Abstract Date: 2006-01-04 Level: Bachelor thesis in Business Administration, 10 points. Authors: Akiko Yamamoto Alhagsvägen 48 145 59 Norsborg Stockholm Tel.: 0735054312
Lin Hui Allmogeplasten 17 724 80 Västerås Tel.: 0762615846
Chen Bo Allmogeplasten 17 724 80 Västerås Tel.: 0736364876
Tutor: Leif Sanner Title: Global introducti on of n ew products – Case Study of Dell Problem: In order to s urvive 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 o ptimal introductio n 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 andinefficiency of global the strategy itself. Second to provide empirical framework the field of introduction of newisproduct (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 Schönbeck 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.
Table of Content 1. Introductio n.............. ........... ............ ............. .......... ........... ........... ............ ........... ..................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 sp rinkler or waterfall strategy ......... ................ 17 2.3.4 Co mpetitiveness 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 appro ach .............................................................. 2 2 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 Dell‟s customer groups ........................................................................................ 29 4.3 Dell‟s 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 Dell‟s 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 Dell‟s Competitive environment................................................................... 36
5. Findings and Analysis..... ........... ............ ........... ............. ..................... .......... ........... ...........3 8 5.1 Dell‟s global market segmentation ...................................................................... 38 5.1.1 Individual Consumer-based segmentation approach ................. ................... 38 5.1.2 Diffusion-based segmentation approach........ ............................................... 39 5.2 Dell‟s 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 Dell‟s 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 initiali ze 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 srcinate, 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 Japan‟s total exports, 36 percent of Korea‟s, 81 percent of Mexico‟s 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 company‟s capabilities into compet itiveness, 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 introducti on 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 o f internationalizat ion” (Douglas and Craig, 1992) In rolling out new products across global markets, there are two major issues facing firms. The first issue is the d egree 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 dev eloped 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 o f 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 introducti on of new products. In particular we consider choices of s equential and simultaneous entry strategies to use in rolling out new p roducts. There are two strategies for su ch rollouts: the sequencing “waterfall” and the simultaneous “sprinkler” strategie s 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.
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1.2 Problem description Conventionally, firms intr oduce new product to their domestic market first before they start marketing them abroad. This is still the most typical pattern of launching new products. BMW, Matsushita, General Elec tric and the Body Shop are examples of well established and newer firms using such strategy (Johansson, 2000). Yet, with the globalizing of the marketplace, it is becoming more common that a new product being introduced at the same time or within a very short period in a multitude of countries. This is most widespread among global firms, such as Microsoft, Sony, or Apple Computers. For example Microsoft launched Windows XP Thursday, October 25, 2001 not only in New York and London but also in India, Malaysia, Singapore and Australia, followed by a launch the following Tuesday in Taiwan, the Philippines and Vietnam and a few days later in November in Hong Kong, Indonesia, China and Japan (Gatignon and Van Den Bulte, 2004). Simultaneous introducti on seems increasingly popular not only among firms that already are global, but also among firms that are in the process of becoming so. (Ibid). There are fundamental differences between the waterfall and sprinkler strategies, therefore for international marketing managers, the importance of making the right decision of choosing either of these two alternatives becomes self-evident. Making this decision requires a deeper understanding of the set of factors which are impacting the choice between these two strategies, including the product life cycle, conditions o f foreign markets, coordination with competitors about entry timing and cross -country spill-overs (Kalish et al, 1995). Previous researches have touched upon new product introductions in international markets. A large number of studies have been found that focus on strategic issues, such as introduction timing of a new product (see e.g. Golders and Tellis, 1993; Bayus, Jain and Rao 1997; Rider and Weinberg, 1998). These studies generally stress on the question if one should be an early or late entrant (Pioneer versus follower), however, these studies included only one market or country, and therefore did not indicate how first-mover advantages can be translated into an international context (Lieberman and Montgomery, 1998). On this present research of ours, we formulate a conceptual framework that is inspired by Gatignon and Van Den Bulte (2004), to give a guideline for international marketing managers who are responsible for making global launch decision. This conceptual framework describes the global introduction of new products by explaining two of the most important issues. The first issue is the three approaches to segmenting the global market, they are country-based, individual-consumer-based and diffusion based. By using the appropriate segmentation, managers can receive a deeper understanding of similarities and differences across markets. The second issue is the entry strategy – sprinkler or waterfall? The decision on the entry strategy is not an easy one. Given the high upfront investment in R&D, firms are often eager to generate cash as fast as possible. A sprinkler strategy to this extent can maximize revenues by fully exploiting economies of scale and experience by exposing the new products to a maximum number of markets as soon as possible ( Stremersch and Tellis, 2004). Nevertheless one can argue that a simultaneous launch involves huge beginning investments in 3
manufacturing, inventory, advertising, distribu tion, sales force and staff while a waterfall strategy a much lower investment and less risk of a failing introducti on (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 n ew 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)
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1.3 Purpose There are two objectives for this study. First objective of this study is to investigate Dells‟ operation regarding to g lobal introductio n of new products such as segmentation approach, its influence on the choice o f 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.
1.4 Research questions We base our research on Gatignon and Van Den Bulte‟s (2004) global introduction of new products to illustrate the strategies using by Dell regarding to its decision on such subject.
In order to answer our research question, we would examine the following subquestions. What approach does Dell use to segment its customers and how it decides its target market based on Gatignon and Van Den Bulte‟s 3 approaches? What is the entry strategy for Dell, in terms of waterfall or sprinkler strategy and how can this choice be influenced by the segmentation approach?
1.5 Target group The target group of our thesis is scholars who are interested in the study of global introduction of new products, especially the research regarding to the choice of waterfall and sprinkler strategy is whose main concern of study. Scholars who are interested in Dell‟s operation regarding to the choice of waterfall or sprinkler strategy are also target group of our thesis. Furthermore, international marketing managers who are responsible for making global launch decisions can be our target group too.
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, Dell‟s
operation. Therefore, it is another problem that this outcome from our study is applicable to other company‟s case and we do not intend to prove our result can be applied to all the countries.
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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.
2.1 Three Segmentation approaches Understanding differences and similarities among markets is a vital step of introducing new products and services internationally. Segmentation is one of the main concerns in new product introduction. Segmentation here is defined as the “identification of segments within and across countries and determination of which product differentiations have the big gest impact on the customers‟ responses in the different target segments” (Angelmar et al, 2004). According to Hubert Gatignon and Van Den Bulte (2004), there are three basic approaches to segment markets. In this part of chapter, those three types of segmentation approaches are thoroughly introduced.
2.1.1 Country-based segmentation One of those three segmentation approaches is country-based segmentation. Marketers can form country groupings by using country characteristics as the basis. Characteristics which have been used generally cover a wide range of variables such as demographics (population size, age structure, ethnic composition), socioeconomic variables (e.g. GNP per capita), political variables (type of political system), culture (Hofstede‟s characterization of countries, individualism versus collectivism, power distance, uncertainty avoidance, and masculinity), and consumption related variables (Angelmar et al, 2004). For example, Marketers can classify Nordic countries such as Finland, Sweden, Norway, and Denmark as one same segment group since they have a similar economic situation and culture. The more the country segmentation variables are related to the new product introduction project in question, the greater the potential managerial relevance of the segmentation scheme. For example, it is wise for Waste Management International to use countries‟ environmental regulations and their enforcements as key segmentation variables (Ibid). There are some advantages and disadvantages concerning using this segmentation approach to introduce new product globally. The main advantage is measurability: much information can be acquired and this approach is simple, easily available and less costly as marketers can get information from national statistics (Angelmar et al, 2004). 7
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 country –based segmentation is becoming less useful to provide the information to marketers who want to introduce new product globally (Ibid).
2.1.2 Individual consumer-based segmentation Global segmentation of individual customers can be based on general characteristics of the customers that are not directly related to the category and product of interest, or on characteristics which are explicitly related to it, which is so called the domain-specific characteristics (Angelmar et al, 2004). General characteristics for global market segmentation of individual customers
General characteristics of individuals consist of variables such as demographics, values and lifestyles. Individual demographics may include age, gender, income occupation while organizational demographics include firm industry, size,and and location (Ibid). Domain-specific characteristics for global market segmentation
Domain specific characteristics on the other hand, refer to customer characteristics, attitudes, needs, and behaviours that are explicitly related to the product category of concern for new product introduction. Segments based on domain-specific variables usually can formulate effective programs for attracting and serving these segments more easily, additionally these variables response more to marketing-mix elements and product features compared to the general characteristics (Ibid). By using the individual consumer-based segmentation approach, marketers can cluster individual customers, possibly across borders. In this approach, individuals are divided into groups according to similarities and differences among individuals regardless of what are their nationalities (Gatignon and Van Den Bulte, 2004). Individual-based segmentation is close approach to the traditional market segmentation practice (Ibid). There are some advantages and disadvantages to use this segmentation approach to introduce new product into the global market as well. Advantage is that this approach allows marketers to identify segments that cross national boundaries (Gatignon and Van Den Bulte, 2004). In other words, marketers can identify the potential target groups internationally. According to Hubert Gatignon and Van Den Bult (2004), this approach is especially useful when two conditions are met. These conditions are; 8
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 “segmenta tion 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).
2.1.3 Diffusion-based segmentation The third basic segmentation approach is diffusion-based segmentation. This approach allows marketers to cluster countries based on diffusion patterns. It is equivalent to say, countries can be divided into groups according to the similarities in a typical pattern of how new products gain market penetration (Gatignon, 2004). Marketers collect date of how several new products have gained market penetration in several penetration countries over time,country, and according to analyze the datathe of how each product gained of market in each they can similarity and differences those countries. These differences and s imilarities can be described as “diffusion path”. One of the ways of analysing the “diffusion path” is Bass -model. It can be analysed by two parameters such as the coefficient of innovation and the coefficient of imitation. The former represents how people are likely to adapt quickly regardless of social influence or word of mouth, and the latter represents how people‟s adaptations are affected by social influence and word of mouth that builds over time. Finally according to these analyses of “diffusion path”, marketers can classify countries into different groups (Ibid).
Specifically, there are four categories of variables that influence the outcome of diffusion path. Those are economic variables, cultural variables, information, and prior introduction of product. 2.1.3.1 Economic variables Wealth; many studies have proven that wealthier countries adapt new product
more quickly than the poorer countries (Gatignon and Van Den Bulte, 2004; Rogers, 1995; Tellis et al, 2003; Stremersch and Tellis, 2004). One of the reasons for this outcome is that wealthier people can afford the new product especially during the early stage of product life cycle, when the price of product is relatively high. Another reason is that wealthier people can take risk more than less wealthy people, and taking risk is the vital factor for people to 9
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 people‟s 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 country‟s 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.
Individual consumer based
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.
Diffusion based
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.
Table 1: Three international segmentation approaches (Source: Gatignon and Van Den Bulte, 2004)
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2.2 Targeting and sequencing After clustering countries into segments, the challenge marketers face is to decide which countries to enter. In addition to the target markets, marketers must decide whether those countries should be entered simultaneously or if not, in which sequence those selected markets will be entered.
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 tod ay‟s 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).
2.2.2 Sprinkler vs. waterfall strategy After marketers have chosen which countries to enter with the new products, they have to decide either they should enter all the countries simultaneously (sprinkler strategy) or enter them in sequence (waterfall strategy). This decision can be made by firstly evaluating the advantages and disadvantages they involve. Sprinkler strategy has at least two advantages. First of all, revenues generated by the new product can be maximised by fully exploiting economies of scale and experiences in R&D and manufacturing (Stremersch and Tellis, 2004). This can be done because the marketer can penetrate as many as possible markets in the shortest period of time and this result in maximizing the operation in possible outset. Second advantage is that the marketer who uses sprinkler strategy can also maximise the share of market (Ibid). This is resulted from the earliest possible entry to the each market may make it difficult for competitors to enter at least some countries. On the other side of the coin, there are some disadvantages as well. One major disadvantage for the sprinkler strategy is that the investment for the introduction of the new product, for such as manufacturing, inventory, advertisement, distribution, sales force and staff can be huge for sprinkler strategy (Ibid) In other words, this will generate the higher risk that the firm has to face, in case of failure in the new product introduction. Waterfall strategy can overcome the disadvantage that the sprinkler strategy faces. By using waterfall strategy, the firm can minimise the investment for introduction of the new product, and therefore generated risk (Stremersch and Tellis, 2004). If the new product can end up with failure in some countries, the firm can withdraw the further introduction in other countries, and avoid further costs. There is another advantage that the waterfall strategy has. That is reduction of the pressure on cash flow (Ibid). As 13
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.
2.2.3 Sequence of entry In this chapter, two factors influence the choice of strategy and sequence of the entry are introduced. The timing of entry is influenced by various factors. One factor is that, firms consider significance of generating cash as fast as possible in order to improve the investment in R&D. Therefore, given this reason, it is considered to be better to enter countries as fast as possible to generate cash. Furthermore, entering quickly may provide advantages to the firm because of the absence of competitors. If the firm moves too slowly, the market will be occupied by competitors and there can be higher barriers for the firm to enter. With these circumstances, most of the marketing principles suggest to penetrate multiple countries as quick as possible (Gatignon and Van Den Bulte, 2004). On the other hand, factors that influence the path of diffusion can be the one reason that marketers should enter countries sequentially. As it was introduced earlier, prior take off in the other country can influence the performance of the new product in the target country. For example, According to the performance in country A, word of mouth effect occurs in both country A and B, and that can trigger the success of introduction of the products in country B (Ibid). In this situation, it is vital for the marketers to choose sequence of the entry correctly such as first to country A and then country B, and not other way around.
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2.3 Condition favoring sprinkler o r waterfall strategy Waterfall strategy (first entering domestic market before expending to other markets) has been used popularly by multinational companies on a worldwide basis during the past century but yet the changing market structure has resulted in a most competitive environment ever, pushing marketers to become more innovative and generate revenue in new means. Waterfall strategy gradually becomes a conservative and less effective way to rollout new products as pointed out by Kalish et al (1995). Sprinkler (entering all the markets simultaneously) in contrast is more and more a favorable choice of many multinational counties nowadays (Ibid). The conditions favoring sprinkler or waterfall strategy are put forward in this section. In particular, a significant body of literature on the choice of entry has been written by Kalish et al (1995) who have advocated three major factors that guide marketers to evaluate their market conditions in order to outline a favorable entry strategy. These three major factors cover life cycle of products, foreign market conditions and competitiveness in the foreign market. Each of these factors has to be taken seriously in the determination of entry strategy. The lead effect and cross country diffusion are two similar but important concepts effecting the understanding of the conditions, concerning that, we define and clarify the concepts at the beginning.
2.3.1 Life cycle of product The rapid proliferation of new technology and the increasing intensity of global and domestic competition have led to three important trends (Carrillo and Franza, 2003). First, shorter product life cycles have become increasingly evident for both high technology products and products not typically regarded as high technology (Stalk and Hout, 1990; Leonard-Barton et al., 1994). For example, product life cycles as short as 1 or 2 years are more prevalent, especially in the high technology, consumer electronics, and personal computer industries (Kurawarwala and Matsuo, 1996). Second, since new technologies are proliferating at an escalating rate, product obsolescence is occurring more quickly than in the past (Leonard-Barton et al., 1994), resulting in truncated life cycles with limited maturity stages (short product life cycle). Third, the marketplace provides numerous incentives for the more rapid introduction of new products to market. An innovating first entrant gains a monopoly that yields premium prices until a competitor‟s eventual entry drives prices down (Urban et al., 1986; Stalk and Hout, 1990). Here we focus on the short product life cycle, regarding to the competitiveness we explain in a later section. In other words, short product life cycle strives for a more rapid introduction of new products to market. This is a useful indication for companies especially those who produce products such as PC, which is influenced constantly by the preference of consumers and technology. For example, if Nokia misses to introduce its latest featured cell phone to the market when it is new to the consumers, this type of cell phones will be too “old” later when competitors are already offering. Delays in bringing products to market can be devastating. Kurawarwala and Matsuo (1993) estimate a 50 –75 percent
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loss of sales by a personal computer (PC) manufacturer due to a 6 –8-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.
2.3.2 Cross country diffusion and lead affect It is useful to understand two significant notions which will be referred to in later sections before we come to the conditions favoring sprinkler and waterfall. Lead effect and cross country diffusion are similar concepts which both indicate that, even before the new product is introduced in their own country, consumers‟ awareness of the product can be improved by Cross-border communication about the product (Gatignon, 2004; Takada and Jain, 199). Lead effect likewise is defined by Gatignon and Van Den Bulte (2004) as the “reduction in risk from the information about the innovation from domestic market to the foreign market”. This effect which can be driven by either through personal conversation or through exposure to foreign mass media may reduce the risk associated with the introduction of the new product. Moreover consumer‟s opinion and adoption behavior in targeted countries can be affected by the success of a product in the lead country (Gatignon and Van Den Bulte, 2004; Takada and Jain, 1994). One might argue that it is cost effective for the companies to use waterfall strategy. This is because those cross country effect or the spill-over effect do not concern extra cost for the company, but work as a significant marketing communication. However, there are some limitations considering the effect of these spill-overs. First, spill-over effects may cause not only positive but also negative effect. According to Gatignon and Van Den Bulte (2004), there is a study reports that lag time is positively related to the tendency to innovate and negatively related to the significance of social influence such as word of mouth (Ibid). Second, faster speed of adoption in a lag country does not necessarily means that it was the result from cross -country communication. The success of the fast adaptation may simply be brought from the passage of time and the associated changes in product design and quality (Ibid). Finally, the lead effect is less reliable in the reality and might be just a statistical artefact (Ibid). Therefore, in the reality, it is difficult to choose waterfall strategy just because of this cross country effects without considering any other conditions that influence effectiveness of both strategies.
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2.3.3 Foreign conditions favoring sprinkler or waterfall strategy This section is divided to four sub-parts of foreign market conditions – the size, speed of growth, innovativeness of the foreign market and fixed costs to entry. 2.3.3.1 Size of foreign market
The size of the foreign country plays a significant role in influencing the decision of waterfall or sprinkler strategy. The reason as revealed by Kalish et al(1995) that “the lead effect will be greater in the market which is categorized as small than large since the small sized country is easier to be manipulated by the bigger sized country than other way around”. For instance, when one compares Sweden and America, the lead affect is bigger in a small sized country such as Sweden than bigger sized country such as America, thus Sweden is influenced by America, rather than America is influenced by Sweden. American TV shows and movie series are taking a quite big part on Swedish TV channels is one result of big influence. It allows Swedish audiences to accept products that are popular in America, since they can gain knowledge about those products through those TV shows, even before products are sold in Sweden. Therefore, in this situation, waterfall strategy is preferred. On the contrary, to have a big size of foreign market to a company, to choose a sprinkler strategy will be an optimal choice. 2.3.3.2 Speed of growth in the foreign market
The speed of growth in the foreign market is another factor for managers to take into consideration when choosing between a simultaneous and a sequential rollout of new products. Kalish et al, 1995 explain that “The lead effect will have a larger impact in a foreign market which has a slow-growth compared to the fast-growth case. This higher impact will cause a delayed entry”. This statement advocates that the lead effect (the experience from selling the new product in domestic market leads to a reduction of risk of rolling out this product in foreign country) has a greater influence in the foreign market which has a slow growth than a high growth. The reason for such argument can be broken down to two parts. First when the foreign market has a slow growth, there is enough time for the foreign market to absorb the experience that is coming from the domestic market therefore the chance of new product acceptance in this country is higher. In other words, in order to let the “lead effect” which takes time to take effect have a greater impact, a waterfall strategy hence is better. The second part of this argument is that when the foreign market has a high growth rate, the lead effect contributes less compared to the slow growth case because the time which lead effect needs to have to take place in the foreign country is short of due to the nature of this market. Hence a sprinkler strategy with fast attack, early-one-wins principle is better.
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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 market‟s 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 withthe foreign markets (Gatignon and Van Dencompanies Bulte, 2004). Regarding to this fact, situation of the global market allows to use sprinkler strategy easier than before.
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2.3.4 Competitiveness of the foreign market In this section, there are three conditions which concern competitiveness of the foreign market, the power of competitors, cooperative competitors and monopoly position in the foreign market. 2.3.4.1 Power of Competitors
The power of the competitors can affect the choice of strategy strongly, because competitor‟s move is one of the most important determinants of the firm‟s success (Kalish et al 1995). If the competitors are weak, although the firm enters foreign market later than other competitors, the threat caused by competitors entering earlier and pre- empt the firm‟s move is a small. This is because the competitor‟s growth will be small and few consumers will be lost (Ibid). In other words, when the competitors are weak, the firm does not lose much share from the delay of entrance. Therefore, in this case, optimal choice is waterfall strategy as the cost of entry is less than sprinkler strategy. The major disadvantage of using waterfall strategy as losing share caused by late entry is not significant in this case. 2.3.4.2 Cooperative competitors
This condition thelead competitors engage in collusive behavior, showsis coordination ofprovides entry will to a waterfall strategy, provided the leadwhich parameter large relative to the fixed cost and cost of capital (Ibid). In other words, if cooperative competitors hold an agreement with the firm to enter a foreign market at the same time, since there is no worry of losing potential customers in the market, the company is no hurry to enter in an early time. In addition, as companies can gain advantages using waterfall strategies such as low cost and low risk associated with the new product introduction, the optimal strategy is waterfall strategy. However, in reality, there are plenty of competitors existing in global market, and it is not easy for all of those firms to coordinate the timing of entrance. 2.3.4.3 Monopoly position in the foreign market
A company is unlikely to lose customers when it has a monopoly position in the foreign market, regardless if it enters early or late. As the customers do not have a choice of adopting a competing brand, the company can still gain the same amount of share as it enters earlier. This might be true with respect to certain patented products in which a company has been enjoying a monopoly position for an extended period of time (Ibid). This is an extreme case in the category of “power of competitors” above. Since the company is the only one to enter into this foreign market and with no other competitors, there is no threat for the company to enter late and the waterfall strategy is the optimal choice. 19
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.
3.1 Choice of company There are several reasons for choosing the American company Dell to be our empirical case. First of all, Dell was suitable to our empirical case since the company operates globally and has a strong position in the computer industry. Second of all, Dell introduces new products relatively in a rapid pace to be competitive in the high-tech industry and this nature provides more experience in our research field to this company. In our research, large amount of experience is vital and contributes better understanding and reliability to our study. Finally and the least negligible is that the accessibility to the company as there is a region office in Stockholm.
3.2 Research purpose Yin (1994) has pointed out three purposes that all the case studies can serve – exploratory, explanatory and descriptive research purposes. Exploratory objective can be achieved by case studies, fieldwork, and data collection may be undertaken prior to definition of the research questions and hypotheses. This type of study has been considered as a prelude to some social research. Explanatory cases are suitable for doing causal studies. In very complex and multivariate cases, the analysis can make use of pattern-matching techniques. Nevertheless, the purpose of this research is a descriptive case study. A descriptive study requires that the investigators begin with a descriptive theory, or face the possibility that problem will occur during the project. Thus what is implied in this type of study is the formation of hypotheses of cause-effect relationship. Hence the descriptive theory must cover the depth and scope of the case under study. More specifically about this thesis, by conducting a research with our empirical case Dell, we hope to provide a better understanding and solutions on the crucial issues regarding to global new products, to apply theory with real-life data. This can only be doneintroduction by using theofqualitative approach.
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3.3 Research strategy 3.3.1 Reasoning for qua litative approach According to Bryman (2004), there are two kinds of most common methodological strategies to conduct social researches. Quantitative research can be construed as a research strategy that emphasizes quantification in the collection and analysis of data. Thus, this quantitative strategy is used to describe the collection of numerical data and as exhibiting a view of the relationship between theory and research. Qualitative research tends to be concerned with words rather than quantification in the collection and analysis of data. The aim of this present study is to acquire a deeper understanding of the conception of global introduction of new products through conducting a case study and interviews with Dell. This is therefore a typical qualitative research since our study tends to provide an inductive view of the relationship between theory and research, whereby the former is generated out from the latter. There are several reasons for our choice of a qualitative research. Firstly, researches done in this way comparatively produce more in-depth and comprehensive information. In particular, we hope to achieve the objective of digging deeper into the subject of global introduction of new products and proposing international marketing manager with a wide understanding of the whole situation - the alternatives on international market segmentation and order of entry. Secondly, we consider having a case study derived from real life data is of importance, as it is also suggested by Bryman (2004) that theory should be the outcome of an investigation rather than something that precedes it, implying formulating theory through real life data collection and analysis is necessary.
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3.3.2 Steps in our qualitative research Figure 2 below represents the steps of development of our qualitative research process.
(Figure 2: Steps in our qualitative research) (Source: Authors‟ construction)
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3.4 Data collection We use two types of data, which are primary data and secondary data, to examine our research.
3.4.1 Primary data Qualitative interviewing is usually different from quantitative interviewing, where qualitative approach tends to be less structured, more flexible in qualitative research. There is much greater interest in the interviewee‟s point of view and the researcher wants to obtain rich and detailed answers. There are two major types of interviewing techniques for qualitative researches, the unstructured and semi-structured interviews. Our primary data contains one interview with the marketing chief Ted Schönbeck from Dell Sweden. Interview can be done in different ways such as in person, by telephone, and via e-mail (Bryman, 2004). We have employed personal interview however there are some limitations with interview by telephone such as less clarity, lack of visual aids, inferior quality, etc (Ibid). In addition to face to face interview, we provided relevant questions to the interviewee by e-mail in prior to the personal interview. This was done in order to enable interviewee to prepare the detailed and accurate answers by the time of interview. We conducted semi structured interview. This interview is conducted according to the list of relevant questions. However there is some flexibility in semi-structured interview such as issues discussed and questions raised can be changed during the interview, and order of the questions can be varied in accordance to the conversation (Ibid). Therefore the skill of understanding answers from interviewee is vital for the interviewer (Ibid). Questions asked in the interview can be divided into open-ended and close-ended questions. Open-ended questions allow interviewee to provide answers which are developmental and extensive, this nature of the method enable participants to define a situation better (Ibid). Close-ended questions increase the clarity of the answers as well as encourage openness to the questions (Ibid). For these advantages, we have applied both open-ended and close-ended questions. This approach enables us to gain deeper understanding of the interviewees‟ perspective as well as clear figure of the answers.
3.4.2 Secondary data We employ documents as sources of secondary data. The term “documents” covers a wide range of different kinds of source. The four most common used sources of information are official documents from the state, official documents from private sources, personal documents and mass media outputs. Documents from the private source covers a very heterogeneous group of sources, such as annual reports, press release etc. Documents from state include a great deal of statistical information (Bryman, 2004).
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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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3.5 Reliability and validity Reliability and validity are important criteria in establishing and assessing the quality of research for a qualitative research. Reliability is fundamentally concerned with issues of consistency of measures, of whether the results of a study are repeatable (Ibid). Reliability can be broken down to two specific measurements. External reliability This criterion regards to which extent the research can be replicated. Bryman (2004) argues that external reliability is hard to adapt in qualitative researches. Researcher needs to adapt similar social role to be comparable to srcinal research. Internal reliability This criterion is whether, when there is more than one observer, members of the research team agree about what they see and hear in order to produce a consistent research study. The issue of measurement validity essentially has to do with whether a measure devised of a concept really does reflect the concept that it is supposed to be denoting. Similarly, this conception relates mainly to the following two forms. External validity This criterion is regarding to the question of whether the results of a study can be generalized beyond the specific research context. If a research was not externally valid, it would imply that the result found can only be applied under certain pre-conditioned
factors instead of under general settings. Internal validity Internal validity is concerned with the question of whether there is a good match between researchers‟ observations and the theoretical ideas they develop. Internal validly tends to be the strength of a qualitative research (Bryman, 2004).
To sum up, we collect our research data essentially from documentation and interviews. The source of documentation includes several academic text books, assertions which were obtained from the university‟s database. There are several reasons why documentation is generally preferred in conducting our research, firstly academic books and assertions have broad coverage over many events and many setting; in addition they last long span of time, most importantly, documentation provides stable and exact resource, contains exact names, reference and details of an event. This increases the external reliability of our research. We also decide to collect our data through interviews with one specific company, Dell. In particular based on the level of formality and structure, we perform a face-to-face, one-to-one, semi-structured interview with their marketing chief Tedd. During the interview, a set of pre-determined questions related to our research are presented. Faceto-face interview creates personal contact and the ability to explain questions and interpret both verbal answers and non-verbal behavior (Ibid). By this mean, we hope to raise the internal validity of our research.
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3.6 Methodology critique Qualitative research can sometimes be too impressionistic and subjective (Ibid). This means that qualitative findings rely too much on the researcher‟s often unsystematic views about what is important and significant. Because qualitative research starts in a relatively open-ended way, the readers have few clues to why one area was chosen area which is to be focused rather than another. One of the serious drawbacks of employing a qualitative approach is that it is impossible to know how our research findings, for instance, the conditions for choosing either waterfall or sprinkler strategy as the order of global entry can be generalized to other settings since a semi-structured interview is conducted with a small number of individuals in one precise organization. Generalization can not be done out of only one observation. There are some drawbacks to collect primary data by conducting only one interview with Dell. Firstly the information we get may be only limited to the interviewee‟s opinions subjectively, one can argue that some information is not said by Dell for secrecy reasons. Secondly with only one interview it is difficult to get all completed answer to our questions due to the lack of time offered by Dell.
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4. Empirical data This chapter is a presentation of the empirical data which we have collected mainly by
interviewing Dell Sweden’s marketing manager and some information is also gathered from Dell’s homepage. As a result, we first present the general background of Dell, further followed by an illustration of D ell’s customer groups, targeted countries and products, ended by a skim on Dell’s major competitors, in order to point out the different factors that influence Dell’s introduction of new products.
4.1 Company overview Dell was founded in 1984 by Michael Dell, which makes him the longest – tenured executive to lead a company in the computer history. Dell sells more systems globally than any other computer companies, placing it No. 25 on the Fortune 500. Revenue for the last four quarters totaled 57.4 billion dollars and approximately 75,100 team members are employed around the global. From the interview with Dell Sweden‟s marketing manager, an innovative and unique business concept has been adopted by Dell which is unusual in the computer industry: the Dell direct model. Dell‟s direct model is based on direct sales to the consumers as well as corporate customers over the phone and the Internet. Not like other computer companies HP, IBM for instance, which rely on their distributors and retailers for the sales who naturally demand each of a 10 percent return. The directness provides Dell with customers‟ immediate feedback efficiently on the expectations and needs from customers, the direct model also allows Dell to build every system to order and offer customers low prices (Interview with Dell, 2006). It is also pointed out by Dell‟s marketing manager that along with the competitive prices offered, the non-stop rollouts of new designed products in a high pace is another factor that stabilizes Dell‟s market shares. Putting itself forward in the same pace of renewal of technology is determinately important for technology-based companies such as Dell. Dell to this extent is also able to introduce the latest relevant technology much more quickly than companies with slow-moving, indirect distribution channels (Interview with Dell, 2006). It is therefore meaningful for us to take a deeper look in Dell‟s process of introducing new products globally, in particular, the segmentation of its global market and the entry strategies applied by Dell.
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4.2 Dell’s customer groups In general, Dell targets customer segments where revenues grow faster than expenses. There are 4 different customer groups - they are individual customers, small and medium size business, large corporations and public sectors (Interview with Dell, 2006). It is obvious that Dell attempts to obtain all the customers with different demands and purposes, which on the other hand explains the large variety of products designed and offered. We explain the four segments of customer in detail shortly. Home and home offices This customer group includes individual customers who purchase computer systems, printers and electronic accessories for private reasons and home use. This group of customers focuses more or less on the price and factors such as performance and feature of the products. Their purchasing decisions are easily effected by word-ofmouth and previous ex perience. Nevertheless, they generate only 10 percent of Dell‟s total revenue according to the marketing manager who we interviewed. Dell‟s focus therefore is clearly not placed on this part of the customers (Ibid). Small and medium size companies This customer group involves small and medium size companies that employ 1 up to 3500 workers. These companies individually are handled and supported by huge call centers with the maintaining mechanics and technical support. For instances in the Nordic countries, the call center locates in Copenhagen handling sales covering Sweden, Denmark and Norway. In Stockholm there is a Nordic technical support center in charge of business and server support. (Ibid) Large enterprises Large enterprises stand for those who employ more than 3500 employees. These customers are treated as Dell‟s special customer and generating about 40 percent of Dell‟s total revenue. Large corporations like such have special demands on the sorts of products as well as the service, standardization and reliability of the products. Price is just a secondary consideration for large corporations. (Interview with Dell, 2006) Public sectors State and local governments, higher education and healthcare are classified to be another separated customer group by Dell. The same with large corporations, the public sectors requires for standardized, reliable products supported by well future maintenance. (Ibid) To look at Dell‟s customer groups from a general perspective, Dell has made a remarkable switch on the focus of customer groups over the past 5 years (Interview with Dell, 2006). More investment and expectation are placed from SMEs (small and medium size enterprises) in the past to larger corporations and public sectors currently and in the future. It is not a surprising decision since Dell has competitive strength in
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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 Dell’s targeted countries Dell has 49 regional offices around the world covering all the continents, for the sake of efficiency, it is not our intention to analysis each one of the countries in details which Dell targets. Instead here we classify Dell‟s global markets into three regional areas, the Asian – Pacific and Japan, Europe, Middle east and Africa, America and provide an overview on each market.
4.3.1 Asian - Pacific and Japan (APJ) Since Dell‟s entry in this region in 1993, it has become the largest non -domestic computer provider in China and No. 3 overall in Japan (Dell annual report, 2006). China is Dell‟s fourth largest business outside the U.S market with a newly established manufacturing facility in Xiamen. Statistically in total APJ generates 14 percent of Dell‟s consolidated net revenue (Dell International Business Strategy Conference Call, October 16 2006).
Nearly 20,000 APJ employees engage in direct contact with large corporate accounts, small businesses, public institutions and consumers within the region and around the world. Engineers in Dell Design Centers which locate in China, India, Singapore and Taiwan innovate new products and features. Representatives in Enterprise Command Centers in China, Malaysia and Japan assist customers with operations, especially server and storage networks. Dell continues to grow faster than the computer industry in APJ, a region that is becoming even more essential to Dell‟s future success. This past year, company shipments increased 30 percent and revenue rose 21 percent (Dell annual report 2006).
4.3.2 Europe, Middle East and Africa (EMEA) Dell began its global expansion in 1987 with offices in Bracknell, Berkshire, U.K., and has grown this location into the regional headquarters for EMEA operations. Today, the company is the leading personal computer systems manufacturer in the U.K. and the region‟s number 2 provider. The growth is continuing, new customer contact centers in Glasgow, Scotland, and Halle, Germany, add to Dell‟s global network to support customers from all geographies around the clock, every day (Dell annual report 2006). . Europe, Middle East and Africa (EMEA) is now the world‟s largest personal computer market and it represented 23 percent of Dell‟s overall business, generating $12.9 billion in revenue in fiscal 2006 and helping make Dell‟s success outside the U.S. Dell‟s success in EMEA is led by growth in countries such as Germany, where Dell has more than doubled share in the last five years, and France, the fifth-largest business outside the U.S., where Dell has become the leading provider of commercial notebook and desktop computers (Ibid).
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4.3.3 Americas Dell‟s 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 Dell‟s 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: Dell‟s 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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4.4 Dell’s product Dell designs and produces 9 different categories of products (servers, storage, printing and imaging systems, workstations, notebook computers, desktop computers, networking products, electronics products and accessories products), from highly technical-concentrated such as storage, servers and work stations to private and homeused computer systems such as desktops and notebook computers and many other electronic accessories. Generally the products can be categorized to two different clusters based on the different purposes they serve (Interview with Dell, 2006). Consumer-based product Dell's consumer-based product covers notebook computers and desktop computers for personal use, plus the electronics and accessories. Customers purchase them purely for the reason of private and home use. As a matter of fact, Dell has developed 2 separated lines of notebook and desktop computers that are for just business customers or individual home users. The Dimension line from the desktop computer family is targeted to individual customers who require high-performance computer systems at aggressive prices. The Inspiron line from the notebook computer family is typically designed for small businesses and few home users who require fast technology turns and high-performance computing (Ibid). Dell also offers a multitude of competitively-priced electronics and accessories, including software, monitors, printers, notebookand accessories, and wireless products, memory, digitalhandhelds, cameras, projectors scanners.networking The company also offers several new Dell peripheral products, including plasma and LCD Televisions, and Axim handhelds (Ibid). Technology-based product Dell's technology-based products cover a wide variety of storage, server systems, workstation and networking that are necessary for large size enterprises. In other words, customers of such are usually business units or public sectors, and they focus mostly on the performance, reliability, and scalability that come with the product and they are more or less price insensitive. Additionally, they require for standardized merchandise. Similarly, Dell offers desktop and notebook systems accordingly, The Latitude laptop line is designed to address portability, flexibility and performance. The OptiPlex desktop line addresses on high-reliability, stability and manageability (Ibid). Some remarks are worth mentioning here concerning Del l‟s product adaptation and renewal-pace. From the interview with the representative from Dell, he stressed on the fact that Dell hardly has to make any product adaptations partly for the reason that Microsoft is usually making all the necessary adaptations, partly for the reason of the product nature which are more or less indifferent all over the world. Moreover, Dell keeps no inventory or pays any resellers. These two major reasons have contributed to Dell‟s low fixed cost. Regarding to the pace of rolling out of new product, “non -stop” is an accurate word, 99 percent of Dell‟s current profit comes from the products that are introduced the past 18 months (Ibid), indicating a high pace of product renewal. 34
4.5 Foreign market conditions facing Dell One of the regular steps before international companies make the decision to explore foreign markets with their new products attack is an analysis of foreign market conditions. Dell is of no exception. In order to reduce the risk of failure of new product introduction, it is decisively important to provide the management an analysis of foreign markets. The procedure as such usually contains analysis on the foreign market‟s size, the potential growth opportunity in the fore ign markets, the nature of the foreign markets – if it is innovative, most importantly the existing competitors (Kalish, Mahajan and Muller, 1995). Here we present the foreign market conditions facing by Dell accordingly.
4.5.1 Growth of the foreign markets In Dell‟s annual report published for 2006, it was pointed out that Dell has significant growth potential outside the U.S. Moreover, the future focus for Dell is to keep building share against enterprises and business unites in developing regions such as Latin America, excluding-Western Europe and Japan (Dell International Business Strategy Conference Call, Oct 16, 2006). This is not surprising, as a matter of fact, the largest part, up to 90 percent of Dell‟s existing revenue comes from technological-based products which are design and sold to small and medium size companies, enterprises and public sectors (Interview with Dell, 2006).
With special notion, China remains the largest opportunities for Dell, the model that is used by Dell launched 8 years ago is proven functioning and revenues grew almost 30 percent annualized over last 4 years. In particular, Dell is the number one sever vendor with 26 percent share in China and small and medium size business is the fastest growing segment where Dell is number 2. Another fast growing country in Asia is India where Dell is making huge investments in building new factories, building out sales capabilities and brand, expending product portfolio. Dell has expected revenue to grow more than 25 percent annually long term. In general, Indian market is where Dell “growing rapidly with further opportunity to accelerate growth”. Dell has a consistent and balanced growth across Europe, Middle East, and Africa in 2006. Mature markets cover the Western Europe where Dell gains 18 percent of total revenue with 43 percent share in large corporate accounts. Developing markets cover the ex-Western Europe which includes Italy, Central/East Europe, Middles East and Africa which are expected to have a high growth rate through 2010.
4.5.2 Innovativeness in the foreign market The innovativeness of a market is decided by several factors such as conservativeness of consumers, restriction on advertising, or local protection on imports (Kalish, Mahajan and Muller, 1995). When it comes to the issue of whether some countries are worth for a multinational company to launch a new product – if that foreign market can
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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 Dell‟s products as easily as in Sweden simply by making a call or payment online. It is the same in some Baltic countries where Dell‟s products are literally being sold in stores (Ibid).
4.5.3 Dell’s Competitive environme nt Even though Dell‟s revenue has grown up 956 percent over the past 10 years, the competitive environment is more intense and competitors are stronger than 5 years ago (Dell 2006 annual meeting with shareholders, July 21, 2006). There are several reasons for such situation. Two changes worth mentioning, the merge between HP and Compaq has made the headlines on the business news over the past 5 years, and IBM was acquired by Lenovo in 2004. There will be still long term impacts in the computer industry from that. As indicated in the figure, the biggest competitor for Dell which has an 18 percent of market share is HP/Compaq which has a slightly less market share of 16 percent. (See figure 5)
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Figure 5: Dell‟s market share comparison in 2000 and 2005 (Source: Dell 2006 Annual meeting with shareholders)
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5. Findings and Analysis The centre of attention in this chapter is a presentation of our findings derived from the theoretical framework and empirical data, aiming to answer our core research
question that focuses on Dell’s new product introduction into the global market. In particular, we intend to analyze the following issues: Dell’s global market segmentation and its choice of product entry strategy into foreign markets. At last there will be a few remarks presented at the end concluding this chapter.
5.1 Dell’s global market segmentation 5.1.1 Individual Consumer-based segmentation approach There are 4 customer groups Dell has segmented and targeted - the individual and home users, the small and medium size business, the large enterprises and the public sectors such as hospital and educational centres. According to the implications that are drawn from Angelmar et al (2004) who has given a conception concerning the domainspecific characteristics for global segmentations, that these “characteristics refer to customer characteristics, attitudes, needs, and behaviours that are explicitly related to the product category of concern for new product introduction.” Dell is segmenting its customer based on their different level of demands and needs towards computer technology. Home users and small medium size business mainly look for factors such as the performance and features of the products and they shop from a variety of vendors and use an array of information sources including reviews, editorials, word of mouth in making their purchasing decision (Interview with Dell, 2006). When these customers purchase for the first time, they evaluate the experience significantly through their overall perception of the price and service. Home users and small medium size business primarily purchase laptops, desktops, printers and other accessories for the reasons such as gaming, entertaining and business but they both only require a low level of standardization on the products. The “relationship” customers, they are the large enterprises and public sectors however, vary very much in their needs, demands and purchasing behaviour compared to the former kind. Enterprises and public sectors simply treat computer purchases as a “total cost of ownership” over the life cycle of its use and price is not worth so much of consideration. They focus on attributes such as service, reliability, vendor reputation. Moreover, product standardization is of significant importance. Products that fit in fulfilling all these purposes are storage systems, servers and as well as standardized office-used laptops and desktop computers. Dell is trying to obtain these “relationship” customers by competing with resellers such as HP/Compaq and IBM. It seemed to turn out to be quite evident after the discussion that, the principal behind Dell‟s different customer groups is the different characteristics in consumers‟ attitudes, needs and behaviours that related to the different categories of products they purchase. Therefore, Dell is “partly” segmenting its global market based on the individual consumer-based segmentation. Nevertheless that is not the only segmenting approach 38
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 Dell‟s 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 Dell‟s customer segmentation. Originally when Dell segments the global market according to the different characteristics in consumers‟ needs and beh aviours, 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 Dell‟s 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 configura tion 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.
5.1.2 Diffusion-based segmentation approach Finally we come to the second part of the principle behind which Dell is using to segment its global market serving the purpose to introduce new product, which is termed the diffusion - based segmentation approach. This approach refers to that countries can be divided into groups according to the similarities in a typical pattern of how new products gain market penetration (Gatignon and Van Den Bulte, 2004). These patterns include the economic variables, cultural variables and information access which are the major determinants of the illustration of Dell‟s diffusion -base segmentation. 5.1.2.1 Economic variables
Economic variables include economic wealth and openness of the economy in foreign countries. A general finding in adoption research is that higher-income consumers are generally the first to adopt a new product (Rogers, 1995). The reasons lie on wealthier consumers can better afford a new product when it has high price at the beginning of introduction and they are relatively “risk lovers” (Stremersch and Tells, 2004). As a matter of fact the wealth of a foreign country is a vital determinant for Dell to decide which groups of people to target (Interview with Dell, 2006). Take Dell‟s newest XPS computer family for example, this set of systems with the newest configuration set-ups 39
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 Dell‟s 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” (ente rprises and public sectors) who purchase technology-concentrated products.
Nevertheless, the cultural variables do not seem to perform a significant impact on Dell‟s 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 Dell‟s. 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 software‟s language. People who are familiar with Dell‟s 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 Dell‟s 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 Dell‟s 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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5.2 Dell’s conditions favouring sprinkler strategy From the empirical data, we have figured out that Dell is using both sprinkler and waterfall strategy to introduce its new product. However, as it was mentioned in the interview, almost all the products for business and public sector, which generates 90 percent of Dell‟s revenue, and 90 percent of the consumer products, are introduced by using sprinkler strategy. In ot her words, huge proportion of Dell‟s products is introduced with sprinkler strategy. In this section of the paper, we examine each of the conditions that the company is facing through theories introduced earlier in order to fully understand the reasons for Dell to use sprinkler strategy in their majority of products.
5.2.1. Product life cycle of Dell In theory, it is verified that when the company‟s products have relatively short product life cycle, sprinkler strategy is favourable. For our empirical case, Dell, it is obvious that their products have short product life cycles. Major reason for this result is the nature of their product itself. Dell is a technology based company and, for them, introducing innovative products faster than other competitors is vital to become biggest supplier in the industry. Average of 99 percent of its products in the markets are introduced past 18 months shows also that their rapid pace of innovativeness and therefore short product life cycle. In this situation, the theory and practical data has
matched as Dell to use sprinkler strategy for products that has short life cycle.
5.2.2 Size of foreign market A large size of foreign markets should be entered with sprinkler strategy than waterfall strategy. For Dell, which has a domestic market in America, one can say that other markets are smaller than the domestic market. However, in today‟s global market, integration in various areas of world is increasing and as a result, the markets are becoming larger (Gatignon and Van Den Bulte, 1989). Even though the empirical data shows that American market has the biggest share of Dell‟s total revenue (58 percent), they can not neglect the significance of other 42 percent generated by APJ and EMEA as a global company. Therefore it is vital for them to use sprinkler strategy.
5.2.3 Speed of market growth in foreign market As mentioned in the theory, for the foreign markets which have rapid pace of growth, sprinkler strategy is preferable. In today‟s global market condition, for the firms that are srcinated in the industrialized countries, foreign markets have much faster growth than the domestic market (Gatignon and Van Den Bulte, 1989). This is not an exception for Dell either. Examining the empirical data, two foreign markets segments such as APJ and EMEA show more growth in Dell‟s revenue than Americas segment. This can be due to the Dell‟s growth in those countries itself as well as the growth of the economy 42
in those countries itself. The most well-known example is the growth of Chinese market.
5.2.4 Fixed cost If the fixed costs of foreign market entry are low, sprinkler strategy is better used. Dell‟s unique operation allows the company to lower the fixed costs of foreign market entry. One major advantage of Dell‟s operation is that they do not use any retailers or distributors to sell its products. Dell sells its products through internet order without any physical stores. Therefore, the fixed cost for entering foreign market becomes lower as well. Moreover, Dell does not have inventory system and manufacture products after when they receive orders from buyers. This also results Dell to lower the fixed cost of entering foreign markets since they do not have to have storage or inventory systems in each countries. According to the interview, all the other cost generators such as the adaptations Dell has to make for each product to be sold in foreign markets are not significant, and do not consider high cost. From these factors, the fixed costs of entering foreign markets are low and it is suitable to use sprinkler strategy.
5.2.5 Competition in target markets According to the theory, when the competition is strong in the target market, sprinkler strategy is favoured. Again, as a matter of facts, the competition in today‟s international market is stronger ever before it isother not an exceptionsuch for Dell either. is facing the toughestthan competition everand with competitors as HPQ andDell Lenovo. Therefore, Dell does not have any monopoly situations in international markets and it is vital for them to use sprinkler strategy in order to obtain as much share as possible in each markets.
5.2.6 Target market The last but least negligible fact that encourages Dell to use sprinkler strategy is that the target market for Dell does not always reflect the differences among countries. Especially when Dell sells its products to the business users such as companies and public sectors, the difference of the country do not play major role since the purpose and the use of the products are similar. For example, when the Dell sells to a multinational company that has offices around the world, the company would like to have same product in all the offices at the same time. In this case, if Dell uses waterfall strategy, those business users will not be satisfied with the delay of system renewal. Therefore, it is better for Dell to use sprinkler strategy especially for products which targets business users.
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5.3 Dell’s conditions favouring waterfall strategy According to Gatignon and Van Den Bulte (2004), the trends in the evolution of global markets seem to provide more support for sprinkler strategy, and our analysis of Dell‟s operation also resulted same. Although Dell uses sprinkler strategy as their major choice of new product introduction strategy, some waterfall strategy is still used to introduce new products as well. From this fact, another important question rises. Why Dell does not use only sprinkler strategy but also use some of the waterfall strategy? This reasoning for using waterfall strategy might provide us a better understanding of conditions favouring waterfall strategy and its optimal use. Therefore we examine Dell‟s conditions favouring waterfall strategy through theories introduced earlier in order to improve our quality of analysis.
5.3.1 Size and the growth of the market Even though Dell can not ignore the significance of the markets other than domestic market, it is impossible to mention that all the foreign markets are equally important and equal size of potential markets. One example is Dell‟s operation in Estonia and Baltic countries. Their market sizes are relatively smaller than other foreign markets and therefore Dell does not introduce new products at the same time as to the other countries. In other words, Dell uses waterfall strategies to countries which are smaller size and less potential to grow rapidly.
5.3.2 Economic factors Similar to the size and the growth of the market, economic factors of each foreign markets differ too. Most importantly, the wealth of each country influences the adaptation speed to Dell‟s new products. Even though the economy overall is getting improved and there are less countries that do not catch up to the other countries, still there are countries that are not interested in high technology, relatively luxury products such as PC. Therefore, even the biggest computer company such as Dell does not introduce its new products into those countries in simultaneously, or even ever. In other words, the economic factors also affect strongly to the choice of waterfall strategy.
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.
5.3.4 Nature of the product This is one important fact that we have found through the investigation, which was not mentioned in our theoretical framework. According to the interview, Dell has used waterfall model when they have introduced product which lays totally in new category. For example, Dell sells flat screen TV as a new product only in Domestic country (USA) but not in other foreign markets. This can be because the company tries to reduce the risk associated with new product rollouts. As a nature of the waterfall strategy, it can reduce the cost associated with introduction and also reduce risk in many ways which are explained in the earlier chapter. From those facts, we can analyse that Dell uses waterfall strategy when it introduces totally new category of products which faces higher uncertainty of success.
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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 Dell‟s strategy of rolling ou t 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 today‟s 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 product‟s 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 Dell‟s 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 perce nt 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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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.645–659. 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 Dell‟s 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]
Dell‟s company overview. Available at: Dell‟s 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: Dell‟s global market share overview in year 2006 Figure 4: Projected growth through 2010 indexed for Dell share Figure 5: Dell‟s market share comparison in 2000 and 2005
List of Table Table 1: Three international segmentation approaches
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Appendix: Interview Guide Questions for Dell Part One
1. When introducing new products into global markets, does Dell prefer introducing them to different countries at the same time or one country at a time? (In order words, the sprinkler or waterfall strategy?) 2. If a waterfall strategy is applied, which are the countries in sequence Dell introduces new products to? 3. What are the reasons for choosing either waterfall or sprinkler strategy? 4. Could you give us some examples regarding to the products that were introduced in the global market in the past 5 years 5. Which are the successful products and which are not with reference to question 4? Part Two
For part two, please select one successful product and one unsuccessful product which were introduced in the global market in the past 5 years and answer these questions. 6. What do you think that can be the reasons for unsuccessful product? 7. Concerning the successful and unsuccessful products in question 4, how long were the product life cycles of each did Dell expected them to be? (Definition of product life cycle: the four stages that a new product is thought to go through from birth to death: introduction, growth, maturity and decline.) Successful product: Unsuccessful product: 8. Are these products life cycles considered long or short? Successful product: Unsuccessful product 9. What were the entry costs to launch each one of these products? Successful product: Unsuccessful product: 10. If the marginal costs were bigger than the marginal profit, did Dell launch this product anyways? 52
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 Dell‟s 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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