Legend has it that Michael Dell started out as a college student in the 1980s dismantling an early version IBM PC, putting it back together and realising that he could assemble and sell the thing for over $1,000 less than IBM. Thus was born a firm that became the world’s biggest PC seller and one of the darlings of the Internet age. By 1998 Dell had become the first player to make selling over the Internet work.
It claimed sales over the Internet of £3. 7 million per day worldwide, even then an impressive figure. But as it moved into the late 2000s life had got a lot harder for one of the maverick kick-ass firms of the dot-com boom. What could Dell do to get away from the pack once again?

The story of Dell

Dell originally made its fortune by ignoring the traditional PC distribution model, avoiding middlemen and selling directly to corporate customers. Dell’s extraordinary success with this approach caused the traditional computer makers, the likes of Compaq and Hewlett-Packard, to sit up and take notice. They had sold through retailers such as PC World, Currys and Dixons, which accounted for most of the sales to consumers and small business (the ‘Small Office Home Office’ (SOHO) sector). But as the market matured and second-time buyers became the majority, buyers became more confident about purchasing computers. This meant they no longer needed the face‑to‑face reassurance of a retail channel: buying on‑line or over the phone became a reality, especially for busy small businesses.

Branding was still important, however. Intel showed it was a vital weapon where customers trust suppliers to deliver a quality product in a high-ticket complex product sector. In the PC market increasingly, branding techniques – traditionally the forte of consumer marketing – are being used in preference to the product specification type of selling (often led by salespeople) previously favoured by business‑to‑business marketers in this sector. This enthusiasm for branding came as firms moved toward targeting their business consumers direct. For the resellers in the middle, the future seemed increasingly uncertain, as the big names wanted direct dialogue with their customers.
Coupled with branding, direct marketing is on the increase in the business‑to‑business sector as it recognises the success this element of the marketing mix has enjoyed in its neighbouring consumer field. The move towards brand building/ direct operations for business‑to‑business hardware firms meant a matching rise in media spending. Apple made one of the most significant branding pushes of the IT pack with its ‘Think Different’ brand building campaign.

Alan Hely, Apple UK’s marketing director, said the campaign helped to build ‘the only lifestyle brand in the industry’ and said the aim was to communicate ‘what Apple stands for; it’s not about the product’. However, in its early days Dell eschewed the trend towards the ‘corporate personality’, instead focusing its efforts on the small and medium-sized enterprise sector, with ‘99. 9 per cent of advertising in the UK directed at SMEs’. Its marketing strategy reinforced its direct-sell approach via very targeted direct mail, site visits by salespeople, telesales, sales promotion and direct-response advertising. It often ran 30 or 40 marketing programmes at any one time. One Dell executive said that: ‘We are trying to use the products to carry the brand attributes. In the SME market, value for money is the key.’ Dell segments its customers into five sectors in the UK, according to size of company from corporate sales to the Times top 100 down to its consumer-only business. It tailors its marketing activities accordingly.

Dell’s use of the Internet
Internet marketing now accounts for most of Dell’s worldwide sales. With Dell the flow of information is upwards from the customer to the company, allowing something close to Pepper’s ideal one‑to‑one scenario.
First, the company made computers according to customer orders – it does not keep any stock. This allowed it to produce precisely what customers want, rather than nudging customers towards something that did not quite fit their needs. Secondly, the zero stock eliminated a whole series of costs, which fell out of the supply chain, allowing lower costs to be transferred to the customer and improving the company’s competitiveness.
By 2005, Dell was the biggest PC seller in the world and nearly all these sales were on‑line. Fortune named Dell ‘America’s most admired company’. Add in record revenue of $52. 8 billion over the last four quarters, and the brand could not have looked in better shape. But by 2006 things had changed. Dell did something its owner had always scoffed at: it opened a retail store. What had happened? There were two market trends working against Dell. The first was the swing of products towards matching computing power with entertainment. High-end specs were needed for game playing in a home environment.
‘We’re seeing more and more of our technology intersecting with home entertainment’, says Ro Parra, a senior vice president of Dell’s home and small business group. Secondly, while 80 per cent of Dell’s sales were to businesses, that market had become a lot tougher. Businesses wanted standardised machines that are basically commodities, and prices had gone into free fall in the face of steep competition. So, domestic consumers were powering the industry’s growth: by 2005, consumer sales were growing twice as quickly as businesses.
This coincided with a resurgence from the likes of Hewlett-Packard, which for years had suffered against Dell. But HP was not finished yet. By 2005 it had narrowed the gap in productivity and price and Dell had to get to grips with its new reality: its business model no longer gave it a competitive advantage over its nearest rivals.
‘Michael broke the paradigm about how to run a computer business, but they haven’t been so great at finding the next paradigm’, says David Yoffie, a professor at Harvard Business School, in 2006. ‘That’s the big challenge for Dell, the company and for Michael.’
2006 was a tough year for Dell. Customer service studies showed that its once incomparable customer service standards had plummeted to ‘just above average’
and the company acknowledged the decline.
Meanwhile, competitors such as Hewlett-Packard Co., Acer Co. and Chinese giant Lenovo (which bought out IBM’s PC arm) threaten to dilute the brand in the US and abroad.
‘Dell currently leads on the value attribute, but HP is seen as more creative and complete when it comes to solutions’, said one commentator.....

Questions

1. How did Dell put the customer in control of the buying process? How does the Internet help in this feature of Dell’s business?
2. What can Dell do to regain eminence with its core B2B market? How can it move into the consumer market successfully?

3. Why don’t consumers prefer on‑line buying for entertainment based products? Why has Dell been forced into retail?
4. Compare and contrast Dell’s direct approach with the brand-building approaches of HP and IBM.
5. How should Dell use Web search, e‑mail, affiliate marketing and direct mail to best effect to support its inbound Web and telephone sales channels?
6. What are the key success factors for business‑to‑business direct marketing compared with consumer direct marketing?