Market Making in the Personal Computer Industry

In this chapter, Jason Dedrick and Kenneth L. Kraemer analyze a transformation in the personal computer (PC) industry. In the traditional structure of the PC industry, PCs were marketed through a variety of channels from direct sales forces, to corporate resellers and electronic superstores. The connection between the PC manufacturer and the final consumer was weak (via advertising) or non-existent. In the mid-1990s, a major shift began in the US market toward direct sales of PCs, led by Dell Computer, which allowed PC makers better to match demand and supply. Dell Computers pioneered a new type of PC maker, which was basically as an assembler of parts made by contract manufacturers and assembled according to the consumers' specifications. This approach cut out the distributor and retailer, putting the PC maker/brand-name merchandiser in the role of market maker. Direct sales accounted for over half of all PC sales by 2005, dominating the corporate market and augmented by the consumer acceptance of e-commerce. The direct sales model has made smaller inroads outside the USA. Currently, there are three major retail models in the US PC consumer market. The first is the traditional indirect model and the second is the PC maker as retailer. The third, which might be called the retailer as PC maker, includes the private label brands sold by some retailers, such as Wal-Mart and CompUSA, and local "white-box" makers that sell primarily to small businesses. In terms of impacts on suppliers, PC makers have adopted just-in-time practices and moved to vendor-owned inventory to reduce costs. As PC firms have focused on retailing and marketing, they have outsourced even new product development to a contingent of original design manufactures, mostly in Asia.