PC Giant Compaq Losing Its Market Share to Dell

Case Type: increase sales/market share; business competition.
Consulting Firm: Capgemini Consulting first round job interview.
Industry Coverage: Computers, Office Equipment.

Case Interview Question #00396: This case is set in the late 1990s. Our client Compaq Computer Corporation is a leading personal computer (PC) company headquartered in Texas, United States (later acquired for USD $25 billion by Palo Alto, California-based PC maker Hewlett-Packard, NYSE: HPQ, in year 2002). It is currently (in late 1990s) the largest supplier of personal computing systems in the world.

Even though Compaq is the industry leader among all personal computer manufacturers in the U.S., it is losing market share dramatically. The company’s U.S. market share dropped from a 20% a year ago to 15% this year. Your consulting team has been brought in by the Chief Operating Officer (COO) of Compaq to figure out why and how to resolve the issue. How would you go about analyzing the case? What would you tell Compaq’s COO?

Additional Information: (to be revealed to you only if requested)

The client Compaq manufactures desktops, laptops and servers. Compaq manufactures both high-end and lower priced computers and is technologically very competent.

Compaq is only losing market share in laptops and desktops, and is still the dominant player in the server market.

Compaq sells almost exclusively through resellers. Compaq has an extensive distribution system through retailers like Best Buy, Circuit City, Office Depot, Target, etc.

Compaq offers good servicing arrangements through the retailers’ service personnel. However, their service personnel do not have in-depth knowledge of Compaq’s PC products since they service other competitors’ products too.

In the late 1990s, personal computer industry is an evolving market with numerous players. One new player Dell (NASDAQ: DELL) has been stealing market share and is growing rapidly. This year, Dell’s share increased to 14% from 10% a year ago.

Competitor Dell sells directly to customers through its own salespeople and does not have a distribution network. Dell offers service through its own sales-force, which is very knowledgeable about PC products. It also has a help telephone line for computer problems which need immediate servicing.

PC consumers want customized equipment. They are leaning more and more towards PC vendors that provide quality repair services, free installation, etc.

Possible Approach:

This case is designed to judge how well the job candidate buckets the problem into various segments before he/she looks for clues. Structure is very important here and the interviewer must decide how to reveal additional information properly.

Reducing the case into the following buckets and then drilling down could be one possible approach.

• Company/Products
• Distribution
• Competition
• Technology
• Customers

Essentially, the case involves identifying the advent of a new player Dell with a direct distribution system. In addition, the interviewee should identify the change in consumer preferences.

Finally, the interviewer can lead the discussion towards a recommendation, i.e., the pros and cons of the client Compaq changing to a direct distribution and how it would impact relationships with current retailers and their sales.