The Challenges and Evolution of Mark eting Be Direct: DELL Be Direct: DELL “It’s amazing to me that our competitors think the customer is the dealer.” Michael Dell “Sales Leader: Tops in Global Basis.”
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1. Be Direct: DELL Its amazing to me that our competitors think
the customer is the dealer. Michael Dell Sales Leader: Tops in
Global Basis.
2. 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.
3. 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
4. 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.
5. Introduction
Selling tech products by telephone and then the Internet
Michael broke the paradigm about how to run a computer business;
they havent been so great at finding the next paradigm.
BusinessWeek 3/6/06
6. 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).
Dells commitment to consumer value, to the team, to being
direct, to operating responsibly and, ultimately to winning.
Continues to differentiate Dell from other companies.
7. 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.
8. 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. Its more profitable and easier.
9. Introduction
Why DELL case: Well look at direct marketing and marketing
strategies.
Look at more efficient way of going to market.
Just-in-time (JIT) manufacturing.
VARs (Value-added resellers), solutions for vertical markets
like banking, manufacturing and retailing.
10. Introduction
The Future: The power of laptops
became compatible with desktops,
because of design, manufacturing
and usage.
Added: Printers, Servers, Projectors, TVs, Handhelds, Software,
Peripherals, Storage, Networking, Workstations and more.
11. Introduction
What does SWOT analysis reveal about Dells situation?
12. SWOT Analysis Business to Consumer Business to Business
Strengths Opportunities Strengths Weaknesses Threats Weaknesses
Threats Opportunities
Competition across markets
Commodity pricing
(shrinking margins)
Complexity of Mgmt.
Growth exceeding productivity
Tangibility
Technology Market
Commoditization
Inventory
Server Market
International strategy
Product extensions
Customization
Price
Customer Focused
Technical Knowledge
Market Diversification
Strong Brand/Positioning
Media Savvy
Direct Marketing Model
Non-myopic strategy
Competition across markets
Commodity pricing
(shrinking margins)
Complexity of Mgmt.
Growth exceeding productivity
Technology Market
Inventory
Server Market
International strategy
Additional markets
Product extensions
Strategic partnerships
Customization
Price
Customer Focused
Technical Knowledge
Market Diversification
Strong Brand/Positioning
Media Savvy
Direct Marketing Model
Non-myopic strategy
13. Case Questions
What impresses you about this company?
What is your assessment of the job Michael Dell has done, as
CEO? Senior management?
How did Dell segment its customers? What types of customers?
What were they like?
Whos the competition for transaction customers?
Whos the competition of the other segmented customer?
What are the advantages of this direct marketing and direct
manufacturing model?
With its past distribution agreements with Staples, CompUSA,
and Sams Clubs, why did Dell have a problem with the retail
entry?
14. 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 Dells expansion into other products and services make
good strategic sense?
12. Given that Dell is a global player, how would you
characterize its strategies?
15. 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 Fortunes 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.
16. Wrap Up: Now and Then
Dells 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 isnt 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.
17. 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.
18. 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.
19. Summary
Just like in your own businesses, windows of opportunities open
and close.
Successful companies see the opportunities sooner.
20. Wrap 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.
21. Summary
DELL is to the computer industry what Dominos is to the pizza
business.
TIME magazine
22. 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.
23. Summary
Dell believes its low-cost, direct sales approach will allow it
to torpedo prices in many markets, with emphasis on printers.
Dells 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.
24. Summary
Markets evolve over time. Anticipate and research the evolution
of customers, products, competitors, channels and technology.
Pioneered first money-back guarantee 86.
25. Summary
Three Golden Rules of DELL:
1. Disdain inventory
2. Always listen to the customer
3. Never sell indirect.
26. Summary
Its not enough to rack up profits or turbo charge growth. Execs
must do both.
Miss a profit goal and youre not cutting costs fast enough.
Overshoot it and youre leaving sales on the table.
Pity the execs (server, storage and networking chiefs) who
didnt use all of the bullets in the gun. Despite solid results.
Reassigned.
27. Summary
Dell-lizing Printers
Dell entered printer market in 03.
Market share: 19% in early 2005.
In 2004: 50% of revenue came from desktop PCs. Will drop to
30-35% in coming years.
28. 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.
29. 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.
30. Summary
HP vs. Dell. HPs business has long faced the difficult
choicefocusing on grabbing market share or improving
profitability.
03 & 04, HPs approach. Aggressively battling Dell to claim
bragging rights as top PC seller.
31. 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 its a positive thing for HP.
WSJ 1/19/05
32. Summary
Fortune cover 2/7/05
Why Carlys Big Bet is Failing.
Buying Compaq hasnt paid off for HPs investors. Theres no easy
way out.
Carly is forced out on 2/9/2005
33. 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
34. 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
35. Summary
Dell remains the worlds 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.
36. Be Direct: DELL Its amazing to me that our competitors
think the customer is the dealer. No victory lapsIts a marathon
Celebration breeds complacency. Michael Dell
37. Be Direct: DELL Every company needs to challenge and
reinvent itself. The big question for DELL in 2006 is HOW?