The Challenges and Evolution oI Marketing

Be Direct: DELL Be Direct: DELL

'Its ama:ing to me that our competitors
think the customer is the dealer.`
Michael Dell
'Sales Leader: Tops in Global Basis.
The Challenges and Evolution oI Marketing
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BeIore Michael Dell, innovation was
about well-schooled engineers in R&D
labs inventing high-margin products and
technologies.
Dell instead trained his eye on Iinding
the most eIIicient way to get tech
products into the hands oI the consumers.
PerIected the credo ~Cut out the
middleman.
The Challenges and Evolution oI Marketing
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PerIected the credo ~Cut out the
middleman.
DELL eliminated the need Ior inventory
or middlemen and gave itselI a built-in
price advantage, which it in part keeps as
proIit and in part passes on to customers.
Fortune 11/28/2005
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Michael Dell:
'The only constant thing
about business is that every-
thing is changing. We have
to take advantage oI change
and not let it take advantage
oI us.
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'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
Iinding the next paradigm.
usinessWeek 3/6/06
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Michael Dell is the chairman oI the
Board oI Directors oI Dell, the company
he Iounded in `84 Ior $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 diIIerentiate Dell Irom other
companies.
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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 oI Marketing
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DELL did not want the 'unsophisticated
customer.
DELL wants to sell to the 'educated
customer.
DELL wants the consumer to buy their
third or Iourth system Irom DELL. It`s
more proIitable and easier.
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Why DELL case: We`ll look at direct
marketing and marketing strategies.
Look at more eIIicient way oI going to
market.
Just-in-time (JIT) manuIacturing.
VAR`s (Value-added resellers), solutions
Ior vertical markets like banking,
manuIacturing and retailing.
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The Future: The power oI laptops
became compatible with desktops,
because oI design, manuIacturing
and usage.
Added: Printers, Servers, Projectors, TV`s,
Handhelds, SoItware, Peripherals, Storage,
Networking, Workstations and more.
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What does SWOT analysis
reveal about Dell`s situation?
The Challenges and Evolution oI Marketing
$% AnaIysis $% AnaIysis
Customization
Price
Customer Focused
Technical Knowledge
Market
Diversification
Strong
rand/Positioning
Media Savvy
Direct Marketing
Model
Non-myopic strategy
Server Market
International strategy
Product extensions
Tangibility
Technology Market
Commoditization
Inventory
Competition across
markets
Commodity pricing
(shrinking margins)
Complexity of Mgmt.
Growth exceeding
productivity
Customization
Price
Customer Focused
Technical Knowledge
Market Diversification
Strong
rand/Positioning
Media Savvy
Direct Marketing
Model
Non-myopic strategy
Server Market
International strategy
Additional markets
Product extensions
Strategic partnerships
Technology Market
Inventory
Competition across
markets
Commodity pricing
(shrinking margins)
Complexity of Mgmt.
Growth exceeding
productivity
Business to Consumer Business to Business
$trengths 55ortunities $trengths
eaknesses %hreats
eaknesses %hreats
55ortunities
The Challenges and Evolution oI Marketing
Case Questions Case Questions
. 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?
The Challenges and Evolution oI Marketing
Case Questions Case Questions
. Why did Dell fail in its first entry in
laptops?
9. What are the implications of a server
failure versus a desktop failure?
0. What are the sales and customer service
implications of a server failure versus a
desktop failure?
. Does Dell`s expansion into other products
and services make good strategic sense?
2. Given that Dell is a global player, how
would you characterize its strategies?
The Challenges and Evolution oI Marketing
rap Up: Now and Then rap Up: Now and Then
Avoiding dealers means less mark-ups, less
overhead and delivers lower prices to the
customers Ior DELL.
DELL: Number One in PC Sales
DELL is one oI the Most Admired Companies
Fortune`s Annual issue
In 2003, generated 80 oI proIits Irom sales to
businesses.
With one week oI 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 oI Marketing
rap Up: Now and Then rap Up: Now and Then
Dell`s invasion into living rooms with Ilat-
screens and other electronics will be a $100
Billion 'Iree Ior all.
Consumers will beneIit. Prices will drop.
Competition is Sony, Samsung and Toshiba.
Morphing into a leading consumer-electronics
Iirm.
Dell isn`t very innovative. Spends only 1.5 on
research, but 'We just do it better.
Looking at partnerships with MicrosoIt, Intel.
What about new ones with google and AMD.
The Challenges and Evolution oI Marketing
rap Up: Now and Then rap Up: Now and Then
Michael Dell cares about operating margins.
Dell stock has been valued at a P/E multiple
above 40. LoItier than IBM, MicrosoIt, Wal-
Mart and GE.
'The status quo is never good enough.
'Celebrate Ior a nanosecond. Then move on.
'Five seconds oI celebration and Iive hours oI
postmortem on what could have been done
better.
Problems dealt with: Quickly, Directly, and
without Excuses.
The Challenges and Evolution oI Marketing
rap Up: Now and Then rap Up: Now and Then
00, Dell was #6 in computer, with a market share
oI 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 illion (est.)
~When a market is ready to explode,
Dell moves in.
The Challenges and Evolution oI Marketing
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Just like in your own
businesses, windows oI
opportunities open and close.
SuccessIul companies see the
opportunities sooner.
The Challenges and Evolution oI Marketing
rap Up: Now and Then rap Up: Now and Then
Michael Dell:
-Named CEO oI the Year 2001
-Wealthiest individual under 40,
in 2000, 2001, 2003, 2004.
-II his DELL stock lost all value,
Michael was still be the wealthiest
person under 40, until his birthday in
2/05.
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DELL is to the computer
industry what Dominos is to
the pizza business.
TIME magazine
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Heart oI the case: Understanding
the DELL Direct Marketing Model.
The question oI entering new markets is in
reality looking at the Direct Marketing
model. Can it be extended into new
markets.
Inventory has the shelI liIe oI lettuce.
Inventory is the worst thing to have in an
industry in which value oI materials and
technology declines quickly.
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Dell 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 Iax are #2 (private label oI
Lexmark), behind Lexmark.
Rival HO gets 70 oI proIits Irom printers
and ink.
In the Dell soItware, it automatically
detects when ink is running low and directs
user to the Dell website. Free shipping.
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Markets evolve over time.
Anticipate and research the
evolution oI customers, products,
competitors, channels and
technology.
Pioneered Iirst money-back
guarantee `86.
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Three Golden Rules oI DELL:
1. Disdain inventory
2. Always listen to the customer
3. Never sell indirect.
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It`s not enough to rack up proIits or
turbo charge growth. Execs must
do both.
Miss a proIit goal and you`re not
cutting costs Iast enough. Overshoot it
and you`re leaving sales on the table.
Pity the execs (server, storage and
networking chieIs) who didn`t use all
oI the bullets in the gun. Despite solid
results. Reassigned.
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Dell-lizing Printers
Dell entered printer market in `03.
Market share: 19 in early 2005.
In 2004: 50 oI revenue came Irom
desktop PC`s. Will drop to 30-35 in
coming years.
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Dell is competing against 50
diIIerent manuIacturers, looking to
be category killer in Ilat-screen,
digital market. #10 in US in 2005
with 2.4 share.
Dell uses same suppliers.
The convergence oI entertainment
and computing or birth oI 'digital
home should only help Dell.
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Developing Dell Direct stores, and
kiosks in malls. Places to touch, see
and browse.
OIIering existing customers deals,
but the purchasing
decisions/behaviors are diIIerent.
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HP vs. Dell. HP`s business has long
Iaced the diIIicult choice.Iocusing
on grabbing market share or
improving proIitability.
`03 & `04, HP`s approach.
Aggressively battling Dell to claim
bragging rights as top PC seller.
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HP is backing away Irom
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 Ior
HP. WSJ 1/19/05
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Fortune cover 2/7/05
'Why Carly`s Big Bet is
Failing.
'Buying Compaq hasn`t paid oII
Ior HP`s investors. There`s no
easy way out.
Carly is Iorced out on 2/9/2005
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Hewlett-Packard plans to cut
4,500 jobs in a restructuring
plan meant to save $.9 billion
a year.
WSJ July 19, 2005
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~Our model continues to be the
best in the business.
~In past ten years our sales are
up 5 times and earnings and
stock price are up 20 times.
Michael Dell: Fortune 11/15/2005
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Dell remains the world`s 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 oI Marketing
Be Direct: DELL Be Direct: DELL
~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
The Challenges and Evolution oI Marketing
Be Direct: DELL Be Direct: DELL
~Every company needs to
challenge and reinvent itself.
The big question for DELL in
2006 is HOW?