be direct: dell

7/29/2019 Be Direct: DELL

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The Challenges and Evolution of Marketing

Be Direct: DELL

Its amazing to me that our competitorsthink the customer is the dealer.

Michael Dell

Sales Leader: Tops in Global Basis.


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Introduction Before Michael Dell, innovation was

about well-schooled engineers in R&Dlabs inventing high-margin products and

technologies. Dell instead trained his eye on finding

the most efficient way to get techproducts into the hands of the consumers.

Perfected the credoCut out themiddleman.


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Introduction

Perfected the credoCut out themiddleman.

DELL eliminated the need for inventoryor middlemen and gave itself a built-inprice advantage, which it in part keeps as

profit and in part passes on to customers.Fortune 11/28/2005


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Introduction

Michael Dell:The only constant thing

about business is that every-thing is changing. We haveto take advantage of change

and not let it take advantageof us.


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Introduction

Selling tech products bytelephone and then the

Internet Michael broke theparadigm about how to run acomputer business; they

havent been so great atfinding the next paradigm.

BusinessWeek 3/6/06


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Introduction Michael Dell is the chairman of the

Board of Directors of Dell, the companyhe founded in 84 for $1,000.

With an unprecedented idea---buildrelationships directly with consumers(born in February 65).

Dells commitment to consumer value, to

the team, to being direct, to operatingresponsibly and, ultimately to winning.Continues to differentiate Dell from othercompanies.


7/37The Challenges and Evolution of Marketing

Introduction 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 theinternational 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.


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Introduction

DELL did not want the unsophisticatedcustomer.

DELL wants to sell to the educatedcustomer.

DELL wants the consumer to buy their

third or fourth system from DELL. Itsmore profitable and easier.


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Introduction

Why DELL case: Well look at directmarketing and marketing strategies.

Look at more efficient way of going tomarket.

Just-in-time (JIT) manufacturing.

VARs (Value-added resellers), solutionsfor vertical markets like banking,manufacturing and retailing.


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Introduction

The Future: The power of laptops

became compatible with desktops,

because of design, manufacturingand usage.

Added: Printers, Servers, Projectors, TVs,Handhelds, Software, Peripherals, Storage,Networking, Workstations and more.


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Introduction

What does SWOT analysisreveal about Dells situation?


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SWOT Analysis

CustomizationPrice

Customer Focused

Technical Knowledge

MarketDiversification

Strong

Brand/PositioningMedia Savvy

Direct MarketingModel

Non-myopic strategy

Server MarketInternational strategy

Product extensions

TangibilityTechnology Market

Commoditization

Inventory

Competition acrossmarkets

Commodity pricing

(shrinking margins)

Complexity of Mgmt.

Growth exceedingproductivity

CustomizationPrice

Customer Focused

Technical Knowledge

Market Diversification

StrongBrand/Positioning

Media SavvyDirect MarketingModel

Non-myopic strategy

Server MarketInternational strategy

Additional markets

Product extensions

Strategic partnerships

Technology MarketInventory

Competition acrossmarkets

Commodity pricing

(shrinking margins)

Complexity of Mgmt.

Growth exceedingproductivity

Business to Consumer Business to Business

Strengths Opportunities Strengths

Weaknesses Threats Weaknesses Threats

Opportunities


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Case Questions

1. What impresses you about this company?2. What is your assessment of the job Michael Dell has

done, as CEO? Senior management?

3. How did Dell segment its customers? What types ofcustomers? What were they like?

4. Whos the competition for transactioncustomers?

5. Whos the competition of the other segmentedcustomer?

6. What are the advantages of this direct marketingand direct manufacturing model?

7. With its past distribution agreements with Staples,CompUSA, and Sams Clubs, why did Dell have aproblem with the retail entry?


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Case Questions8. Why did Dell fail in its first entry in

laptops?9. What are the implications of a server

failure versus a desktop failure?

10. What are the sales and customer serviceimplications of a server failure versus adesktop failure?

11. Does Dells expansion into other productsand services make good strategic sense?

12. Given that Dell is a global player, howwould you characterize its strategies?


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Wrap Up: Now and Then

Avoiding dealers means less mark-ups, lessoverhead and delivers lower prices to thecustomers for DELL.

DELL: Number One in PC Sales DELL is one of the Most Admired Companies

Fortunes 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 HPturn over is 13.5 and 9.8.


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Wrap Up: Now and Then Dells invasion into living rooms with flat-

screens and other electronics will be a $100Billion free for all.

Consumers will benefit. Prices will drop.Competition is Sony, Samsung and Toshiba.

Morphing into a leading consumer-electronicsfirm.

Dell isnt very innovative. Spends only 1.5% onresearch, but We just do it better.

Looking at partnerships with Microsoft, Intel.What about new ones with google and AMD.


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Wrap Up: Now and Then 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 donebetter.

Problems dealt with: Quickly, Directly, andwithout Excuses.


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Wrap Up: Now and Then 00, Dell was #6 in computer, with a market share

of 6%.

03, it was #1 with a 30% share. #3 consumerbrand.

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.


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Summary

Just like in your own

businesses, windows ofopportunities open and close.

Successful companies see theopportunities sooner.


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Wrap Up: Now and Then

Michael Dell:

-Named CEO of the Year 2001

-Wealthiest individual under 40,in 2000, 2001, 2003, 2004.

-If his DELL stock lost all value,

Michael was still be the wealthiestperson under 40, until his birthday in2/05.


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Summary

DELL is to the computer

industry what Dominos is tothe pizza business.

TIME magazine


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Summary Heart of the case: Understanding

the DELL Direct Marketing Model.

The question of entering new markets is in

reality looking at the Direct Marketingmodel. Can it be extended into newmarkets.

Inventory has the shelf life of lettuce.

Inventory is the worst thing to have in anindustry in which value of materials andtechnology declines quickly.


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Summary Dell believes its low-cost, direct sales

approach will allow it to torpedo prices inmany markets, with emphasis on printers.

Dells all in one printer, that can scan,copy and fax are #2 (private label ofLexmark), 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 directsuser to the Dell website. Free shipping.


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Summary

Markets evolve over time.Anticipate and research the

evolution of customers, products,competitors, channels andtechnology.

Pioneered first money-backguarantee 86.


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Summary

Three Golden Rules of DELL:

1. Disdain inventory

2. Always listen to the customer

3. Never sell indirect.


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Summary Its not enough to rack up profits or

turbo charge growth. Execs mustdo both.

Miss a profit goal and youre notcutting costs fast enough. Overshoot itand youre leaving sales on the table.

Pity the execs (server, storage andnetworking chiefs) who didnt use allof the bullets in the gun. Despite solidresults. Reassigned.


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Summary

Dell-lizing Printers

Dell entered printer market in 03.

Market share: 19% in early 2005. In 2004: 50% of revenue came from

desktop PCs. Will drop to 30-35% in

coming years.


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Summary

Dell is competing against 50different manufacturers, looking tobe category killer in flat-screen,digital market. #10 in US in 2005with 2.4% share.

Dell uses same suppliers.

The convergence of entertainmentand computing or birth of digitalhome should only help Dell.


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Summary

Developing Dell Direct stores, andkiosks in malls. Places to touch, see

and browse.Offering existing customers deals,

but the purchasing

decisions/behaviors are different.


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Summary

HP vs. Dell. HPs business has longfaced the difficult choicefocusing

on grabbing market share orimproving profitability.

03 & 04, HPs approach.

Aggressively battling Dell to claimbragging rights as top PC seller.


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Summary

HP is backing away fromseeking market share at all

costs or going all-out toupseat Dell from the top.

Investors are applauding.Saying its a positive thing forHP. WSJ 1/19/05


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Summary

Fortune cover 2/7/05

Why Carlys Big Bet is

Failing.Buying Compaq hasnt paid off

for HPs investors. Theres noeasy way out.

Carly is forced out on 2/9/2005


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Summary

Hewlett-Packard plans to cut

14,500 jobs in a restructuringplan meant to save $1.9 billiona year.

WSJ July 19, 2005


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Summary

Our model continues to be thebest in the business.

In past ten years our sales areup 15 times and earnings and

stock price are up 20 times.

Michael Dell: Fortune 11/15/2005


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Summary Dell remains the worlds largest PC maker: Not the revolutionary force it was Direct (DTC) will dominate

Partnerships with Microsoft and Intel:Microsoft losing ground to Linux and Intelto AMD.

Needs to increase R&D spending; Look for

future trends. Cutting price. Undercutting rivals. Needs to

spend more on customer service and newproduct development.


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Be Direct: DELL

Its amazing to me that ourcompetitors think the customer

is the dealer.

No victory lapsIts amarathon

Celebration breedscomplacency.

Michael Dell


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h Ch ll d l i f k i

Be Direct: DELL

Every company needs tochallenge and reinvent itself.The big question for DELL in

2006 is HOW?

be direct: dell

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