Introduction:

All relationship marketing activities are ultimately evaluated on the basis of the company’s overall

profitability. However, as a firm’s profitability is influenced by a number of variables largely

independent of relationship marketing activities, it seems appropriate to conceptualize relationship

marketing outcomes on a more concrete level when investigating possible antecedents. Two constructs

are referred to in the marketing literature as key relationship marketing outcomes: customer loyalty and

(positive) customer word-of-mouth communication.

This body of research has found customer loyalty of Dell Corporation, to positively influence

profitability through cost reduction effects and increased revenues per customer. With regard to cost

reduction effects, it is widely reported that retaining loyal customers is less cost intensive than gaining

new ones and that expenses for customer care decrease during later phases of the relationship life cycle

due to the growing expertise of experienced customers. Customer loyalty is also reported to contribute to

increased revenues along the relationship life cycle because of cross-selling activities and increased

customer penetration rates (e.g., Dwyer, Schurr, and Oh 1987). Positive word-of-mouth communication,

defined as all informal communications between a customer and others.

This paper aim to show the significance of Relationship Marketing of the Dell Company, Loyalty

program with the advent of Internet removing the dealers cost and allocating the same resources to

relationship marketing. We will also provide empirical, theoretical analysis and evolution from

transactional to relationship marketing. (Park, 2003)

Please Note: This paper will be guiding principles for researcher to conduct further analysis for intricate

Relationship marketing as this does not limit itself for businesses to take the queue from, instead the

case will show and highlight the basic understanding and importance of relationship marketing to meet

the bottom line.

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Relationship Marketing Evolution:

Below Fig-1 we will go through with “The Sixth Market Model”, in regards with chosen company and

provide insight critics with underlying theoretical underpinnings.

Fig-1: The Sixth Market Model

The emergence of Relationship Marketing as a separate academic domain of marketing in the 1980s

and 1990s becomes more comprehensible from a historical perspective. Researchers argue that

Relationship Marketing represents a “paradigm shift in marketing” from its previous focus on

“transactions,” in which firms use the “4P model” to manage marketing-mix variables (Gronroos 1994,

p. 4; Sheth and Parvatiyar 2000). Prior to the industrial age, most exchange occurred in local markets,

where farmers and craftspeople (producers) sold their products directly to end users. Producers

represented both manufacturers and retailers, and embedded relationships between producers and

consumers provided the trust and business norms necessary to conduct the transaction because few

Institutionalized protections existed. Similarly, relationships led to confidence among traders in the

transactions of goods not locally produced. (Sheth and Parvatiyar, 1995) offer numerous examples of

trade, which would only occur among groups with ongoing relationships, such as among traders along

the historical “silk route”, that built trust over time and examples of the use of family names in specific

industries that branded relational trust. Thus, though the terminology and specific academic focus on

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Relationship Marketing are relatively new, the underlying importance of relationships for understanding

exchange performance absolutely is not. Mass production and consumption during the industrial

revolution changed the dynamics between producers and consumers. Producers took advantage of the

economies of scale associated with mass production to produce a large volume of goods at low cost, but

these voluminous goods also required transportation, storage, and sales across a larger geographic area

and customer base to dispose of them.

Many consumers relocated to manufacturing centers and cities, away from agricultural areas, which

required the transportation and storage of goods to support these new population centers. Moreover,

mass production generated the need for aggressive sales and promotions to create sufficient demand for

the increased volume of goods. In aggregate, industrialization led to new industries, or “middlemen,”

focused on transportation, storage, selling, and retailing. As these new channels competed for business,

often with similar or indistinguishable products, exchanges became more transactional and pricing grew

to represent a more, if not the most, salient component of the offering. Institutional and functional

economists operating against this backdrop investigated the functions performed by wholesalers and

retailers in an exchange to develop early marketing thought (Alderson 1965).

However, in the age of light-year speed exchange of billion of bit every second around the globe

industrial revolution becomes information revolutions. Therefore, academia though process has changed

dramatically.

In case of Dell Company, applying “The Sixth Model”, has become new reality, to compete with

competitors aggressively. Following section describes the pivot for Dell to be successful company.

When Michael Dell was a freshman at the University of Texas in 1983, he sold disk drive kits and

random access memory chips in Austin, Texas for earning additional money. In April 1984, he decided

to establish a corporation named Dell Computer Corporation to sell “PC’s Limited” brand computers.

His business model based upon the idea that intermediaries can be surpassed in the business to the

mutual benefit of both, his company and the customer. The “Direct Model Relationship Marketing” was

created. Success confirmed his business model. Now, the company is represented in almost every

country in the world and is even manufacturing in four continents. (Park, 2003)

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Today Dell is the world’s leading computer company with a market share of almost 19% (Dell

Computer Corporation 2011). In 2005 Dell employed 34,600 people worldwide and generated net

revenue of more than $31 Billion (Dell Computer Corporation 2011). Dell’s top competitors are

Hewlett-Packard, IBM, Fujitsu and NEC in the personal computer market, which constitutes Dell’s main

market.

Dell’s customer relationships still remain the focus of company’s activities. The six-market model

(Christopher, Payne & Ballantyne 1991) therefore places the customer market in the centre, surrounded

by the other five markets. Michael Dell emphasizes the significant status of customers to the company’s

business by stating ‘Finding ways to get close to your customers is critical to your success.’ (Dell,

1999).

In an Interview he called this strategy “virtual integration with customers” (Magretta 1998). He affirms

that Dell Computer Corp. detaches the partnership function from the marketing department, making

everybody in the company responsible for fostering the relationship to its customers.

Dell organizes its business around three main customer segments: large corporate customers also called

relationship customers, home and small businesses (transaction customers) and the public sector.

Interestingly Dell uses relationship marketing terminology to characterize these segments (Kraemer et al

2000, p.8).

Hence the company approaches each segment differently and customized to the specific needs. The

world’s largest computer manufacturer mainly utilizes two communication channels, the Internet and

call centres. Dell assigns sales and telephone service representatives to individual relationship

customers, whereas each sales representative is dedicated to only one customer.

“Premier Dell.com” is the procurement portal for large customers. The websites are customized

allowing all registered customers to communicate faster with Dell, to place orders online and to request

technical support 24 hours a day. Moreover Dell enhanced those functions by offering accounting,

support and planning modules and with that they take over part of the clients IT Management function.

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Mutual value is created as resources are set free in the buying company which can be allocated better in

its core competence, as well as for Dell as it becomes an integral part of its customer’s value chain. This

results in strong bonds between both partners and to consult Porter’s Five Forces, Dell minimizes the

threat of substitution (Porter 1979).

The Direct Model plays a central role in Dell’s success in maintaining valuable relationships with their

customers. As Dell deals directly with their customers they have huge opportunities to gather timely

customer response. This response in turn provides the company with precious feedback. The underlying

marketing strategy is, “knowledge-based and experience-based marketing”. The feedback helps Dell to

constantly revise their products in order to meet best customer’s requirements.

This advantage is especially applicable to the company’s large corporate customers. But the Direct

Model certainly gives Dell an information lead over its competitors.

Tailor-made products are only one part of Dell’s customer relationship efforts. As already mentioned

above the company tries to be an integral part of the customer’s value chain. Therefore it adapts to

processes where necessary instead of imposing its way of doing business on their customers. Dell offers

a good example for this. As the mayor IT provider for Boeing Dell connects to Boeing’s procurement

system EDI, making it easier for Boeing’s staff and saving them change-over cost. (Park, 2003)

Research on the profitability of customers showed that loyal customers are not necessarily profitable

(Reinartz & Kumar 2000). The Company has a clear customer strategy by concentrating on what Dell

call “scalable business”, namely customers with whom revenues can be increased stronger than

expenses. Hence the biggest piece of the company’s revenue cake derives from the very large customer

segment (Magretta, 1998). The so called “Platinum Councils” are another means of maintaining a close

customer relationship. Dell organizes semi-annual meetings for their biggest customers inviting

executives and technicians to discuss latest developments in technology and giving them the chance to

exchange views and experiences.

All above listed examples draw a good picture of the way Dell intents to build and maintain a good

relationship with their customers. It also becomes clear, that the company regards some customers more

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relationship worthy than others, by analyzing customer value and segmenting. The largest customers

even constitute a segment-of-one. Consequently relationship-building measures concentrate on these

groups. This philosophy becomes obvious as Dell names its biggest customers “relationship customers”

in opposing “transaction customers”.

An important part of Dell’s external relationships and actually the most important column of the direct

model are Dell’s relationships to suppliers. This ‘business-to-business’ (B2B) relationships considered

as ‘vertical relationships’, they integrate all, or part of the supply chain. In the following, it will be

described how Dell’s supplier network developed over time and how Dell manages this network.

Dell’s supplier relationships underwent an interesting development in the last 20 years. Early in its

history, the company had more than 140 different suppliers. Over time, maintaining these many

relationships proved to be too costly, and its complexity, decelerated time to market. Therefore, Dell

redesigned its computers in a way, that different models utilize as many of the same components as

possible (Zuckerman 1997 in Kraemer et al. 2000). Today, Dell only has about 30 suppliers provide 75

% of their material needs (Jacobs 2003). This involves that these suppliers are global suppliers,

following their customer in new international production ventures, what literally means, that they build

plants next to the Dell plant. (Dell 1999, p.178, 179).

To administer its supplier relationships, Dell applies a lean just-in-time ‘pull concept’, requiring

suppliers to restock parts only as they are needed. This concept is quite sophisticated in practice, due to

the fact that Dell has no mass production but produces build-to-order, which requires Dell and its

suppliers, e.g., to have available special components at any time in unpredictable quantities (Kraemer et

al. 2000, p.5).

To make this complex process work, the supply chains of Dell and its suppliers are neatly interwoven,

and can therefore be called virtually integrated. This means Dell shares inventory data, design-databases,

quality data, technology plans as well as daily production requirements openly with its. (Park, 2003)

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Dell also heavily focused on Internal Market. Moreover, in the traditional marketing approach the

internal market did not play an important if any role, whereas relationship marketing sees the importance

of the internal customer. The employee is regarded as an enabler ‘to enhance external market place

performance’ (Ballantyne, Christopher & Payne 1995, p.15). To put it more drastically, ‘if internal

marketing is neglected then external marketing suffers or fails. (Egan 2001, p. 149)

The internal market consists basically of the employees. They are important for marketing, as a firm’s

employees are the ones who create and foster trust and relationship with the customers. Hence, there

needs should be regarded, (Shershic, 1990, p. 45) argues, meeting the needs of the employees is the

basis to meet the customers’ needs.

Furthermore, The way in which Dell conducts itself in the Recruitment Market is similar to the way it

conducts itself in the Customer, Supplier and Internal Markets i.e. through the use if the use of the

‘Direct Model’. From the groups’ research into Dell it is clear that the ‘Direct Model’ is employed in

selecting candidates, for instance non-university candidates can only apply online through Dell’s

website, whereas Dell does carry out road-shows at universities to make students aware of employment

opportunities at Dell and specifically to attract the highest caliber of students i.e. MBA and

undergraduates and master’s through recruiting on-campus at selected universities.

Secondly, this section will deal with Dell and the Referral Market. According to the Cranfield School of

Management organisations ‘need to consider both existing customers and intermediaries as sources of

future business’ (Relationship Marketing: Marketing Multiple Markets 2000). This is due to the fact that

satisfied customers will recommend and refer a company’s product(s) to others, in effect becoming

‘advocates’ for the organization. It is therefore important that an organization such as Dell cultivates this

market through excellent service delivery in order to retain satisfied customers, which will encourage

them to refer Dell to other potential customers.

To ascertain the factors that affect Dell and the way that Dell conducts itself in the Influence market and

the Referral Market was difficult as there was limited information to be found in terms of these markets.

However, the relationships that are conducted in the Influence and Referral market are more rather

implied in the sense that Dell relies on partnerships and its reputation to corner these markets.

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Transactional and Relationship Marketing:

Source: Christopher, Martin, Adrian Payne and Davidballantyne. (2011). BINUS. Available: http://cms.binus.edu/datapage/file/bbs/RelationshipMarketing.pdf. Last accessed 20 April 2012.

Transactional marketing and relationship marketing a two different approaches taken by the marketers

for the marketing and promotion of the organizations products and services, but the main difference

between these two approaches is; transactional is wholly concerned about the promotion and selling of

the product with little or no concentration over customer value and satisfaction, and try to make new

customer every time, on the other hand relationship marketing is all about building and maintaining the

long-term customer relationships, creating a sense of loyalty by providing the valued product and

services for mutual benefits.

As marketing has entered the 21st Century, a significant change is taking place in the way companies in

general and Dell Corporation in particular, interact with customers. The traditional view of marketing as

a simple exchange process, a concept that might be termed transaction-based marketing, is being

replaced by a different, longer-term approach.

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Traditional marketing strategies focused on attracting consumers. The goal was to identify prospects,

convert them to customers, and complete sales transactions. But today’s company such as Dell realize

that, although it remains important, attracting new customers is truly an intermediate step in the

marketing process.

Dell Corporation must focus on establishing and maintaining mutually beneficial relationships with

existing customers. It raises the scope of external marketing relationships to include distributors of Dell

Company such as (FedEx, UPS). (Park, 2003)

Successful relationship marketing programs must adapt quickly to changing consumer sentiment, and

their efficient, iterative nature enables this agility. Dell quickly waded into relationship marketing

following the infamous “Dell Hell” criticism by collecting online customer feedback and interacting

with customers via its chief blogging officer. The capability was developed in response to a crisis, and it

quickly paid dividends. When one poster suggested that the company add Microsoft’s former operating

system, XP, as an option to be installed on new Dell computers (which, for a brief period, came loaded

with the new Vista operating system only), the company noted that the comment had been approved by

more than 14,000 other visitors in less than two months, and it began offering XP as an installation

option.

An effective relationship marketing program does not require a large, expensive and time-consuming

business system software implementation. Platform-agnostic capabilities can be developed, tested,

measured, adjusted and built upon. These building blocks can be deployed effectively and efficiently.

Therefore, “Dell Hell”, was just created for that purpose, to listen to consumers concerns and

frustrations and address it in timely manner. (Park, 2003)

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Conclusion:

Dell’s, Relationship marketing would be much easier if a tactic could be deployed and then put on auto-

pilot for months. But it would also be much less effective given the realities of the social media

evolution, for example, a volatile economy, and the adoption of smart devices and ubiquitous

connectivity.

Many of the examples cited in this paper reflect the importance of an iterative, integrated and flexible

approach to relationship marketing for Dell, often in dramatic fashion. Dell, Effective relationship

marketing programs of this era do not have to be as dramatic. Instead, they quietly cultivate trust

through relevant communications across multiple channels with ever-increasing precision. “These

programs steadily replace incentive-fueled offers with value-added insights and information that fulfill

Dell brand’s unique promise,” says Erickson. “They limit the risks that flourish in the new relationship

marketing ecosystem, and help Dell exploit new opportunities.”

Despite the opportunities flexible relationship marketing provides and the growing customer demand for

these capabilities, Dell has yet to leverage this opportunity. It also reveals that Dell is trying, but just

aren’t sure what to do. “If you keep your head in the sand, because you aren’t sure which way to look,

when you pull it out, you are going to be in trouble,” concludes Peppers. “Dell customers are out there

building relationships with friends, co-workers and your competition, and if you aren’t at the party,

don’t expect an invitation in the future.”

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Ballantyne, D., Christopher, M. & Payne, A. 1995, ‘Improving the Quality of Services Marketing: Service (Re) design is the Critical Link’, Journal of Marketing Management, vol.11, pp.7-24.

Christopher, M., Payne, A. and Ballantyne, D. 1991, Relationship Marketing, Butterworth Heinemann, London.

Chistopher, Martin, Adrian Payne and Davidballantyne. (2011). BINUS. http://cms.binus.edu/datapage/file/bbs/RelationshipMarketing.pdf. Last accessed 20 April 2012.

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Dell Computer Corporation (2010), Fiscal 2011 in Review.

D.G. Brian Jones and Eric H. Shaw. (2005). A history of schools of marketing thought. http://www.sagepub.com/clow/study/articles/PDFs/01_Shaw.pdf. Last accessed 21 April 2012.

Egan, J.( 2001), ‘Relationship Marketing – Exploring Relational Strategies in Marketing, Pearson Educational Limited, Harlow.

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Kristian Möller. (2006). The Marketing Mix revisited: Towards the 21st Century Marketing?. http://www.utwente.nl/mb/nikos/publications/ecpapers/constantinidescommentmarketingmix.pdf. Last accessed 21 April 2012.

Magretta, J. 1998, ‘The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell’, Harvard Business Review, March-April, pp.72-84.

May. (2007) , Responding to Crisis Using Social Media: Updating the “Dell Hell” Case Study – are (sic) Dell Turning Opinion Around” Market Sentinel, www.marketsentinel.com Accessed at 17 April 2012

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Park, A., Burrows, P. (2003), ‘What You Don’t Know About Dell’, Business Week, 03 November, p.76.

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Continued:

Porter, M. (1979), ‘How Competitive Forces Shape Strategy’, Harvard Business Review, 57, no.2, pp.137-45.

Prof. Andrian Pyane. (2008 ). Relationship Marketing The Six Markets Framework. Available: https://dspace.lib.cranfield.ac.uk/bitstream/1826/2910/1/SWP%2035-93.PDF. Last accessed 19 April 2012.

Reinartz, W., Kumar, V. (2002), ‘The Mismanagement of Customer Loyalty’, Harvard Business Review, July, pp.86-94.

Robert W. Palmatie.R. (2008). Relationship Marketing. http://faculty.washington.edu/palmatrw/docs/MSI.RM.Book.pdf. Last accessed 19 April 2012.

Sloan, P. (2003), ‘Dell’s Man on Deck’, Business 2.0, February.

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