“It’s amazing to me that our competitors

think the customer is the dealer.”

Michael Dell

“Sales Leader: Tops in Global Basis.”

Be Direct: DELL

The Challenges and Evolution of Marketing

Introduction
 Before Michael Dell, innovation was
about well-schooled engineers in R&D
labs inventing high-margin products and
technologies.
 Dell instead trained his eye on finding
the most efficient way to get tech
products into the hands of the consumers.

The Challenges and Evolution of Marketing

 Perfected the credo— “Cut out the
middleman.”
 DELL eliminated the need for inventory
or middlemen and gave itself a built-in
price advantage, which it in part keeps as
profit and in part passes on to customers.”

The Challenges and Evolution of Marketing

  Michael Dell:
“The only constant thing
about business is that every-
thing is changing. We have to
take advantage of change and
not let it take advantage of
us.”
The Challenges and Evolution of Marketing
  “Selling tech products by
telephone and then the
Internet… Michael broke the
paradigm about how to run a
computer business; they
haven’t been so great at
finding the next paradigm.”
The Challenges and Evolution of Marketing
  Michael Dell is the chairman of the
Board of Directors of Dell, the company
he founded in ’84 for $1,000.
 With an unprecedented idea---build
relationships directly with consumers
(born in February ‘65).
 Dell’s commitment to consumer value, to
the team, to being direct, to operating
responsibly and, ultimately to winning.
Continues to differentiate Dell from other
companies.
The Challenges and Evolution of Marketing
 Michael Dell and Executive Management ponder:
1. Whether or not to enter new product markets
with laptops and servers?
2. A global strategy to manage the sales in the
international markets.
3. Decision making in a dynamic
environment.
4. 2006 is the year they need to reinvent
themselves. HP has narrowed the gap on
productivity and price.
The Challenges and Evolution of Marketing
  DELL did not want the “unsophisticated”
customer.
 DELL wants to sell to the “educated”
customer.
 DELL wants the consumer to buy their
third or fourth system from DELL. It’s
more profitable and easier.

The Challenges and Evolution of Marketing

  Why DELL case: We’ll look at direct
marketing and marketing strategies.
 Look at more efficient way of going to
market.
 Just-in-time (JIT) manufacturing.
 VAR’s (Value-added resellers), solutions
for vertical markets like banking,
manufacturing and retailing.

The Challenges and Evolution of Marketing

Direct Model: Characteristics
 • The Dell model is characterized by
 – focus on specific market segments
 – high velocity-low cost distribution
 – build-to-order and direct-to-customer
relationships
 – JIT manufacturing and strong supplier
management
 – Minimum Inventory (13 days): Allows sooner
introduction of new products
  – Service and repair through telephone and
third parties.
 • Each customer order may be unique in
terms of
 manufacturing, procurement, packaging,
and logistics
 requirements.

The Challenges and Evolution of Marketing

Direct Model: Advantages
 Direct model has several key advantages
 By eliminating the intermediaries, Dell reduced the
channel costs from 13.5%-15.5% to 2% of product
revenue.
 Every Dell system is BTO and so customers get
what they ask for.
 Dell used the customer knowledge for tailoring the
service and also to forecast the future
 Latest technology is used in products since
inventory carried is small
 Customer Service
 Dell places strong emphasis on service and
support.
 – Employs 1300 technical service
personnel accessible 24hrs
 – System identifiers used in manufacturing
become post sales Ids and system
configuration displayed on service reps
screens when customer calls
 – Dell employs Third Party Maintenance
providers such as Wang, Unisys, Decision
one consulting,.. for on-site support
 – Dell is accountable for customer service
Introduction
 The Future: The power of laptops
became compatible with desktops,
because of design, manufacturing
and usage.

 Added: Printers, Servers, Projectors, TV’s,

Handhelds, Software, Peripherals, Storage,
Networking, Workstations and more.
The Challenges and Evolution of Marketing
Supply chain management :-
 Dell revolutionized the way people in the united states buy
computers.
– Markets its direct sales model.
 No intermediaries
 No warehousing
 No physical store presence

 Dell eliminated the need for central warehousing as well as the need
for a physical store presence. Instead Dell attracts customers to its
site and then builds bonds with them there rather than investing in a
physical relationship.
– Saves money and time.
 Sales
 Production
 Warehousing

The Challenges and Evolution of Marketing

For customers this means…
 Reduced price
– The money saved from selling products directly to the customers is then
passed on to them.
 By selling directly to the customer Dell removes all the cost that they would
have incurred during the holding and marketing of the products.

 Total customization of their personal computers.

– Dell offers a totally hands on experience when its comes to purchasing
your next computer.
 Allows customers to pick and choose every little thing that will be added to
there computer.
– This not only give the customer added value because they are getting exactly
what they want and are not being forced to purchase anything extra that they
will not be needing.
– Helps dell to get the clearest picture as to what there customers are buying.
 Higher level of communication between customer and company.
– Dell is free to collect customer information directly from there
customers rather than having an intermediary try to do this.
 This allows Dell to not only track its customers but also helps to retain them.

The Challenges and Evolution of Marketing

 Customers and Segmentation
 • Two kinds of customer segments
Transactional customers ( 30%)
Relationship customers (40%)
Remaining are a mix (30%)
 The customer segmentation drives the
organizational structure of the company
 Dell targeted customer segments where
the revenues grow faster than expenses.

The Challenges and Evolution of Marketing

 secondary consideration
 – They focus on attributes such as service, reliability,
vendor reputation and product standardization
 They are the govt. education and business accounts.
 Dell competes with resellers such as IBM, HP,
Compaq etc in this segment
Dell competes by being a being more than a hardware
vendor driving down the total cost of ownership with
Dell Plus and Dell financial services
 Dell has 25% of fortune 500 companies as exclusive
accounts and is fast penetrating into small and
medium segments.

The Challenges and Evolution of Marketing

 Segmentation
 Dell let its competitors introduce the low-
margin PCs for first time users and targets
Consumers who are buying the second and
third machines and who require less hand-
holding.
 •Dell cuts its market into finer and finer
segments
Large, medium, small companies, Higher
Educational Institutions,…
 – Platinum ( > $10 million), Gold ( $ 5-10
million)
 • Platinum councils
The Challenges and Evolution of Marketing
Introduction

 What does SWOT analysis

reveal about Dell’s situation?

The Challenges and Evolution of Marketing

 SWOT Analysis
Business to Consumer Business to Business
Strengths Opportunities Strengths Opportunities
Customization Server Market Customization Server Market
Price International strategy Price International strategy
Customer Focused Product extensions Customer Focused Additional markets
Technical Knowledge Technical Knowledge Product extensions
Market Market Strategic partnerships
Diversification Diversification
Strong Strong
Brand/Positioning Brand/Positioning
Media Savvy Media Savvy
Direct Marketing Direct Marketing
Model Model
Non-myopic strategy Non-myopic strategy

Tangibility Competition across Technology Market Competition across

TechnologyMarket markets Inventory markets
Commodity pricing Commodity pricing
Commoditization
Inventory (shrinking margins) (shrinking margins)
Complexity of Mgmt. Complexity of Mgmt.

Growth exceeding Growth exceeding

productivity productivity

Weaknesses
The Threats
Challenges and Evolution of Marketing Weaknesses Threats
  Avoiding dealers means less mark-ups, less
overhead and delivers lower prices to the
customers for DELL.
 DELL: Number One in PC Sales
 DELL is one of the Most Admired Companies
Fortune’s Annual issue
 In 2003, generated 80% of profits from sales to
businesses.
 With one week of parts on hand, DELL turns over
its inventory 52 times a year. Compaq and HP
turn over is 13.5 and 9.8.
The Challenges and Evolution of Marketing
 Dell’s invasion into living rooms with flat-
screens and other electronics will be a $100
Billion “free for all.”
 Consumers will benefit. Prices will drop.
Competition is Sony, Samsung and Toshiba.
 Morphing into a leading consumer-electronics
firm.
 Dell isn’t very innovative. Spends only 1.5%
on research, but “We just do it better.”
 Looking at partnerships with Microsoft, Intel.
What about new ones with google and AMD.
The Challenges and Evolution of Marketing
 Michael Dell cares about operating margins.
 Dell stock has been valued at a P/E multiple
above 40. Loftier than IBM, Microsoft, Wal-
Mart and GE.
 “The status quo is never good enough.”
 “Celebrate for a nanosecond.” Then move on.”
“Five seconds of celebration and five hours of
postmortem on what could have been done
better.”
 Problems dealt with: Quickly, Directly, and
without Excuses.”
The Challenges and Evolution of Marketing
  ‘00, Dell was #6 in computer, with a market share
of 6%.
 ‘03, it was #1 with a 30% share. #3 consumer
brand.
 Sales in ’00: $25.2 Billion
 Sales in ’02: $35.2 Billion
 Sales in ’03: $40.8 Billion
 Sales in ’04: $41.4 Billion
 Sales in ’05: $49.2 Billion
 Sales in ’06: $55.9 Billion (est.)
“When a market is ready to explode,
Dell moves in.”
The Challenges and Evolution of Marketing
  Justlike in your own
businesses, windows of
opportunities open and close.
 Successful companies see the
opportunities sooner.

The Challenges and Evolution of Marketing

 DELL is to the computer
industry what Dominos is to
the pizza business.
TIME magazine

The Challenges and Evolution of Marketing

  Heart of the case: Understanding
the DELL Direct Marketing Model.
 The question of entering new markets is in
reality looking at the Direct Marketing
model. Can it be extended into new
markets.
 Inventory has the shelf life of lettuce.
Inventory is the worst thing to have in an
industry in which value of materials and
technology declines quickly.
The Challenges and Evolution of Marketing
Summary
 Dell believes its low-cost, direct sales
approach will allow it to torpedo prices in
many markets, with emphasis on printers.
 Dell’s “all in one” printer, that can scan,
copy and fax are #2 (private label of
Lexmark), behind Lexmark.
 Rival HO gets 70% of profits from printers
and ink.
 In the Dell software, it automatically
detects when ink is running low and directs
user to the Dell website. Free shipping.
The Challenges and Evolution of Marketing
Summary
 Markets evolve over time.
Anticipate and research the
evolution of customers, products,
competitors, channels and
technology.
 Pioneered first money-back
guarantee ’86.

The Challenges and Evolution of Marketing

Summary
 Three Golden Rules of DELL:
1. Disdain inventory
2. Always listen to the customer
3. Never sell indirect.

The Challenges and Evolution of Marketing

 Dell is competing against 50
different manufacturers, looking to
be category killer in flat-screen,
digital market. #10 in US in 2005
with 2.4% share.
 Dell uses same suppliers.
 The convergence of entertainment
and computing or birth of “digital
home” should only help Dell.
The Challenges and Evolution of Marketing
 Developing Dell Direct stores, and
kiosks in malls. Places to touch, see
and browse.
 Offering existing customers deals,
but the purchasing
decisions/behaviors are different.

The Challenges and Evolution of Marketing

Why Dell Succeeded with the
Internet
 Dell is a prominent example of successful
migration to the Internet—a success that is
largely due to the company’s ability to
leverage pre-Internet capabilities.
 • For Dell, the Internet was a sustaining
force that improved upon its existing
resources and processes.

The Challenges and Evolution of Marketing

  Small–to–medium size businesses and
home computer users called 1–800–BUY–
DELL, where trained sales representatives
helped them understand the company’s
products and assess the compatibility of
the components that they wanted.
 When the customer had arrived at a
compatible system configuration, the sales
representative entered the order into the
company’s IT system.
 There is no channel conflict

The Challenges and Evolution of Marketing

 HP vs. Dell. HP’s business has long
faced the difficult choice…focusing
on grabbing market share or
improving profitability.
 ’03 & ’04, HP’s approach.
Aggressively battling Dell to claim
bragging rights as top PC seller.

The Challenges and Evolution of Marketing

 HP is backing away from seeking
market share at all costs or
going all-out to upseat Dell
from the top.”
 Investors are applauding.”
Saying it’s a positive thing for
HP. WSJ 1/19/05
The Challenges and Evolution of Marketing
 Hewlett-Packard plans to cut
14,500 jobs in a restructuring
plan meant to save $1.9 billion
a year.
WSJ July 19, 2005

The Challenges and Evolution of Marketing

 “Our model continues to be the
best in the business.”
 “In past ten years our sales are
up 15 times and earnings and
stock price are up 20 times.”

The Challenges and Evolution of Marketing

Summary
 Dell remains the world’s largest PC maker:
 Not the revolutionary force it was…
 Direct (DTC) will dominate
 Partnerships with Microsoft and Intel:
Microsoft losing ground to Linux and Intel
to AMD.
 Needs to increase R&D spending; Look for
future trends.
 Cutting price. Undercutting rivals. Needs to
spend more on customer service and new
product development.
The Challenges and Evolution of Marketing
 “It’s amazing to me that our
competitors think the customer
is the dealer.”

“No victory laps…It’s a

marathon…
Celebration breeds
complacency.

Michael Dell
Be Direct: DELL

The Challenges and Evolution of Marketing

 “Every company needs to
challenge and reinvent itself.”
The big question for DELL in
2006 is HOW?

Be Direct: DELL

The Challenges and Evolution of Marketing