Dell03012006

“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.

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

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


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.”

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


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.

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.
4. 2006 is the year they need to reinvent
themselves. HP has narrowed the gap on
productivity and price.

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.


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.


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.

Introduction

What does SWOT analysis
reveal about Dell’s situation?


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 markets
Inventory
Commoditization Commodity pricing
Commodity pricing
Inventory (shrinking margins) (shrinking margins)
Complexity of Mgmt.
Complexity of Mgmt.
Growth exceeding
Growth exceeding
productivity productivity

Weaknesses Threats
Weaknesses Threats

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?


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?

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
Theturn over is 13.5 and 9.8. Marketing
Challenges and Evolution of

 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.

 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.”

 ‘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 ’06: $55.9 Billion (est.)
“When a market is ready to explode,
Dell moves in.”

Summary

Just like in your own
businesses, windows of
opportunities open and close.
Successful companies see the
opportunities sooner.


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 wealthiest
person under 40, until his birthday in
2/05.

Summary

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


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.


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.

Summary
Markets evolve over time.
Anticipate and research the
evolution of customers, products,
competitors, channels and
technology.
Pioneered first money-back
guarantee ’86.


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


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.

Summary
Dell-lizingPrinters
Dell entered printer market in ’03.
Market share: 19% in early 2005.
In 2004: 50% of revenue came from
desktop PC’s. Will drop to 30-35% in
coming years.


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.

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.


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.


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

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

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


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

Summary
 Dellremains 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.

“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


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

Be Direct: DELL


Dell03012006

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