Case study in the E-MARKETING course

Presented by: Ashraf Hatem Hlouh

Dell Computer Corporation
Founded by 19-year-old Michael Dell in a dorm
room, grew by more than 50% a year over
1995-1998
Dell produces custom build PCs in a matter of
hours and producing no PC component it could
sustain a large portion of PC market comparing
to IBM, HP, Compaq, Hitachi, Sony, Fujistu.
Dell Background
Dell: Birth and Childhood (1983 1990)
Michael Dell University of Texas at Austin
Upgraded IBM-compatible PCs in his spare time in
dorm room. Then he assembled entire PC with
15% discount to established brands.
On May 3, 1984 Dell Computer Corp was
officially established.
Efficient and Low Cost operations Support services
such as 24-hour hotline and guaranteed shipment of
replacement part
Attractive to technology literate customers who looked
for quality at a reasonable price

Dell Background
Dell grew from nothing to $5 million at 1985
International Expansion : 1987 UK ,1990: Limerick,
relend to serve the European, middle eastern and
African markets.
Sales In 1990: $500 million Michael Dell became the
richest person in Texas.
Dells Model being imitated by other vendors like
Gateway 2000

Dell Background

Dell Background
Dell employees worldwide
Approximately 103300 employees end of Fiscal 2011

100300 regular employees

3000 temporary

36,900 of the regular employees at end of 2011 located in the U.S

Acquisition of Perot Systems Corporation in Fiscal 2010 added
23,800 regular employees

Dell Direct Model
Indirect Channels





Reseller Customized the PC to customer requirements,
installed components and provided additional service
and support
Dell Direct Model
The Direct Model
Direct Sales From the PC manufacturer to the corporate
customer or consumer.






Bypassing the dealer channel, selling directly to consumer
Focus on Speed of Execution and Minimum Inventory
Dell Direct Model
The Direct Model Characteristics
Eliminate costs and risks of carrying large finished good
inventories
High velocity
Low-cost distribution
Direct customer relationship
Build-to-order
Just-in-time manufacturing
Products and Services aimed at specific market segments

Dell
End
user
Dell Direct Model
The Direct Model Characteristics
Reduced channel costs: from 13.5%-15.5% to 2% of product
revenue
Latest Technology was introduced faster than indirect
channels
Dell can use IT to directly control its value chain, set
quality measures and monitor in real time how material is
flowing throughout the chain
Managing Information to
Increase Velocity,
Track data on margins, selling price,
Utilize info. to get the suppliers in sync with the high-velocity model
Dell Direct Model
The Direct Model Characteristics
Most of Dells suppliers keep components warehoused
less than 20 minutes away from Dells factories
Dell has small number of suppliers Even it reduced their
number from 204 in 1992 to 47 in 1997
Dell's Inventory sales after Direct Model

Dell Direct Model
Manufacturing Process
No warehouse Space,
No inventory other than work in process
Manufacturing is synchronized to avoid storing parts or
finished systems
o This needs close relationship with suppliers
o Trust Manufactures like Sony, Logistics like UPS
o No test time
Dell Direct Model
Products

Desktops
Laptops & notebooks
Mobile phones & Devices
Printers & Ink
Electronics & Software
HDTVs & Home theater
Dell Direct Model
Major competitors
Dell Direct Model
Customer Service
In 1986, San Francisco, Dell determines the companys
future direction:

The first: to really grow our business, we would have to target large
companies. The second: to land large companies we would have to
offer the absolute best support in the industry. That was how we came
up with the idea to provide the industrys first on-site service for PCs.
if a customer called us with a problem, wed say, Well be out
tomorrow to fix it
Dell Direct Model
Customer Service
1,300 technical support personnel
Accessible by phone 24 hours a day
90% of calls can be solved on the phone by standard
troubleshooting procedures
Third-party maintenance providers like Unisys, Wang,
Decision one consulting and Digital Equipment
Tight coordination with supplier, vendors and
maintenance providers feels like Just one large company

Dell Direct Model
Customer Service
In Computerworlds 1998 survey Dell ranked first in user
satisfaction followed by Gateway
According to Computerworld traditional vendors depends
too heavily on resellers that prevents them from reacting
quickly to customer needs, because resellers may place
their own interests first

Dell Direct Model
Financial highlights
For fiscal year 2010, second quarter (ended July 30,
2010)

Revenue $15.5 billion

Operating income $745 million

Net income $545 million

Earnings per share $0.28

Dell Direct Model
Dell computer Corp. Financial Data, 2009 - 2012

Currency in $
Millions
As
of:
Jan 30
2009
Reclassified
Jan 29
2010
Reclassified
Jan 28
2011
Feb 03
2012
Press
Release
Revenues 61,101.0 52,902.0 61,494.0 62,071.0
Total Revenues 61,101.0 52,902.0 61,494.0 62,071.0
Cost Of Goods Sold 49,998.0 43,404.0 50,041.0 48,211.0
Gross Profit 11,103.0 9,498.0 11,453.0 13,860.0
Selling General &
Admin Expenses,
Total
6,966.0 6,227.0 7,234.0 8,524.0
R&D Expenses 665.0 617.0 653.0 856.0
Other Operating
Expenses, Total
7,631.0 6,844.0 7,887.0 9,380.0
Operating Income 3,472.0 2,654.0 3,566.0 4,480.0
Global PC Market Share - 2001-2005

Global PC Market Share by Units, Percent. 2001-2005
Rank 2001 2002 2003 2004 2005
1 Dell 13.3
HP-
Compaq
16.2 Dell 15.0 Dell 16.4 Dell 16.8
2 Compaq 11.1 Dell 15.2 HP 14.3 HP 14.6 HP 14.5
3 HP 7.2 IBM 6.0 IBM 5.1 IBM 5.5 Lenovo 6.9
4 IBM 6.4 NEC 3.4 Fujitsu 3.8 Fujitsu 3.8 Acer 4.6
5 NEC 3.8 Toshiba 3.2
Toshib
a
2.9 Acer 3.4 Fujitsu 3.8
Other
s
58.1 56.0 58.9 56.4 53.3
Global PC Market Share - 2006-2011
Global PC Market Share by Units, Percent. 2006-2011.
Rank 2006 2007 2008 2009 2010 2011
1 Dell 15.9 HP 18.2 HP 18.4 HP 19.3 HP 17.9 HP 17.2
2 HP 15.9 Dell 14.3 Dell 14.3 Acer 13.0 Dell 12.9
Lenov
o
13.0
3 Lenovo 7.0 Acer 8.9 Acer 11.1 Dell 12.2 Acer 12.0 Dell 12.1
4 Acer 5.8 Lenovo 7.4 Lenovo 7.2 Lenovo 8.1 Lenovo 9.7 Acer 11.2
5 Toshiba 3.8 Toshiba 4.0 Toshiba 4.5 Toshiba 5.1 Toshiba 5.4 ASUS 5.9
Othe
r
51.6 47.1 44.5 42.3 42.1 40.7
Dell Direct Model
Dells motivation for rethinking direct sell business model

IN THE PAST
TODAY

PC customizability was highly
appreciated by customers
Surplus stock lost value quickly
Demand was typically low for each
product variant
Assembly-to-order more effective
than selling pre-configured PCs in
retail stores



Customers are willing to choose from
a few standardized PCs model.
Inventory of standardized models
moves fast
Demand was relatively high for each
standardized model
PC became a popular commodity,
price has dropped significantly
Direct sell model is less effective in
todays more standardized market
Dell Direct Model
Customers And Segmentation
Transactional
Individuals or businesses who make transaction-by-transaction
buying decision - based on the Economics of the purchase
Focus on performance, specification, featured, reviews, awards
Relationship
Based on total cost of ownership TCO and price is a secondary
concern. Like business, government or education accounts in
medium-to-large organizations. Focus on service, reliability,
vendor reputation and standardization

Dell Direct Model
Customers And Segmentation (Cash flow)
Payment type
Transactional: Credit card or charged full upon delivery
Relationship: Purchase orders, Credit cards, lease agreements, Longer
payment cycles
Velocity of generating cash from orders
Transactional: less than 24 hours compared to 2 weeks for Gateway
Relationship: 40 days compared to 56 days for Dells payable
outstanding
Dell Direct Model
Customers And Segmentation
Makes it easier to know the customer and identify unique
opportunities
Better attention and Focus
Bring Dell closer to customer to understand their needs and operating
environment
Large Corporate Accounts Gold $5-$10 million
Largest Account Platinum exceed of $10 million
Periodic regional Platinum Council for discussion and interaction
with Platinum accounts

Dell Direct Model
Customers And Segmentation
Geographic:
1. America( target, occupy 50% of net revenue)
2. Europe
3. Asia
4. Middle East
5. BRIC( Brazil, Russia, India & China)
Psychographic
1. Interest community
2. Support forum
3. Blogs
4. Idea storm
Behavioral

Dell Direct Model
Behavioral
Based on light, medium, and heavy product usage

DELL: direct e-marketing through B2B market and B2C
market with market segment based on level of product usage

B2C: for home (individual)- LIGHT PRODUCT USAGE

B2B: a. small & medium businesses- MEDIUM PRODUCT
USAGE
A. Public sector( state & local government, federal government,
education, health care)- MEDIUM PRODUCT USAGE
B. Large enterprises HEAVY PRODUCT USAGE

WWW.DELL.COM
Developing www.dell.com
Designing Started in 1995 Emphasize on early internet leadership
Its better to be in front with an imperfect internet
implementation than to be late with the perfect Website Site
Launched in July 1996 Sales on the Web By December 1996 : $1 Million
a day By May 2000: $40 million daily {50% of total sales} In 2003: $16
billion
Initially it was geared to Transactional Customers
Manual order processor
Order tracking system
Technical support manuals, FAQs, troubleshooting info. Configuration
diagrams, software upgrades, device drivers
WWW.DELL.COM
premier.dell.com
Problem: Convincing large corporate customers to buy through Web
Dell studied how they evaluated and acquired systems
Dell designed Customized Websites called Dell Premier Pages for
platinum accounts, later for gold accounts.

In fall 1997 Premier sites designed in less than a day for every customer
who has an agreement with Dell.

They place the order, it gets routed up to whoever in their company
needs to approve it, then is sent directly to us, McNair

September 2000 -> more than 50,000 Premier sites
WWW.DELL.COM
valuechain.dell.com
Customized Supplier Web pages Suppliers to share real-time
information with Dell on their Capacity, quality metrics, costs
Dell to share information on customer demand, product quality and
technical customer requirements
Conclusion
The key to Dells success has been its direct sales and build-to-order
business model.
This model is simple in concept but highly complex in its execution,
especially under conditions of rapid growth and New product lines
Ended up forcing its CEO to resign in 1999

Problem: Conflicts between its traditional indirect sales channels and
its attempt to increase direct sales.

Dells service advantage may be a greater differentiator than its 10-15%
cost advantage, Dell has everything we want in a tech company,
especially Focus, Dell does nothing but PCs




Conclusion


Dell doesnt even need the best product or price anymore,
because it is starting to own the PC space in buyers mind

Dells use of IT plays a vital role in the implementation of its
business model. The company has used IT to coordinate its
build-to-order processes from order taking through
procurement, logistics, production, service, and support.

Conclusion

Companies such as Dell that are industry leaders in Internet commerce
will be able to expand their customer base and increase their business
with existing companies at a low marginal cost. They also can reduce
the cost of coordinating their supply chain through electronic linkages.
This will enable them to offer incentives to customers and suppliers
to do business electronically and continue to drive their own costs
down.