Its amazing to me that our competitors think the customer is the dealer.

Michael Dell Sales Leader: Tops in Global Basis.

Be Direct: DELL
The Challenges and Evolution of Marketing

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.

The Challenges and Evolution of Marketing

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

The Challenges and Evolution of Marketing

Introduction  Michael Dell: The only constant thing about business is that everything is changing. We have to take advantage of change and not let it take advantage of us.
The Challenges and Evolution of Marketing

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
The Challenges and Evolution of Marketing

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.

The Challenges and Evolution of Marketing

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.
The Challenges and Evolution of Marketing

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.


The Challenges and Evolution of Marketing

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.

The Challenges and Evolution of Marketing

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.

The Challenges and Evolution of Marketing

Introduction
 What

does SWOT analysis reveal about Dells situation?

The Challenges and Evolution of Marketing

SWOT Analysis
Business to Consumer
Strengths
Customization Price

Business to Business
Strengths
Customization Price Customer

Opportunities
Server

Opportunities
Server

Focused Technical Knowledge Market Diversification Strong Brand/Positioning Media Savvy Direct Marketing Model Non-myopic strategy

Customer

Market International strategy Product extensions

Focused Technical Knowledge Market Diversification Strong Brand/Positioning Media Savvy Direct Marketing Model Non-myopic strategy

Market International strategy Additional markets Product extensions Strategic partnerships

Tangibility Technology

Competition

across

Technology Inventory

Market

Competition

across

Market Commoditization Inventory

markets Commodity pricing (shrinking margins) Complexity of Mgmt. Growth exceeding productivity

markets Commodity pricing (shrinking margins) Complexity of Mgmt. Growth exceeding productivity

Weaknesses Threats The Challenges and Evolution of Marketing

Weaknesses

Threats

Case Questions
1. 2. 3. 4. 5. 6. 7.

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?

The Challenges and Evolution of Marketing

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?
The Challenges and Evolution of Marketing

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.

The Challenges and Evolution of Marketing

Wrap Up: Now and Then



Dells invasion into living rooms with flatscreens 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.
The Challenges and Evolution of Marketing

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, WalMart 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



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

Summary
 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 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

Summary
DELL

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

TIME magazine

The Challenges and Evolution of Marketing

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.

The Challenges and Evolution of Marketing

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.

The Challenges and Evolution of Marketing

Summary
 Markets

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

Summary


Three Golden Rules of DELL:

1. Disdain inventory 2. Always listen to the customer 3. Never sell indirect.

The Challenges and Evolution of Marketing

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.
The Challenges and Evolution of Marketing

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.

The Challenges and Evolution of Marketing

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.
The Challenges and Evolution of Marketing

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.

The Challenges and Evolution of Marketing

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.
The Challenges and Evolution of Marketing

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

The Challenges and Evolution of Marketing

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
The Challenges and Evolution of Marketing

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

The Challenges and Evolution of Marketing

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
The Challenges and Evolution of Marketing

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.
The Challenges and Evolution of Marketing

Its amazing to me that our competitors think the customer is the dealer. No victory lapsIts a marathon Celebration breeds complacency.
Michael Dell

Be Direct: DELL
The Challenges and Evolution of Marketing

Every company needs to challenge and reinvent itself. The big question for DELL in 2006 is HOW?

Be Direct: DELL
The Challenges and Evolution of Marketing