dell03012006

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.”


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.”


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


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.”


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


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.


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.



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.



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 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.



What does SWOT analysis reveal about Dell’s situation?


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


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?


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?


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.


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.


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.”


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.”


SummarySummary

Just like in your own businesses, windows of opportunities open and close.

Successful companies see the opportunities sooner.


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.


SummarySummary

DELL is to the computer industry what Dominos is to the pizza business.

TIME magazine


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.


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.


SummarySummaryMarkets evolve over time.

Anticipate and research the evolution of customers, products, competitors, channels and technology.

Pioneered first money-back guarantee ’86.


SummarySummary

Three Golden Rules of DELL:1. Disdain inventory

2. Always listen to the customer

3. Never sell indirect.


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.


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.


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.


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.


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.


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


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


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


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


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.



“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



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

2006 is HOW?

dell03012006

Documents

introduction dell

dell case

introductionmichael

introduction michael

marketing strategies

job michael dell

dellthe challenges

server failure