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The Challenges and Evolution of Marketing Be Direct: DELL “It’s amazing to me that our competitors think the customer is the dealer.” Michael Dell “Sales.

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Presentation on theme: "The Challenges and Evolution of Marketing Be Direct: DELL “It’s amazing to me that our competitors think the customer is the dealer.” Michael Dell “Sales."— Presentation transcript:

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2 The Challenges and Evolution of Marketing Be Direct: DELL “It’s amazing to me that our competitors think the customer is the dealer.” Michael Dell “Sales Leader: Tops in Global Basis.”

3 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. Perfected the credo— “Cut out the middleman.”

4 The Challenges and Evolution of Marketing Introduction 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.” Fortune 11/28/2005

5 The Challenges and Evolution of Marketing Introduction 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.”

6 The Challenges and Evolution of Marketing Introduction “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.” BusinessWeek 3/6/06

7 The Challenges and Evolution of Marketing Introduction 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.

8 The 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 the international markets. 3. Decision making in a dynamic environment is the year they need to reinvent themselves. HP has narrowed the gap on productivity and price.

9 The Challenges and Evolution of Marketing Introduction 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.

10 The Challenges and Evolution of Marketing Introduction 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.

11 The Challenges and Evolution of Marketing 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.

12 The Challenges and Evolution of Marketing Introduction What does SWOT analysis reveal about Dell’s situation?

13 The Challenges and Evolution of Marketing SWOT Analysis Customization Price Customer Focused Technical Knowledge Market Diversification Strong Brand/Positioning Media Savvy Direct Marketing Model Non-myopic strategy Server Market International strategy Product extensions Tangibility Technology Market Commoditization Inventory Competition across markets Commodity pricing (shrinking margins) Complexity of Mgmt. Growth exceeding productivity Customization Price Customer Focused Technical Knowledge Market Diversification Strong Brand/Positioning Media Savvy Direct Marketing Model Non-myopic strategy Server Market International strategy Additional markets Product extensions Strategic partnerships Technology Market Inventory Competition across markets Commodity pricing (shrinking margins) Complexity of Mgmt. Growth exceeding productivity Business to ConsumerBusiness to Business StrengthsOpportunitiesStrengths WeaknessesThreats WeaknessesThreats Opportunities

14 The Challenges and Evolution of Marketing 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 of customers? What were they like? 4. Who’s the competition for “transaction” customers? 5. Who’s the competition of the other segmented customer? 6. What are the advantages of this direct marketing and direct manufacturing model? 7. With its past distribution agreements with Staples, CompUSA, and Sam’s Clubs, why did Dell have a problem with the retail entry?

15 The Challenges and Evolution of Marketing Case Questions 8.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 service implications of a server failure versus a desktop failure? 11. Does Dell’s expansion into other products and services make good strategic sense? 12. Given that Dell is a global player, how would you characterize its strategies?

16 The Challenges and Evolution of Marketing Wrap Up: Now and Then 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.

17 The Challenges and Evolution of Marketing Wrap Up: Now and Then 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.

18 The Challenges and Evolution of Marketing 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 done better.” Problems dealt with: Quickly, Directly, and without Excuses.”

19 The Challenges and Evolution of Marketing 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 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.”

20 The Challenges and Evolution of Marketing Summary Just like in your own businesses, windows of opportunities open and close. Successful companies see the opportunities sooner.

21 The Challenges and Evolution of Marketing Wrap Up: Now and Then Michael Dell: -Named CEO of the Year Wealthiest individual under 40, in 2000, 2001, 2003, If his DELL stock lost all value, Michael was still be the wealthiest person under 40, until his birthday in 2/05.

22 The Challenges and Evolution of Marketing Summary DELL is to the computer industry what Dominos is to the pizza business. TIME magazine

23 The Challenges and Evolution of Marketing Summary 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.

24 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.

25 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.

26 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.

27 The Challenges and Evolution of Marketing Summary It’s not enough to rack up profits or turbo charge growth. Execs must do both. Miss a profit goal and you’re not cutting costs fast enough. Overshoot it and you’re leaving sales on the table. Pity the execs (server, storage and networking chiefs) who didn’t use all of the bullets in the gun. Despite solid results. Reassigned.

28 The Challenges and Evolution of Marketing Summary Dell-lizing Printers Dell entered printer market in ’03. Market share: 19% in early In 2004: 50% of revenue came from desktop PC’s. Will drop to 30-35% in coming years.

29 The Challenges and Evolution of Marketing Summary 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.

30 The Challenges and Evolution of Marketing Summary 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.

31 The Challenges and Evolution of Marketing Summary 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.

32 The Challenges and Evolution of Marketing Summary 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

33 The Challenges and Evolution of Marketing Summary Fortune cover 2/7/05 “Why Carly’s Big Bet is Failing.” “Buying Compaq hasn’t paid off for HP’s investors. There’s no easy way out.” Carly is forced out on 2/9/2005

34 The Challenges and Evolution of Marketing Summary Hewlett-Packard plans to cut 14,500 jobs in a restructuring plan meant to save $1.9 billion a year. WSJ July 19, 2005

35 The Challenges and Evolution of Marketing Summary “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.” Michael Dell: Fortune 11/15/2005

36 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.

37 The Challenges and Evolution of Marketing Be Direct: DELL “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

38 The Challenges and Evolution of Marketing Be Direct: DELL “Every company needs to challenge and reinvent itself.” The big question for DELL in 2006 is HOW?


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