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The Challenges and Evolution of Marketing
Be Direct: DELLBe Direct: DELL
“It’s amazing to me that our competitors think the customer is the dealer.” Michael Dell
“Sales Leader: Tops in Global Basis.”
The Challenges and Evolution of Marketing
IntroductionIntroduction 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.”
The Challenges and Evolution of Marketing
IntroductionIntroduction
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
The Challenges and Evolution of Marketing
IntroductionIntroduction 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.”
The Challenges and Evolution of Marketing
IntroductionIntroduction “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
The Challenges and Evolution of Marketing
IntroductionIntroduction 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.
The Challenges and Evolution of Marketing
IntroductionIntroduction 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.
The Challenges and Evolution of Marketing
IntroductionIntroduction
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.
The Challenges and Evolution of Marketing
IntroductionIntroduction
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.
The Challenges and Evolution of Marketing
IntroductionIntroduction
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.
The Challenges and Evolution of Marketing
IntroductionIntroduction
What does SWOT analysis reveal about Dell’s situation?
The Challenges and Evolution of Marketing
SWOT AnalysisSWOT Analysis
CustomizationPriceCustomer FocusedTechnical KnowledgeMarket DiversificationStrong Brand/PositioningMedia SavvyDirect Marketing ModelNon-myopic strategy
Server MarketInternational strategyProduct extensions
TangibilityTechnology MarketCommoditizationInventory
Competition across marketsCommodity pricing(shrinking margins)Complexity of Mgmt.Growth exceeding productivity
CustomizationPriceCustomer FocusedTechnical KnowledgeMarket DiversificationStrong Brand/PositioningMedia SavvyDirect Marketing ModelNon-myopic strategy
Server MarketInternational strategyAdditional marketsProduct extensionsStrategic partnerships
Technology MarketInventory
Competition across marketsCommodity pricing(shrinking margins)Complexity of Mgmt.Growth exceeding productivity
Business to Consumer Business to BusinessStrengths Opportunities Strengths
Weaknesses Threats Weaknesses Threats
Opportunities
The Challenges and Evolution of Marketing
Case QuestionsCase Questions1. 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?
The Challenges and Evolution of Marketing
Case QuestionsCase 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 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?
The Challenges and Evolution of Marketing
Wrap Up: Now and Then 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.
The Challenges and Evolution of Marketing
Wrap Up: Now and Then 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.
The Challenges and Evolution of Marketing
Wrap Up: Now and Then 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.”
The Challenges and Evolution of Marketing
Wrap Up: Now and Then 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.”
The Challenges and Evolution of Marketing
SummarySummary
Just like in your own businesses, windows of opportunities open and close.
Successful companies see the opportunities sooner.
The Challenges and Evolution of Marketing
Wrap Up: Now and ThenWrap 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 wealthiest
person under 40, until his birthday in 2/05.
The Challenges and Evolution of Marketing
SummarySummary
DELL is to the computer industry what Dominos is to the pizza business.
TIME magazine
The Challenges and Evolution of Marketing
SummarySummaryHeart 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.
The Challenges and Evolution of Marketing
SummarySummaryDell 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.
The Challenges and Evolution of Marketing
SummarySummaryMarkets evolve over time.
Anticipate and research the evolution of customers, products, competitors, channels and technology.
Pioneered first money-back guarantee ’86.
The Challenges and Evolution of Marketing
SummarySummary
Three Golden Rules of DELL:1. Disdain inventory
2. Always listen to the customer
3. Never sell indirect.
The Challenges and Evolution of Marketing
SummarySummaryIt’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.
The Challenges and Evolution of Marketing
SummarySummaryDell-lizing PrintersDell 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.
The Challenges and Evolution of Marketing
SummarySummaryDell 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.
The Challenges and Evolution of Marketing
SummarySummaryDeveloping Dell Direct stores, and
kiosks in malls. Places to touch, see and browse.
Offering existing customers deals, but the purchasing decisions/behaviors are different.
The Challenges and Evolution of Marketing
SummarySummaryHP 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.
The Challenges and Evolution of Marketing
SummarySummaryHP 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
The Challenges and Evolution of Marketing
SummarySummaryFortune 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
The Challenges and Evolution of Marketing
SummarySummary
Hewlett-Packard plans to cut 14,500 jobs in a restructuring plan meant to save $1.9 billion a year.
WSJ July 19, 2005
The Challenges and Evolution of Marketing
SummarySummary
“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
The Challenges and Evolution of Marketing
SummarySummaryDell remains the world’s largest PC maker:Not the revolutionary force it was…Direct (DTC) will dominatePartnerships 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.
The Challenges and Evolution of Marketing
Be Direct: DELLBe 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
The Challenges and Evolution of Marketing
Be Direct: DELLBe Direct: DELL
“Every company needs to challenge and reinvent itself.” The big question for DELL in
2006 is HOW?