical case. Therefore, we do not go deeper to the concept of diffusion mode. Finally, our study is analysed and discussed based only on our empirical data, Dells operation. Therefore, it is another problem that this outcome from our study is applicable to other companys case and we do not intend to prove our result can be applied to all the countries.
2. Literature review
In this chapter we present theories and literatures that are of significance considering our purpose and research questions the global introduction of new products. The objective of this chapter is to provide a deeper understanding of previous studies as well as to describe the theories used in our research. In the first section, we cover the first step of going abroad where companies need to segment the market. In the second section, we take a closer look to the entry strategies, mostly on the choice between sprinkler and waterfall strategy. The discussed theories will be used to develop a conceptual framework for our study in a later chapter.
Therefore, marketers can repeat this exercise periodically and update the segmentation scheme (Gatignon and Van Den Bulte, 2004). In other words, one can develop better understanding of segments with low cost. However, there are some disadvantages as well. One is that this segmentation neglects both heterogeneity among consumers in the same country and similarity in consumers in different countries (Ibid). Also since markets are becoming more and more globalized and economic situations are getting similar in many countries, it is said there are fewer differences across countries. This is one of the crucial disadvantages the country-based segmentation faces. From these disadvantages, the countrybased segmentation is becoming less useful to provide the information to marketers who want to introduce new product globally (Ibid).
New product that the company is going to introduce is targeted business users or particular types of consumers that is believed to exist in several countries- e.g. video game enthusiasts, two-income families with young children etc. Marketers do not believe that macro-level differences across countries are significant obstacles to appealing such customers living in different countries. (Ibid) Disadvantage for using this approach to introduce new product in global market is that this approach may lead to a segmentation scheme that performs poorly on the accessibility and actionability (Angelmar et al, 2004). That is to say, it can be difficult to find the right mix of media and distribution channels if the media and distribution channels are very different across countries, although the segments can be identified in cross countries (Gatignon and Van Den Bulte, 2004).
purchase new product. Also the media function is generally better in wealthier countries, and therefore the adaptation can be quicker there (Stremersch and Tellis, 2004). Openness of economy; according to earlier studies, the countries which are involved in international trade or free trade policy adapt new products faster. This is because the openness of economy encourages countries to have better infrastructure between countries, such as transportation system and information flow. Therefore, this encourages the word of mouth effect, distribution efficiency and furthermore, cost efficiency (Tellis et al, 2003; Gatignon and Van Den Bulte, 2004). 2.1.3.2 Cultural variables Uncertainty avoidance; this represents the peoples feeling against uncertainty, if they feel threatened by uncertainty or not (Hofstede 2001). According to Tellis et al, (2003), Stremersch, (2004) and Gatignon, (2004), societies where people are high in uncertainty avoidance are less innovative, because they are not willing to take risks. Therefore, societies which are low in uncertainty avoidance adapt the new product quicker than societies which are high in uncertainty avoidance. Need for achievement; people who have high need for achievement tend to try to do things as rapid or/and as well as possible (Murray 1938). This tendency encourages them to try new product quicker than people who have low need for achievement (Tellis et al, 2003). Industriousness; similar to the need for achievement, industrious people tend to work hard and appreciate the achievement of work. These people are keen to innovations to make their work or rest from work as productive as possible. Therefore, consumers as well as distributors accept new product more quickly than less industrious people. In other words, a country which consists with industrious people adapts new product more quickly (Ibid). 2.1.3.3 Information accessibility Media intensity; mass media such as news papers, radio, TV have a great impact on introduction of new product. One is that people can have knowledge about new product quicker, and observe the validity of the new product. Another is that people who live in a country which has a high media intensity may gain the information about new product even prior of the introduction of it in the country, and that will influence the performance of the introduction later on (Tellis et al, 2003; Gatignon and Van Den Bulte, 2004). Mobility; according to Tellis et al (2003), mobility of people affects the interpersonal communication that encourage people to learn about the new product. Therefore, countries which populations are high in mobility adapt products faster then countries which populations are low in mobility (Gatignon and Van Den Bulte, 2004).
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Education; General diffusion study reveals that educated people adapt new product earlier than not educated people (Rogers 1995). Furthermore, Tellis et al (2003) mentions that educated people are more receptive to innovations as a result of awareness to the importance of technology and sensitivity towards new ideas. 2.1.3.4 Prior introduction of new product Last variable is the influences from a prior take off in the other country. First effect is that the popularity or use of new product can be communicated to the target country through media and that can encourage the quicker adaptation in the target country. Second effect is that the successful introduction and popularity of the new product in the other country make retailer and distributors to perform better promotion. Third effect is that word of mouth effect from the other country may increase the acceptance of consumers in target country. Finally, the acceptance in the other country proves the quality of product, and therefore it reduces the risk of adapting the new product. For these reasons, prior introduction in the other country influence the performance of the new product in the target market positively (Tellis et al, 2003). Gatignon and Van Den Bulte (2004) mention that there are several advantages to use this approach. First of all, as this approach also takes the countries rather than the individual consumers as main factors of analysis, it can be cost effective. Secondly, diffusion path can provide the important implications for targeting and sequencing strategy, this is because the result of the analysis is based on the countrys prior history of introduction of new product and therefore more specific to the task the marketers face to. Third advantage is that the result is influenced by some of the macro-level variables as the diffusion path can vary depend on some macro-level variables. In other words, this approach can include some of the result marketers can obtain from the county-based segmentation approach (Gatignon and Van Den Bulte, 2004). A disadvantage is that, as this approach also contains analysis based on countries, it can neglect the heterogeneity of consumers within countries. However, it is proved by Helen et al (1993) advocating that groups segmented by country- based and diffusion based approaches differ dramatically, because the macro-level variables do not fully explain the differences of diffusion path.
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Concerning all of these advantages and disadvantages, marketers can use these approaches separately or jointly in order to gain better understanding of global markets and develop introduction strategy (Gatignon and Van Den Bulte, 2004). Situations that approaches are used most effectively and provide valuable information are summarised as followed. Segmentation approach Country based Best use For product categories where national government play a key role (such as telecommunications, medical products and food items) or where national differences predominate in dictating acceptance and diffusion. For products targeted toward people with specific values and lifestyles and for which law, language, and other national differences do not present major hurdles to acceptance. For new products that are rather slow in achieving full market acceptance and for which similarities in the speed of adoption across countries is of key interest.
Diffusion based
Table 1: Three international segmentation approaches (Source: Gatignon and Van Den Bulte, 2004)
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2.2.1 Targeting
First challenge marketers face is to determine which country or countries to enter. Fundamental criterion for targeting a country is to consider potential markets with expected demand for the new product as well as the competitive structure. By using those segmentation approaches introduced earlier, marketers can identify the various factors to target a market. However in todays changing global market, it is hard to standardize the measurement for targeting markets and major part of determinants for targeting will be left to discussion (Gatignon and Van Den Bulte, 2004).
revenues and profits from earlier introduction from some countries can be used for introduction in later countries, the pressure for the cash flow is significantly lower than sprinkler strategy. This fact also decreases the risk generated with the introduction of the new product. Since most of the new product, if not all, faces the uncertainty of outcome, it is the significant matter for the firm to be able to reduce the risk in these ways. As the sprinkler strategy has disadvantages, the waterfall strategy faces some considerable disadvantages too. One of them is of significance, since the waterfall strategy may take more time to introduce the new product into all of the targeted countries than sprinkler strategy, it makes it difficult for the firm to pre-empt competitors to enter some of the targeted countries. This means that, competitors may enter the firms target markets earlier, and that may cause the difficulties for the firm to penetrate the market because of the late entry (Kalish et al, 1994). Considering advantages and disadvantages, firms may find it difficult to choose the optimal strategy by only considering the relative goods and bads. However, one study has proven some conditions favouring waterfall strategy, and these factors also influence the decision of strategy (Ibid). It implies that the choice of strategy does not only depend on the advantage and disadvantage of the strategy itself but also other factors influence the efficiency of the strategy. Those factors influencing the efficiency of the strategy as well as the determinants for the choice of strategy will be full explained in later chapter.
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loss of sales by a personal computer (PC) manufacturer due to a 68-month delay in time-to-market. Consequently, as supported by Kalish et al (1995), it is better to adopt the sprinkler strategy when the product has a short life cycle since the shorter the life cycle, the less the incentive to delay entry which, means that if a product with a short life cycle is introduced into global markets, the company does not have to wait for a long period of time for the result of the impact from domestic consumption of such product. Conversely, while introducing a new product with long life cycle, it is suggested to use the waterfall strategy.
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2.3.3.3. Innovativeness in the foreign market The lead effect will counteract this low innovativeness but it requires a later entering time. Kalish et al, 1995) Innovativeness of the market is determined by several factors. Low innovativeness is caused by the result of factors such as conservativeness of consumers, restriction on advertising, or local protection on imports (Ibid). For instance to enter a market such as Arabic countries, where conservativeness of consumer exists, new products which fulfill with Western countries style as bikini, perfume and others that need to be taken seriously watching out for culture differences. The factor of restriction on advertising is another symbol of low innovativeness in the foreign market. The commercial of such type of products are controlled strictly by the local television, and the local protection on import of which have been set by such countries also reduces the markets ability of innovativeness and acceptance of new and products from outside of the country. However this condition can be improved by the function of the lead effect since the lead effect will decrease the risk of accepting a new product. Therefore, a company is better off using waterfall strategy for the reason of lower risk of failure in one-time investment like sprinkler strategy (Ibid). On the other hand, with high innovativeness in the foreign market, it is better for a company to enter in an early time and gain more market shares than other companies as those countries do not have high risk of accepting a new product in a first place. Therefore, In this case, using sprinkler strategy to enter the foreign market is an optimal choice. 2.3.3.4 Fixed costs of entry into the foreign market If the costs are too much higher than the limit, this may cause the firm to give up its planned expansion into foreign markets altogether (Kalish et al 1994). In other words, the foreign market with high fixed entry costs leads not only a company to enter later into the market but also it can force a company to cancel the entrance itself. As it was mentioned in an earlier chapter, a company can reduce its cost using waterfall strategy, and on the contrary, sprinkler strategy has higher cost to operate. Thus, the waterfall strategy is preferred if the cost of entry is relatively high. However the fixed cost to enter foreign markets are decreasing due to the availability of alternative distribution systems such as the internet, better global logistics, and the greater familiarity with foreign markets (Gatignon and Van Den Bulte, 2004). Regarding to this fact, the situation of the global market allows companies to use sprinkler strategy easier than before.
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To sum up, the emergence of global customers, a growing trend towards shorter product life cycle and increased world pressure for less trade barriers, as well as other factors that might lead to less innovative markets (such as the pressure from U.S. on Brazil, India, and Japan for less trade barriers) make the conditions for sprinkler entry (i.e. waterfall strategy less likely) more efficient. Today, the market conditions in general seem to favor sprinkler rather than a waterfall strategy. (Gatignon and Van Den Bulte, 2004)
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3. Methodology
In this chapter we discuss and justify the methodological choices we employ to our research. More specifically, a discussion regarding the company of choice, research purpose, research strategy, data collection methods and the validity and reliability of this research will be explained.
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Our secondary data contains information from books, articles, and internet. Information from the books and articles are used to derive better theoretical frame work and understand the research methods. Other information obtained from articles and internet is used to provide a better understanding and analyse of our empirical case.
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4. Empirical data
This chapter is a presentation of the empirical data which we have collected mainly by interviewing Dell Swedens marketing manager and some information is also gathered from Dells homepage. As a result, we first present the general background of Dell, further followed by an illustration of Dells customer groups, targeted countries and products, ended by a skim on Dells major competitors, in order to point out the different factors that influence Dells introduction of new products.
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servers and storage systems designed for enterprise-use (Interview with Dell, 2006). With the increasing rate of technology use around the globe, it is very likely that more and more international companies from the developing countries will feel the need to adopt computer technology in managing their daily operations.
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4.3.3 Americas
Dells direct model selling directly to customers with no middleman which started in the U.S. more than 20 years ago is still considered a better way of doing business in the Americas and beyond (Dell annual report, 2006). Large and small corporations, public institutions and individual consumers associate with Dells more than 31,000 employees working throughout Canada, the U.S. and Central and South America to work towards the same goal, deploy and support the products. Dell builds one out of every three systems sold in the U.S. and applying the direct relationships have always been among the top reasons customers continue to choose Dell. The U.S. domestic market is therefore the largest market creating 58 percent of the total revenue in 2006. In fiscal 2006, Dell expanded its Americas operations with customer contact centers in Canada, El Salvador and the U.S., and opened its largest manufacturing facility in Winston-Salem, N.C. The continued investment in the region helped the Americas team generate more than $36.4 billion in sales this year, equivalent to the size of a Fortune 50 company (Dell annual report, 2006).
Figure 3: Dells global market share overview in year 2006 (Source : Dell International Business Strategy Conference Call, Oct 16 2006)
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CAGR: Compound Annual Growth Rate Figure 4: Projected growth through 2010 indexed for Dell share (Source: Dell International Business Strategy Conference Call, October 16 2006)
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gain more profit than the entry cost, it is common that companies may take into account those factors mentioned a minute ago in the targeted markets. Dell being a well-known international company does not launch its latest products to many countries at the same time. As a matter of fact, there are some countries Dell does not consider of going in with the latest product or merely not expect to gain big share of the market. Several reasons can result that, such as the preference of local consumers, the market size limitations or local protection on imports. Some examples can well illustrate that. One of the problems that might seem smaller now than several years ago was that Dell has always had difficulties convincing the German consumers to choose Dell computers over their own brand - Fujitsu Siemens. Even though nowadays Dell is positively growing in the German market, it was clearly proved that the conservativeness of the German consumers made introduction of new products harder. Similarly, it was also of great complexity when Dell was firstly introduced in the Japanese market in 1993. Japanese did not believe that the quality of Dell-made products could match the Japanese standard; against this rumor Dell employed Japanese people in Ireland to perform a finishing-quality-check to assure the computers are well-matched against Japanese standards. It is possible that in some specific countries in the world where Dell does not use the famous Dell direct model and online-shopping concept as marketing strategy to sell computers (Interview with Dell, 2006). Take Estonia for example, people can not purchase Dells products as easily as in Sweden simply by making a call or payment online. It is the same in some Baltic countries where Dells products are literally being sold in stores (Ibid).
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Figure 5: Dells market share comparison in 2000 and 2005 (Source: Dell 2006 Annual meeting with shareholders)
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that Dell is using, another approach will be brought up to awareness further in the next section of our analysis, but first of all there are some implications and highlights from Dells management resulted from its customer segmentation which happened to catch our attentions. According to Gatignon and Van Den Bulte (2004), two noticeable advantages of using the individual consumer-based segmentation approach are firstly, marketers can identify the potential target groups cross national boundaries; secondly this strategy is useful when a company is targeting business users or particular types of consumers that is believed to exist in several countries, for example the video game enthusiasts. These two advantages can be easily reflected on Dells customer segmentation. Originally when Dell segments the global market according to the different characteristics in consumers needs and behaviours, the purpose is to better fulfil different customer groups needs with a wide variation of products alternatives designed specially for individuals or enterprises. In addition what comes as another side benefit from having fine market segments is that Dell can identify potential target groups outside the United States, for instance the enterprises who need server or storage systems from Sweden. The other advantage advocated by Gatignon and Van Den Bulte (2004) can be applied to the recent launch of Dells XPS computer family as an example. The XPS family consists of laptops, desktops and computer screens that are particularly designed for gaming and entertainment purpose and they are referred as the super system since not only is just the configuration of the system top -upgraded but also these computers have stylish looks and can be placed in the living room (Interview with Dell, 2006). XPS is apparently designed for game enthusiasts and young generations whoever is interested and can afford, regardless of where they are from.
are especially designed for gaming and entertainment purpose therefore the price for such is approximately 2 to 3 times higher than a normal home-use PC. As a result, people who with more money are more likely to purchase such system. The XPS family in truth does not exist in every market where Dell has local offices (Interview with Dell, 2006). Some models from the XPS family is available in limited areas, the domestic U.S. market and most of the European countries, like the XPS desktop computer systems are not available in China. Earlier studies have showed that, the counties which are involved in international economic unions or free trade policy adapt new products faster due to the facilitation from such involvement, such as better transportation system and accessibility of information (Telliset al, 2003; Gatignon and Van Den Bulte, 2004). However, openness of economy in foreign countries is only of secondary importance for Dell to consider while introducing new products. One argument of having global introduction of products is that global communications and other worldwide socialising forces have fostered a homogenisation of needs, tastes and values among different countries worldwide. More and more third-world countries have already adopted the international competition and an open-economy, or it is a strong tendency to do so. Even though there are certainly local restrictions such as import barrier and advertisement law Dell has to take into account, the openness of foreign economy will not be the stop sign for Dell to introduce new product.
5.1.2.2 Cultural variables Cultural variables cover issues such as uncertain avoidance, need for achievement and industriousness. Uncertainty avoidance refers to the degree to which the members of a society feel uncomfortable with uncertainty and ambiguity (Hofstede, 2001); need for achievement refers to the stress of performance and the need to be a success achiever; industriousness refers to the diligence and assiduousness in work or study. According to Hofstede (2001), uncertainty avoidance and need for achievement both happen to be more apparent in less economically developed countries. As a result the propensity to imitate is higher and that to innovate is lower in less developed countries, but do all these three variables considerably influence Dells market segment? Dell divides its global customers into 4 groupings based on their different requirements for products. In addition, Dell has two major product categories; one is consumer-based products such as personal laptop, desktops and perhaps some electronic accessories, the other product category is designed for companies, the technology-based product which consists of storage and servers. It is hence equivalent to say that Dell slices its customers into 2 groups the individual customers who purchase average home PCs and the relationship customers (enterprises and public sectors) who purchase technology-concentrated products. Nevertheless, the cultural variables do not seem to perform a significant impact on Dells forecast of the global customers targeting and segmenting and for this reason not the new product penetration path in foreign countries either. It can be broken down to two reasons for this statement. Firstly, people, especially business people of different nationality share the same culture in many business fields in the world today, the worlds of finance, oil and electronics (Andersson, J-O et al., 1996). It is easy to 40
understand that business life is getting internationalised and the products needed for business purpose are getting homogenous around the world. A Japanese company needs the same server system as a Swedish company. Thus, to the extent of introducing technology-concentrated products, the cultural variables do not play an important role. The second reason for the previous statement is concerning the individual customers of Dells. Does the culture aspect have a vital impact when introducing new product worldwide, since there are such a variety of cultural difference reflected on individuals? As a matter of fact, the answer is no. From the interview with Dell, we understood that Dell hardly has to make any adaptations of its new products when they are introduced to other countries. Microsoft usually makes all the adaptations needs related to computer system accordingly, such as the softwares language. People who are familiar with Dells manufacturing style understand that Dell builds every computer system after the customer has customize it by choosing his preferred configurations on the Internet, the order then will be sent to the manufacturing centre to assemble. Dell can in fact personalize the products and make adaptations in this way which is obviously more effective and cost-saving in meeting special needs. 5.1.2.3 Information accessibility Information accessibility relates to the availability of new product information via media channels, interpersonal communications such as word of mouths and education. Naturally there are differences between countries in information accessibility. Some countries have more strict regulations on media information due to the control from municipality while some others are more liberated from information control. The question is that are these differences significant enough to influence Dells market segmentation thus the introduction of new product? The answer again is no, the information accessibility difference among countries are not playing a decisive functioning on either Dells market segmentation or introduction of new product. From the interview, we obtained that Dell is using the sprinkler entry strategy at an exceptional high rate of 90 percent of the time introduce new products to all the markets at the same time. Dell has been using the sprinkler strategy at least for the past 5 years and has proven success due to several factors (the reasoning will be throughout explained in next section of the analysis). Apparently to be able to achieve success attacking many countries simultaneously, Dell has to have a reliable information distributing system which can spread about the new product. Moreover, with the increasing openness of economy worldwide and the extensively used of internet, it is incredibly convenient to search out information. To sum up the analysis we have presented, Dell segments its foreign markets both by using the individual consumer-based approach and the diffusion-based approach.
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in those countries itself. The most well-known example is the growth of Chinese market.
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5.3.3 Innovativeness
As it was mentioned earlier, when foreign countries have low innovativeness which is decided by several factors such as conservativeness of consumers, restriction on advertising, or local protection on imports, the waterfall strategy is favoured (Kalish et al, 1995). Some countries that Dell introduces its product have these factors affecting the low innovativeness. For example, our empirical data shows that countries like Germany and Japan have a strong preference to their own domestic products, or some countries might have higher protection against imports. Although these factors show less and less influence to the choice of strategies due to the improvement in openness of 44
international markets, these factors can be one of the reason that Dell uses waterfall strategy.
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6. Conclusion
In this research we have examined the global introduction of new products. Specifically we took a deeper look at the segmentation approach and the entry strategies such as waterfall (where the market are entered sequentially) and sprinkler (where the market is entered simultaneously). Our aim was to apply the theory to an empirical case Dell, to get a better understanding on Dells strategy of rolling out new products globally and therefore understand how theoretical method works in the practical business operation. According to our theoretical framework, there are certain factors which influence the choice of either a waterfall or sprinkler strategy, for instance lead affect, economic factors and competitive forces etc. Even though todays global market condition provides better support for the sprinkler strategy, there are certain conditions favoring waterfall strategy too. These conditions pertain to the nature of the product, the market, the cost and the competition. In order to identify those conditions, a company must conduct investigation of the foreign markets. Using one or more of three types of segmentation approaches can provide better understanding of the conditions of foreign markets. According to our case study and empirical data of Dell, we have figured out that Dell uses two of the segmentation approaches which are individual and diffusion based segmentation approaches and those approaches supply Dell with high quality of information. In addition, we could come to the result that information gained from those segmentation approaches plays significant role for Dell to decide target market, therefore the entry strategy of new products. Although most of the result coming from the empirical data showed us the strong connection between theory and practical business operation, we still found some differences as well. Those differences are as such that some of the factors in a segmentation approach does not play as significant role as others. In other words, the segmentation approaches can be mixed and evaluated in more complicated way than it is explained in the theory. It is hard for a company to choose which segmentation approach to use, for instance. Managers in a company must understand its products characteristics and potential customers thoroughly, in order to adapt the right mix of segmentation approaches. In the second part of our analysis, we have come to a conclusion that even though Dell has used both strategies for its products rollout worldwide, with an extreme high percentage rate which, more than 90 percent of Dells new products were introduced into foreign markets simultaneously. This fact is driven by the conditions favoring sprinkler strategy such as short product life cycle, a large size of foreign market, a rapid growth rate in foreign market, a low entry fixed cost and a strong competition. On a contrary, the reasons for that Dell still uses waterfall strategy for 10 percent of its new products provided us deeper understanding of the conditions favoring waterfall strategy. These conditions cover factors such as the small foreign markets, less wealthy markets, low innovativeness, and the nature of the product. All of these factors provide Dell to have higher uncertainty in success of new product introduction. Therefore, waterfall strategy is used to reduce this high risk.
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All of those factors showed the strong connection between theoretical framework and empirical case as well. However, it is worth mentioning that some factors are more relevant in real world than other factors, even though all of the factors have influenced the decision of entry strategy partly. Moreover and most significantly, we have figured out one important condition that favors the company to use waterfall strategy in addition to the theories presented by other literatures. That is the nature of the product itself and confidence of a company toward this product. When a product is a new challenge for a company and a company has less experience associated with producing this product, a company shows less confident towards the product and therefore chooses waterfall strategy. This result is logical because the less confidence reflects high uncertainty and the waterfall strategy can counteract this high uncertainty as its major advantage. Therefore, to conclude, the nature of the product should be added to the conditions favoring waterfall strategy as an improved theory.
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Samiee, Saeed. and Roth, Kendall. (1992) The influence of global marketing standardization on performance, Journal of Marketing, vol.56, April, pp.1-17. Stalk, G.J. and Hout, T.M. (1990) Competing Against Time: How Time-Based Competition is Reshaping Global Markets, New York: The Free Press. Stremersch, Stefan. and Tellis, Gerard J. (2004) Understanding and managing international growth of new products, International Journal of Research in Marketing, December, Vol. 21, no. 4, pp. 421-438. Tellis, Gerard J., Stremersch, Stefan. and Yin, Eden. (2003) The international takeoff of new products: The role of economics, culture, and country innovativeness, Journal of marketing science, Vol. 22, no. 2, p.188. Urban, G.L., Carter, T., Gaskin, S. and Mucha, Z. (1986) Market share rewards to pioneering brands: An empirical analysis and strategic implications, Management Science, vol.32, no.6, pp.645659. Yin, R.K. (1994) Case Study Research: Design and Methods, 2nd edition, Thousand Oaks, CA: Sage, cop. (1990) The stateless corporation, Business Week, 14 May, pp.98-104.
Web pages
Dells annual report 2006 Direct the world over, Dell Fiscal 2006 in Review. Available at: [1 December 2006] http://www.dell.com/content/topics/global.aspx/corp/investor/en/annual?c=us&l=en&s =corp Dell International Business Strategy Conference Call October 16 th, 2006. Available at: http://www.dell.com/content/topics/global.aspx/corp/investor/en/webcast_30?c=us&l=e n&s=corp [1 December 2006]
Dells company overview. Available at: Dells home page www.dell.com [15 November 2006]
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List of Figures
Figure 1: Global marketing of new product Figure 2: Steps in our qualitative research Figure 3: Dells global market share overview in year 2006 Figure 4: Projected growth through 2010 indexed for Dell share Figure 5: Dells market share comparison in 2000 and 2005
List of Table
Table 1: Three international segmentation approaches
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11. In general, how do you think customers perceive the new products developed by Dell, compared to competing products? Incremental performance improvements with no new product uses Performance improvements which open new usage possibilities Products never seen or used by customers before 12. What percentage of Dells sales comes from products introduced in the past 5 years?
Part Three 13. Who are the major competitors for Dell? 14. Do you know the growth rate of these competitors? 15. Is Dell in the monopoly position in any countries? 16. With respect to the way the products are introduced, Dell can be best described as a (select one answer) Technical innovator (first on the market, first to develop and apply a new technology) Fast imitator (fast follower, emphasize product improvements) Cost Reducer (enter when the pace of changes slows, emphasize standardization and efficiency) 17. Please indicate the growth rate of total market in which Dell introduced each new product. (select one answer) Successful product Less than 0% (negative growth) 0% - 5% 6% - 10% More than 10% Unsuccessful product Less than 0% (negative growth) 0% - 5% 6% - 10% More than 10%
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18. Please indicate how customers perceived the relative innovativeness of each product, compared to the competing products. (select one answer) Successful product More innovative than competing products Equally innovative Less innovative than competing products Unsuccessful product More innovative than competing products Equally innovative Less innovative than competing products 19. What are the adaptations normally Dell needs to adjust its products in order to be able to enter other countries? 20. How does Dell manage the adaptations?
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