Dell Computer Corporation

WHEN 19-YEAR-OLD MICHAEL Dell began selling personal computers out of his college dorm room in 1984, few would have bet on his chances for success. In those days, most computer makers sold their PCs through an extensive network of all-powerful distributors and resellers. Even as the fledgling Dell Computer Corporation began to grow, competitors and industry insiders scoffed at the concept of mail-order computer marketing. PC buyers, they contended, needed the kind of advice and hand-holding that only full-service channels could provide. Mail-order PC sales, like mail-order clothing, would never amount to more than 15 per cent of the market. Yet young Michael Dell has proved the skeptics wrong. In little more than a decade, he has turned his dorm-room mail-order business into a burgeoning, $8 billion computer empire. Dell Computer is now the world's largest direct marketer of computer systems and the world's fastest-growing computer manufacturer. Last year, unit sales jumped by 71 per cent, five times the industry average. Profits skyrocketed 91 per cent and the company's stock price tripled. Direct buyers now account for nearly a third of all PC sales and Dell's once-skeptical competitors are now scrambling to build their own direct marketing systems. What is the secret of Dell's stunning success? Dell's direct marketing approach delivers greater customer value through an unbeatable combination of product customization, low prices, fast delivery and award-winning customer service. A customer can talk by phone with a Dell representative on Monday morning; order a fully customized, state-of-the-art PC to suit his or her special needs; and have the machine delivered to his or her doorstep by Wednesday - all at a price that's 10-15 per cent below competitors' prices. Dell backs its products with high-quality service and support. As a result, Dell consistently ranks among the industry leaders in product reliability and service, and its customers are routinely among the industries most satisfied. Dell customers get exactly the machines they need. Michael Dell's initial idea was to serve individual buyers by letting them customize machines with the special features they wanted at low prices. However, this one-to-one approach also appeals strongly to corporate buyers, because Dell can so easily preconfigure each computer to precise requirements. Dell routinely preloads machines with a company's own software and even undertakes such tedious tasks as pasting inventory tags on to each machine so that computers can be delivered directly to a given employee's desk. As a result, about 90 per cent of Dell's sales now come from large corporate, government and educational buyers. Direst selling results in more efficient selling and lower costs, which translate into lower prices for customers. Because Dell builds machines to order, it carries barely any inventory. Dealing one-to-one with customers helps the company react immediately to shifts in demand, so Dell does not get stuck with PCs that no one wants. Finally, by selling directly. Dell has no dealers to pay off. As a result, on average, Dell's costs are 12 per cent lower than those of Comp, its leading PC competitor. Dell knows that time is money, and the company is obsessed with 'speed'. For example, Dell has long been a model of just-in-time manufacturing and efficient supply-chain management. It has also mastered the intricacies of today's lightning-fast electronic commerce. The combination makes Dell a lean and very fast operator. According to one account, 'Dell calls it "velocity" -squeezing time out of every step in the process - from the moment an order is taken to collecting the cash.' By selling direct, Dell converts the average sale to cash in less than 24 hours. By contrast, rival companies which sell primarily through dealers take days, even weeks to do so. Such blazing speed results in more satisfied customers and still lower costs. For example, customers are often delighted to find their new computers arriving within as little as, 16 hours of placing an order. And because Dell does not order parts until an order is booked, it can take advantage of ever-falling component costs. On average, its parts are 60 days newer than those in competing machines and, hence, 60 days further down the price curve. This gives Dell a 6 per cent profit advantage from parts costs alone. With more and more competitors now following Dell's successful strategy of direct selling, the company is not standing still. Dell is taking its direct marketing formula a step further. It is selling PCs on the Internet. Now, by simply clicking the 'Buy a Dell' icon at Dell's Web site (www.dell.com), customers can design and price customized computer systems electronically. Then, with a click on the 'purchase' button, they can submit an order, choosing from online payment options that include a credit card, company purchase order or corporate lease. Dell dashes out a digital confirmation to customers within 5 minutes of receiving the order. After receiving confirmation, customers can check the status of the order online at any time. The Internet is a perfect extension of Dell's direct marketing model. Customers who are already comfortable buying direct from Dell now have an even more powerful way to do so. 'The Internet', says Michael Dell, 'is the ultimate direct model. [Customers] like the immediacy, convenience, savings and personal touches that the [Internet] experience provides. Not only are some sales done completely online, but people who call on the phone after having visitedDell.com are twice as likely to buy.' If initial sales are any indication, it looks as though Dell has once again rewritten the book on successful direct marketing. The direct marketing pioneer now sells more than $2 million worth of computers daily from its Web site, and Internet sales are growing at 20 per cent each month. Some 225.000 browsers visit Dell's site each week, and buyers range from individuals purchasing home computers to large business users buying highend 830,000 servers. Michael Dell sees online marketing as the next great conquest in the company's direct marketing crusade, 'The Internet is like a booster rocket on our sales and growth,' lie proclaims. 'Our vision is to have all customers conduct all transactions on the Internet, globally." This time, competitors are not scoffing at Michael Dell's vision of the future. It is hard to argue with success, and Michael Dell has been very successful. By following his hunches, he has built one of the world's hottest computer companies. In the process, he has amassed a personal fortune exceeding S4.3 billion.

QUESTIONS

1. Taking the case of Dell Computer Corporation, outline the major advantages of direct marketing for:

(a) the manufacturer and (b) the customer.

2. Dell has pioneered mail-order selling of PCs. What other methods of direct selling might the firm use?

3. Dell is taking advantage of new technologies such as the Internet to market its products. What might be the advantages and limitations of Internet or online marketing?

4. Suggest a direct marketing strategy for Dell, showing how it will help the company to create and sustain a competitive advantage.

5. Suggest an online marketing strategy for Dell, showing how it will help the company to create and sustain a competitive advantage.