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Direct Marketing Secrets of DELL


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Michael Dell established Dell Computer Corporation in 1984 in Austin, TX with the capital of $1,000, during the time he was Attending University of Texas. He had a vision that he could do great things by upgrading PCs and sell them. In 1983, his father asked him what he wanted to do with his life; Michael’s answer was “ I want to compete with IBM!” Even-though his father was not amused; he made his choice and started his own business with all his heart.

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Direct Marketing Secrets of DELL

  1. 1. Direct Marketing Secrets of DELL COMPUTERS “ Building Great Customer Experiences” Prepared By Hasan Kursad Devecioglu Mercy College July 2003 1
  2. 2. INTRODUCTION Michael Dell established Dell Computer Corporation in 1984 in Austin, TX with the capital of $1,000, during the time he was Attending University of Texas. He had a vision that he could do great things by upgrading PCs and sell them. In 1983, his father asked him what he wanted to do with his life; Michael’s answer was “ I want to compete with IBM!” Even-though his father was not amused; he made his choice and started his own business with all his heart. While upgrading and selling PCs, he found out that traditional manufacturer-retailer chain is not as productive as it should be. Therefore he started to think of finding ways to sell to the end users directly. By doing so, decreasing the costs on the supply chain and more important servicing the customer with those saved dollars would be a great solution in order to increase customer satisfaction and loyalty. He was right to do what he believed in as an entrepreneur and now he has a reputable company not only in terms of the sales but also building great customer relationships. We, direct marketers, are in an environment, which changes so quickly and only way to survive is keeping track with customers’ preferences and trying every possible method to build strong, long-term relationship with customers in order to increase customer satisfaction, customer loyalty and customer profitability in cost effective way. In Dell Corporation, success is coming from proper research, positioning and the most important segmentation. Successful segmentation work gives Dell an opportunity to adjust its approach to each customer in each segment to build and improve customer relationships. That is customer relationship management and that is competitive advantage of Dell Computers. That is not an inside out company but outside in. Since what he is doing is a 2
  3. 3. perfect example of direct marketing, I have enjoyed making research and preparing this project. I would like to give you detailed information of Dell’s success in the view of Customer Relationship Management and Direct Marketing. What is happening in PC Market Place? (1) According to the PC World Magazine (April 2003 issue), here is the latest sales status in PC market place for 2003. ay G at ew Fu j i ts u. .. IB M P H l el Sold units 6,000,000 5,500,000 1,900,000 1,700,000 506,000 D Company Dell HP IBM Fujitsu-Siemens computer Holding Gateway 7,000,000 6,000,000 5,500,000 6,000,000 5,000,000 4,000,000 1,900,000 1,700,000 3,000,000 2,000,000 506,000 1,000,000 0 DELL COMPUTERS (2) The Company was founded in 1984 by Michael Dell on a simple concept: by selling personal computer systems directly to customers, the Company could best understand their needs, and efficiently provide the most effective computing solutions to meet those needs. Dell Corporation is based in Austin, TX. They have 40,000 regular employees (Approximately 27,000 in the U.S., and approximately 13,000 in other countries) Currently Corporate customers make up about 80% of Dell’s business. Dell’s direct relationship marketing eliminate 25% to 45% dealer mark-up Description of Business (3) Dell Computer Corporation designs, develops, manufactures, markets, services and supports a wide range of computer systems, including desktop computer systems, 3
  4. 4. notebook computers and enterprise systems (includes servers, workstations and storage products), and also markets software, peripherals and service and support programs. The Company is managed on a geographic basis. The three geographic segments are the Americas, Europe, and Asia-Pacific and Japan. Dell Computer Corporation Organization (4) Office of Chairman Michael Dell Chairman Morton Topfer Kevin Rollins Vice Chairman Vice Chairman Engineering Desktop Notebook Server Asian/Pacific Japan Region Region European Region* Korea Australia Singapore Manufacturing Staff Global Business Development Relationship Group -Product Planning UK France Germany Scandinavia Manufacturing Staff -PR -Product Planning -Federal government segment -Finance -PR -State and local government segment -Finance -Education segment Marketing Sales Service HR Finance Americas Region** Legal HR Finance -Enterprise accounts segment -Large corporate accounts -Medium business segment Public and Americas Int'l segment -Latin America segment -Canada Segment Transaction Group -Small business segment -Consumer segment Manufacturing Staff Online Group -Commerce -Site operation -Content/marketing * Functional organization within country ** Functional organization within segment -Premier pages/personalization -Tech support 4
  5. 5. Segmentation and Dell Computers(5) Segmentation is the backbone of the Dell Computers operations. Based on segmentation, company takes its positioning and modifies its offerings for each segment’s customers. Michael Dell says, “An Important element of virtual integration with customers is segmentation. The finer the segmentation, the better able Dell is to forecast what customers are going to need and when. Then coordination of flow of strategic information comes to stage all the way back to suppliers, effectively substituting information for inventory” Small Customers (Business and consumers) Large Customers Large Companies global enterprise accounts Large companies Midsize Companies Midsize companies Government and education Federal state and local Small Customers Education Small Companies Consumers 5
  6. 6. Dell's Market Segmentation Market Segment Buying Process Enterprise(>18,000employees) Relationship Large corporate accounts(2,000-18,000employees) Relationship Preferred accounts ( 400-2,000 employees) Relationship Business Systems Div.(2-400employees) Transactional Dell Catalogue Sales Transactional Federal Government Mixed Education Mixed State & Local Government Mixed Internet Customers Mixed Results of Dell Operations(6) 01 ye a r2 0 00 ye a r2 0 99 r1 9 ye a r1 9 ye a r1 9 ye a 98 $10,000,000 $9,000,000 $8,000,000 $7,000,000 $8,000,000 $5,000,000 $6,000,000 $3,000,000 $4,000,000 $2,000,000 $0 97 Net revenue year1997 $9,000,000 year1998 $7,000,000 year1999 $3,000,000 year2000 $5,000,000 Factors Affecting Dell’s Business and Prospects (7) 6
  7. 7. That is important to stress factors which affect Dell computer’s business and its prospects, based on the Dell 2002 annual report. Here are the factors: • General economic and business conditions • The level of demand for Dell’s products and services • Terrorism or public health issues on the economy generally • On the level of demand for Dell’s products and services, and on Dell’s ability to manage its supply and delivery logistics in such an environment • The level and intensity of competition in the technology industry and the pricing pressures • Component availability and cost • The ability of Dell to develop new products based on new or evolving technology and the market’s acceptance of those products • The ability of Dell to manage its inventory levels to minimize excess inventory, declining inventory values • Dell’s ability to effectively manage its operating costs TIMELINE (8) • 1984 - With $1,000 in startup capital, Michael Dell registers his business as Dell Computer Corporate. The company becomes the first in the industry to sell custombuild computers directly to end-users, bypassing the dominant system of using computer resellers to sell mass-produced computers. 7
  8. 8. • 1986 - The company also pioneers the industry’s first thirty-day money back guarantee, which becomes the cornerstone of Dell’s commitment to expand its service offerings and offer superior customer satisfaction and offers the industry’s first onsite service program. • 1987-Dell establishes its first international subsidiary in the UK. • 1990-Dell started to sell computers through consumer retail stores such as CompUSA and Best Buy. The company later exits this segment after determining the retail-store model did not meet its financial objectives. • 1994-Dell launches its Dell Japan and Dell Asia/Pacific operations. • 1996-Dell launches, starts selling custom-built computers online and introduces its custom-made web links for customers called “premier pages” • 1998-Dell opens an integrated sales, manufacturing and support center in China. • 1999-Sales over tops 35$ million per day. • 2003-Dell ships out 6 million units over HP with 5 million units • 2003-40,000 regular employees. Approximately 27,000 in the U.S., and approximately 13,000 in other countries 8
  9. 9. Business Strategy (9) The Company’s business strategy is based on its direct business model. The Company’s business model seeks to deliver a superior customer experience through direct, comprehensive customer relationships, cooperative research and development with technology partners, computer systems custom-built to customer specifications and service and support programs tailored to customer needs Dell Direct Model (10) The direct model is based on the principle that delivering custom-built computer systems is the best business model for providing solutions that are truly relevant to end-user needs. This concept, together with the Company’s flexible, build-to-order manufacturing process, enables the Company to achieve faster inventory turnover and reduced inventory levels and allows the Company to rapidly incorporate new technologies and components into its product offerings. In the same way that the Company’s computer products are built-to-order, service and support programs are designed to fit specific customer requirements. The Company offers a broad range of service and support programs through its own technical personnel and its direct management of specialized service suppliers. These services range from online support to onsite customer-dedicated systems engineers Dell is the first company, which starts the direct selling model to end users in computer market place. Following benefits give great competitive advantage to Dell Corporation: • Eliminates the need to support an extensive network of wholesale and retail dealers • Avoiding dealer mark-ups 9
  10. 10. • Avoids the higher inventory costs associated with the wholesale/ retail channel and the competition for retail shelf space • Reduces the high risk of obsolescence associated with products in a rapidly changing technological market • Allows the Company to maintain, monitor and update a customer database that can be used to shape future product offerings and post-sale service and support programs. The Company develops and utilizes direct customer relationships to understand endusers’ needs and to deliver high quality computer products and services tailored to meet those needs. For large corporate and institutional customers, the Company works with the customer prior to the sale to plan a strategy to meet that customer’s current and future technology needs. After the sale, the Company continues the direct relationship by establishing account teams, consisting of sales, customer service and technical personnel, dedicated to the Company’s large corporate and institutional customers. The Company also establishes direct relationships with small-to-medium businesses and individuals through account representatives, telephone sales representatives or Internet contact. These direct customer relationships provide the Company with a constant flow of information about its customers’ plans and requirements and enable the Company to weigh its customers’ needs against emerging technologies. Virtual Integration Suppliers D E L L Customers 10
  11. 11. Chart of Dell Direct Model (11) DELL GOES ONLINE- DELL.COM (12) In late July 1996, Dell began conducting business through its Internet site. Almost immediately Dell Began selling $1 million per week through Web. Once customers logged onto the site and configured the system that best suited their needs, they had the option of purchasing the system using a credit card. After ordering the system, the customer could use “” to track the order’s status from the time it was entered in the system, through to the manufacturing process, and then to shipping. Once shipped, was linked to shipping partners who assigned the system an air bill number that racked delivery of the system. In addition to the purchase functionality, the site contained complete service and support data, with 35,000 pages of troubleshooting information-the same information used by the Dell’s technical representatives to solve hardware and software problems over the phone. Dell served its online customers with 12 sales reps and two order processors dedicated to processing Internet orders. According to the 2002 Dell Corporation annual report, here are some highlights of • Great volumes of product sales, service and support to the Internet. • 500 million page visits per quarter to • According to Nielsen/ Net Ratings, during the December 2000 holiday season, was the third most visited web site in USA 11
  12. 12. • Custom Internet sites, called Premier Pages™, for various corporate and institutional customers, allowing these customers to simplify and accelerate procurement and support processes • Through these custom sites, the Company offers the customer paperless purchase orders, approved product configurations, global pricing, real-time order tracking, purchasing history and account team information. • Currently 60,000 Premier Pages worldwide • an online virtual account executive for its small business customers • for all domestic customers, the Company provides a spare-parts ordering system, and a virtual help desk featuring natural-language search capabilities and direct access to technical support data DELL’s CRM Strategy (13) Customer relationship management is a vital concept for Dell Corporation. Dell’s CRM strategy is established according to the following steps: • Make segmentation. Identify customers. Segmentation on the basis of detailed data helped Dell build closer relationships with the customers. • Listen their customers to make sure what they need and when they need & responding them. • Learn from customers as much as possible (Michael Dell spends 40% of his time with domestic and international customers) • Before building any product, they knew what the customer wanted and were able to deliver exactly that. To make this model successful it was important 12
  13. 13. that the entire sales force is trained to understand the customer requirements and convey it to the production department. • Customer support after sales over the phone and the internet • According CRM strategy of DELL, each member of DELL is a student who is responsible of learning from the customer. DELL’s CRM Strategic Objectives (14) Dell Corporation is intending to make the most of every single touch point with the customers in order to build and expand the relationships with customers. Here are the CRM objectives of DELL: • Better customer loyalty • Greater customer satisfaction • Higher-sales and marketing performance • Improved marketing efficiency • Stronger brand consistency • Improved customer profitability • More cost-effective customer service Direct Model & CRM (15) Dell Computers has started its unique direct selling model in PC market place. They cut the cost by eliminating the retail stores and spend those saved dollars on customer service 13
  14. 14. and other after sale services in order to build great relationships with customers. Here are some highlights for direct model and CRM at Dell: • Being able to contact with the customer directly so that can understand better they customer needs. • Reducing the cost to reach the customer by eliminating middlemen • Using saved dollars on customer service to increase customer satisfaction and customer loyalty. • Building computers based on customer’s needs. • Engaging with customer on each touch point as productive & efficient as possible. Capturing as much information as possible. Conclusions • Dell has a different way to provide computers in market place, in terms of the channels and quality of contact moments. That gives a great advantage • Dell reducing its costs by using direct marketing methods. Therefore they can give build better customer relationships by using saved dollars from regular distribution channel. • Dell has to keep contacting with customers to determine any change on customer’s purchasing behavior and preferences. • Dell has to keep an eye on rivals such as HP and IBM against any competitive move. 14
  15. 15. • Dell’s CRM strategy based on direct model is the best way to capture information about customers and analyze it. DATA IS THE KING in any CRM system as long as you know how to use it. • High level of sales is the greatest indicator of success on CRM strategy along with customer loyalty and satisfaction. END NOTES 1- PC World Magazine – April 2003 issue 2- Cases In Electronic Commerce – Authors: Sid L.Huff,Michael Wade, Michael Parent, Scott Schneberger, Peter Newson ) Mc Graw Hill –2000- P:233 3- Dell Computer Corporation Annual Report 2002 4- Cases In Electronic Commerce – Authors: Sid L.Huff,Michael Wade, Michael Parent, Scott Schneberger, Peter Newson ) Mc Graw Hill –2000- P:234 5- Direct From Dell by Michael Dell – 2000 – P:157, Cases In Electronic Commerce – Authors: Sid L.Huff,Michael Wade, Michael Parent, Scott Schneberger, Peter Newson ) Mc Graw Hill –2000P:231 6- Dell Computer Corporation Annual Report 2002 7- Dell Computer Corporation Annual Report 2002 8- Direct From Dell by Michael Dell – 2000 – P: ix 9- Dell Computer Corporation Annual Report 2002 10- Dell Computer Corporation Annual Report 2002 11- Direct From Dell by Michael Dell – 2000 – P: 21 12- Cases In Electronic Commerce – Authors: Sid L.Huff,Michael Wade, Michael Parent, Scott Schneberger, Peter Newson ) Mc Graw Hill –2000- P:240 13- Direct From Dell by Michael Dell – 2000 – P: 157-169 14- Dell Computer Corporation Annual Report 2002 15- Dell Computer Corporation Annual Report 2002, Direct From Dell by Michael Dell – 2000 – P: 157169, Cases In Electronic Commerce – Authors: Sid L.Huff,Michael Wade, Michael Parent, Scott Schneberger, Peter Newson ) Mc Graw Hill –2000- P:251 15