Ch. 3
Building and Editing the Channel Value Chain I:
The Key Principles
I. Industry: PC ; Company: Dell
Table 3-1: PC Channel Share in the U.S.
Direct
Dealer/VAR/SI
Retail
Total Units
1984
1988
1994
25%
70%
5%
24%
68%
8%
18%
58%
24%
7.7Million
9.23Million
15.60Million
Ch. 3
Building and Editing the Channel Value Chain I:
The Key Principles
Table 3-2: PC Channel Shipment Share in the U.S.
Direct inbound
Direct outbound
Internet Direct
Dealer/VAR/SI
Retail
Others
Total Units
2001
2003
2005
23%
18%
8%
28%
19%
5%
19%
23%
13%
22%
20%
4%
17%
25%
12%
20%
21%
4%
46.07Million
52.70Million
64.14Million
Ch. 3
Building and Editing the Channel Value Chain I:
The Key Principles
II. More than Timing: Secret of Dell’s Success
1. Ability to Time the Market*
2. Very Tight Configuration of Value Chain (both
Supply Chain and Demand Chain)
III. How Dell Builds and Edits the Channel Value Chain
1. Value creation starts with the customer.
2. Benchmark offerings against key competitors
3. Channel capabilities and demand chain
requirements influence each other.
Ch. 3
Building and Editing the Channel Value Chain I:
The Key Principles
Principle 1: Value creation starts with the customer.
1. Need for market segmentation = SOD
ex) Dell: Transactional or Relational Customers
Principle 2: Benchmark offerings against key
competitors
- Calibrate your capabilities and costs
ex) Dell: Foray into retail in early 1990s
Ch. 3
Building and Editing the Channel Value Chain I:
The Key Principles
Principle 3. Channel capabilities and demand chain
requirements influence each other.
ex) Dell: Need to target large companies for growth
 Chip sets by Chips & Technologies; Premier Pages
Translating Principles
1. Dell is a masterful retailer. Do you agree?
2. Your intermediaries are your customers. Do you
agree?
Ch. 4
Building and Editing the Channel Value Chain II:
A Framework for Getting Started
Six-step Framework (example: Alpha Company)
Step 1: Start from the perspective of the end-user
customer.
Step 2: Prioritize and segment customers by
demand-chain needs.
Ch. 4
Building and Editing the Channel Value Chain II:
A Framework for Getting Started
Six-step Framework (example: Alpha Company)
Step 3: Measure the (current) channel’s capability
to serve those needs.
Step 4: Benchmark key competitors.  Customers’
Other options
Ch. 4
Building and Editing the Channel Value Chain II:
A Framework for Getting Started
Step 5: Configure and evaluate new capabilities
that address customers’ needs.
Step 6: Evaluate alternative channel options and
shape one that best fits the insights from the prior steps.
Ch. 4
Building and Editing the Channel Value Chain II:
A Framework for Getting Started
Three Archetypes of Channel Systems
1.Vertically Integrated
2.Third-party delegated
3.Composite (Partially Integrated)