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Direct Marketing

Secrets of
DELL COMPUTERS
“ Building Great Customer
Experiences”

Prepared
By
Hasan Kursad Devecioglu
Mercy College
July 2003

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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

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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.

7,000,000 6,000,000 5,500,000


6,000,000
Company Sold units 5,000,000
4,000,000 1,900,000 1,700,000
Dell 6,000,000 3,000,000
2,000,000 506,000
HP 5,500,000 1,000,000
0
IBM 1,900,000

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Fujitsu-Siemens computer Holding 1,700,000

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IB
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Gateway 506,000

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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

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Description of Business (3)
Dell Computer Corporation designs, develops, manufactures, markets, services and

supports a wide range of computer systems, including desktop computer systems,

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.

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Dell Computer Corporation Organization
(4)

Office of Chairman
Michael Dell
Chairman
Morton Topfer Kevin Rollins
Vice Chairman Vice Chairman

Asian/Pacific Japan European


Engineering Region Region Region* Americas Region** Legal HR Finance
Desktop Korea Marketing UK Global Business Development
Notebook Australia Sales France Relationship Group
Server Singapore Service Germany -Enterprise accounts segment
Manufacturing HR Scandinavia -Large corporate accounts
Staff Finance Manufacturing -Medium business segment
-Product Planning Staff Public and Americas Int'l segment
-PR -Product Planning -Federal government segment
-Finance -PR -State and local government segment
-Finance -Education 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 -Premier pages/personalization
** Functional organization within segment -Tech support

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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
Large Customers (Business and consumers)

Large Midsize Government Small


Companies Companies and Customers
education

global Large Midsize Federal state Education Small Consumers


enterprise companies companies and Companies
accounts local

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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)


$10,000,000 $9,000,000 $8,000,000
$7,000,000
Net revenue $8,000,000
$6,000,000 $5,000,000
year1997 $9,000,000 $3,000,000
$4,000,000
year1998 $7,000,000
$2,000,000
year1999 $3,000,000 $0
year2000 $5,000,000
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Factors Affecting Dell’s Business and


Prospects (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:
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•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 custom-build

computers directly to end-users, bypassing the dominant system of using computer

resellers to sell mass-produced computers.

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•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 www.dell.com, 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 www.dell.com 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

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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

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•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 end-

users’ 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 Suppliers DE LL Customers


Integration

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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 “dell.com” 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,

dell.com 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 Dell.com:

•Great volumes of product sales, service and support to the Internet.

•500 million page visits per quarter to www.dell.com

•According to Nielsen/ Net Ratings, during the December 2000 holiday season,
www.dell.com was the third most visited web site in USA

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•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 that the

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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

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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.

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•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 –2000-
P: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: 157-
169, Cases In Electronic Commerce – Authors: Sid L.Huff,Michael Wade, Michael Parent, Scott
Schneberger, Peter Newson ) Mc Graw Hill –2000- P:251

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