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11/18/2005
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Dell's Pricing Squeezes Service

Dell is grappling with an overall product lineup that is showing record unit sales in many areas but faces a squeeze that has bitten into customer service capabilities, according to the company’s CFO. At the same time, he said, rivals have begun closing the cost-structure gap.

Dell is grappling with an overall product lineup that is showing record unit sales in many areas but faces a squeeze that has bitten into customer service capabilities, according to the company’s CFO. At the same time, he said, rivals have begun closing the cost-structure gap.

“We still have the best customer service ratings and highest customer satisfaction,” said Dell CFO Jim Schneider, speaking at the Raymond James IT Supply Chain Conference in New York last week. But, he said, those rankings “have come down somewhat. We acknowledge it.”

Schneider suggested the combination of high-volume unit sales and lower average selling prices has created a squeeze on support resources. “We really have to step up our call center operations,” he said.

Schneider spoke less than a week after Dell reported its third-quarter earnings. The Round Rock, Texas, PC maker’s profit dropped 28 percent from the year-ago period, with the company citing slow consumer sales as a factor. “We were obviously a little disappointed with the revenue we turned in,” he said, adding that the results were in the range of revised expectations.

Dell reported sales of $13.9 billion for its third quarter. While revenue was up 11 percent over the year-ago quarter, it fell short of the company’s initial expectations by as much as 7 percent.

Some solution providers said they already have begun to see a change in Dell’s pricing and market strengths. “When your whole game is based on price, you don’t have a lot of room to make it up anywhere else,” said Al McGorry, CEO of Capital Data, Sacramento, Calif. McGorry said his company acts as a Dell reseller in limited situations, primarily as a courtesy to some customers. More often, he leads with products from Hewlett-Packard. And while Dell was struggling, McGorry said, his company was not.

Among the factors adding to the market pressure, Schneider said, was a market that was driving system pricing down faster than declines elsewhere. “I think commodity component cost declines were very moderate,” Schneider said. “And I think average selling prices declined more than that.” He said Dell, with its direct sales model, still maintains a cost advantage over rivals but said, “it’s probably narrowed somewhat.”

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