nbc1 2008, (c) 2008 jay a. smith 1 class 5: dell online case study
TRANSCRIPT
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Region Goods/Service Promotion Project Review
Product/service: Company/brand: Customer target & size: Promotion message: Place: Channel: Competition: Price: Collaborators:
+ ADVERTISEMENTSample
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Homework: Dell Online Case Issues to Think About (Ps & Cs)
Company History and Choices Industry & Competition Products Customer/Market Segments Pricing Channel/Operations Competitive Advantage Case questions & decisions
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FIT: All Parts Work Together
Business,TechnologyEnvironments
Opportunity Social,GovernmentEnvironments
BusinessStrategy
MarketingStrategy
OperationsStrategy
FinanceStrategy
Do strategies support, fit each other, have flexibility, balance/manage risk?
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PC Industry Structure
DellSuppliers:
Components,Software,Service
Competitors:Compaq, IBM,
HP, Gateway…
Substitutes:Typewriter,
Word Processor,Calculator
Channel
Customers:Businesses,Government,Education,Consumer
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Dell History 1983 Part-time Formatting Disks (Michael 18 才 , left college )
IBM / Apple / DosV/ NEC 98 DOS 1 4GB iPod = 6.2 650MB CDs = 2, 777 1.44 MB Floppy
1984 Sales $6 million upgrading IBM compatibles 1985 Dell Brand PCs = $70 million 1988 IPO 1990 Sales = $500+ million (IBM 386 delay ga
p) 1993 Sales = $2.8 billion – But Net Loss
Quit the Retail Channel Stopped making laptops until quality improved
1996 Begins Online/Internet Sales
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Dell Sales History
-$1,000
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
1986 1988 1990 1992 1994 1996
Net Sales Net Income
$7.76 billion¥ 9.31千億
(Millions)
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Industry/Market Life-Cycle
Emerging Growing Maturing Declining
SALES
TIME
Awareness Interest Trial Purchase Repurchase
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PC Industry Growing, but Hard Business
Highly competitive Big companies compete at many levels Pricing/Margin pressure
Commodity-like business– cost advantage is keyMargins 35%-40% 1991 => 20% in 1996
Cyclical “Feast-or-famine” demand cycles Strong power of dealers
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Signs of Maturing Markets Home PC Market
49% to 32% first time buyers in ’95-96 38-40% household penetration of PCs Avg. selling price down from $2,400 to $1,500 in 9 months Market becoming “bi-polar”
33% below $1000 66% above $2,000
Corporate Market Maturing 1.1 PCs per worker in U.S. 0.8 PCs per worker in W. Europe & Asia But 75-80% of corporate systems used slower-than-Pentium
processors
Becoming replacement business
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Compaq
Dell
PB/ NEC
HPGateway
Other
IBM
0
10
20
30
40
50
60
70
80
90
100
1997
1997 U.S. Market Share ($85 Billion)
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Basic Dell Products
Laptop Desktop
HigherPrice
LowerPrice
Inspiron
Latitude
Dimension
OptiPlexBig Business?
Consumer?
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A Manufacturer’s Disadvantages
Hardware Only?Software?Consulting/solutions provision?Peripherals?Service?
Perceived as Manufacturer
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Dell Business Areas
DellDirect, DellOnline - computers DellPlus – preinstall software DellWare – other software & hardware
products Dell Asset Management – leasing 3rd party support network
Use of Digital Equipment Corp. (DEC)(DEC acquired by Compaq 1998)
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Full Range Provider
Laptop Desktop
HigherPrice
LowerPrice
Inspiron
Latitude
Dimension
OptiPlex
Servers & /Workstations
Pre-InstallSoftware
After-Service
OtherSoftware
&Hardware
LeaseFinance
DellPlus DellWareDell
AssetMgt.
Contracted(DEC, etc.)
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PC Distribution Channels
Customer
Manufacturer(IBM, HP, Compaq)
National Resellers(MicroAge, CompuCom,
Vanstar, Entex)
National Reseller’s Wholly-Owned Sales
& Service Centers
Franchised Sales & Service
Centers
National Distributors(Ingram, Merisel)
Independent Value-Added Resellers
(I VARs)
National Retail Chains(Circuit City, CompUSA, Sears)
Distribution Center
Distribution Center
Distribution Center
Retail Stores
Retail Stores
Retail Stores
Retail(30%)
VAR(15%)
NationalReseller(33%)
Direct(22%)
Manufacturer(Dell, Gateway, Micron, IBM…)
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Dell Direct Advantages $150 million on marketing communications (1.9% of 1996 sales) Control of channel / No Channel Conflict or Confusion Direct, real-time access to customers
They know exactly the customer (and do market research) Forecasting and planning advantages sales = f (advertising $)
Fresher computers (don’t sit on store shelves, warehouses) Better Cash Flow
Faster cash than via dealers Faster cash from transactional customers
Manufacturing cost Short lead time lowers inventory costs and investment Short lead time lowers parts costs due to downward price trend
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Dell vs. Compaq Etc.
SellParts- $$$
Assemble75-100 days
+$$$
Sell $$$
PartsAssemble & Ship
13 Days
DELL
Compaq, Others
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Dell’s “Fresh” Computers
Ship/Sell
Parts Assemble
75-100 daysInventory
$$$
Sell $$$
PartsAssemble & Ship (36 hrs)
13 Days Inventory
DELL
Compaq, Others
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Why Use Indirect Channels?
Market “reach” “can only reach 30%” VP of Compaq
Need indirect to reach entire market Is that true? Does that change over time? Do you want to reach the entire market?
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Dell Customer Segments
By Organization TypeBusiness/Institutional
Business Government Education
Consumer/Home/Individual Sell to “educated consumer” not only on price With mature market more consumers are “educate
d”
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Dell Market Penetration - – By Size
25% of Fortune 500 10% of 501st – 5,000th
8% of 15,000 companies between 200-2000 employees
5% of 7 million small and medium businesses
??? homes?
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Dell Customer Segments – By Buying Process 40% Relationship
Other issues important beyond price 30% Transactional
Each purchasing time is uniqueComparison shoppersHave to convince them every time
30% Mix of relationship and transactional
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Transactional vs. Relationship
Transactional Relationship
Purchase Focus Price SensitiveReliability, Vendor Strength, Standardization
Info SourcesReviews, editorials, advertising, word of mouth
Sales People, industry analysts, conferences, trials, testing
Complete Solution Requirements
Sometimes Usually
Competitors Gateway, Micron, Retailers IBM, HP, Compaq, VARs,
Salesforce Inside only – up-sellInside-Outside Pairing
(except for small bus. dev.)
Payment Credit CardPurchase Orders, Credit Cards, Leases
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Dell Sales Force
Dell Direct – “phone & feet” - inside & outside sales reps Dell Sales force – U.S. 2,000 in 1997
40% assigned to relationships (40% of business) 35% assigned to mixed (30% of business) 25% assigned to transactional (30% of business)
Retail Shops --- exited this business Dell Online – Internet
“Dell can migrate without upsetting existing channels” Premier Pages reinforce Relationship business
Add value of purchasing control, customers’ procurement process costs in addition to ease-of-access
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Internet Selling Benefits
Self-service transaction (like ATM) Information service
Menu (can configure, select) Reduces number of phone calls
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Comparing Efficiencies - Sales
Traditional Direct Internet Direct
Contact100,000
Catalogs Dropped
100,000
Online Store Visits
Calls 10,000 (10%)
Orders 2,000 (2%)
5,000 (5%)
1,750 (1.7%)500
(.5%)
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Other Advantages
Traditional/Catalog Design Costs High Printing Costs High Shipping Costs Long time to update Hard to customize Interested Customer?
Online/Internet Design Costs Publishing/Hosting No shipping costs Can update easily Customizable Interested Customer!
Lead generation Higher sales quotas Better salesforce usage
Speeds up sales process Creates lots of information
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Online Cost Savings (one approach)
Service Related Site Visits Per Year 800,000 Order Status2,000,000 Technical Service1,600,000 File Downloads ------------- 4,600,000 Service Site Visits@ $10 per call ($5-15 average)------------------ $46,000,000 Savings
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Does Online Really Save Costs?
Would people still have called? (easability)
Are tech and sales staff fired?
Does it matter…what other medium saves costs?
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50% Online in Next Few Years (Michael Dell) 50% = $ OO Billion = $ OO Million/Day? Enough internet/ecommerce users? (reach)
Want to use Dell.com to get more customers, not just those who would buy Dell another way Table C: 63-75% likely would have bought anyway
How to turn Dell Online into sustainable competitive advantage (p1) Many companies trying to copy Dell model to survive in
competitive market
Key Goals
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Dell Online – Internet “Dell can migrate without upsetting existing
channels” Premier Pages reinforce Relationship business
Add value of purchasing control, customers’ procurement process costs
in addition to ease-of-access
Does Online conflict with Salesforce?56% utilized salesforce (37% +19%)Experienced reps better able to “upsell” (p14)
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Decisions Should we promote our Internet channel (now)
“will press coverage mean more/new sales?” Are we enough ahead to do this yet?
Don’t competitors already know about this, so why worry PR had some negative internal reaction DellOnline also “qualified lead” generator
Should we use Online to go after consumer market Will this force down other prices?
How to organize Dell Online to both: Be closer to business units Still reach 50% of revenues
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Fit: Strategies & Methods Support Each Other Direct sales
Problems when tried to go through retail channels Lower margin Long lead-time
Manufacturing speed, cost, inventory advantages “Fresher” computers Virtual distribution of displays, software
Finance: Lowers Cash needs Cash before assembling (made to order)
PC market may be maturing, but e-commerce isn’t “We are now in the consumer market, with a channel c
onsistent w/ Dell Direct” – Michael Dell (Internet will actually boost total demand…)
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Dell Sales History
-$1,000
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
1986 1988 1990 1992 1994 1996
Net Sales Net Income
$7.76 billion¥ 9.31千億
(Millions)
(2005?)
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Dell Sales History II
-$10,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
1986 1988 1990 1992 1994 1996 2005
Net Sales Net Income
$56 billion¥ 64千億
(Millions)
$7.76 billion¥ 9.31千億
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And the Competition Gateway grew
But opened own retail stores in 2000 Closed retail stores in 2003 2005 Sales=$3.6 billion Net Loss (-$500,000)
DEC acquired by Compaq acquired by H-P
IBM sells PC hardware business to Chinese company 2005
DECCompaq H-P
Total Sales= $79.9 billion
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Dell Market Share as of 3/31/2005
Worldwide share: 1 18.5% United States 1 33.9% EMEA 2 13.3% Asia Pacific 3 7.6% Japan 3 11.6%
Worldwide share: Desktops 1 19.0% Notebooks 1 16.4% x86 Servers 2 27.1%
US Segment share: 1 33.9% Education 1 41.9% Government 1 33.9% Home 1 30.8% Large Business 1 1 44.5% SMB 2 1 31.2%
Rank Share
1 Large Business includes sites with more than 500 employees2 Small and Medium Business includes sites with less than 500 employees
Source: IDC, Dell.com
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Japan PC Market 2003
NEC 21%
Fujitsu 21%
Dell 10%
Sony 9%
Toshiba 8%IBM 7% Hitachi 5%
HP 4%
Others 15%
Total = 10 million units
1 million units