Dell Computer – The Past, Present, and Future

When Michael Dell founded Dell Computer in 1984 the company’s mission was to be “the most successful computer company in the world” (Diversity Facts, 2011). To achieve his goal of becoming the dominant supplier of affordable consumer grade PCs, Dell Computer adopted a Direct Selling business model, building each PC only after a customer places an order. Revolutionary at the time, this system allowed Dell to reduce inventory to Just in Time levels. The efficiencies gained through reduction of inventory necessary to operate had enabled Dell to sell computers for significantly less than the competition with a smaller margin. Dell’s focus was to acquire as many new customers as possible, which in turn allowed them to negotiate even lower prices from their component suppliers, and through economies of scale, reduce costs even further. This strategy was extremely successful, shown in Figure 1 Dell sales numbers and income rapidly increased through most of the 1990’s. Figure 1

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At its peak Dell achieved daily sales in access of $57 million, with over 16 million customer interactions per week (Navigating the Company Timeline, 2011). Their customer acquisition strategy and direct sales model was a stellar achievement in the business world.

Through this initiative.yahoo.logscale=on Dell was hemorrhaging customers and knew something needed to be done to change consumer perception and increase sales back to former levels. Dell’s strategy did not. As part of the process to rehabilitate the Dell brand image.crosshair=on. so did decreases in the cost of PC ownership.com/echarts?s=DELL+Interactive#chart13:symbol=dell. “Michael Dell wanted to provide the best possible customer experience across all . The Personal Computer became a commodity and new competition entered the market. low performing consumer PCs with poor customer service. While the market changed. Sales of Dell PC’s plummeted and with little diversification in their product portfolio. Dell became their own worst enemy and the Dell brand was soon associated with low cost.20020501 . Figure 2 http://finance.ohlcvalues=0.indicator=volume. 2000 to $18 Million Dollars on December 19 that same year. Drastic losses in Dell’s customer base and revenues are shown in Figure 2. Remaining focused on beating the competitions price. 1999). Most notable is the change in revenues of $58 Million Dollars on March 13.range=20000301. the company began the “Customer Experience Initiative” (Dell Computer Corporation. the company had nothing to fall back on when consumers defected to the competition.Putting the Customer First But as the computer age marched on.charttype=line.

but only Proposition 4 Research suggests contract customers pay higher However. Consumers may have a long dormancy rate. informal study's with mgrs. reveal they come more cost conscious and expect lower prices on single items due to the total spend for goods purchased. Dell’s goal was the shift in how his company would measure the quality of their products. there is reliable prediction model for customer value based around length of tenure in a contract/noncontract environment. Dell started working with several relationship marketing providers in order to leverage the vast amounts of customer information they collect through their direct sales model. which I’ve laid out in Figure 3. This this causes acquisition costs that are in excess of the profit margins made on these customers due to the costs associated with on going long term marketing to this segment. As we learned in our reading. 1999). Figure 3 Segment 2 Profits increase over time. Dell‘s new measurement of quality would now include quantifiable metrics for the sales process and the quality of customer service. A major part of achieving Mr. However. However if the customer is billed for services not used it’s a gain Proposition 1 Revenue of a one time purchase by a consumer is likely less then the cost of acquisition . purchasing only promotional items/loss leaders.points of contact” (Dell Computer Corporation. Other anecdotal evidence suggest that long term buyers become more educated on lower cost items that offer the same benefits as the higher cost competition and switch their buying habits L i f e t i m e D u r a t i o n Short with contract a customer. and terminate business with unprofitable customer who have an NPV>ECM . poor service will also cause high defection rates A manager should calculate the NPV of the expected ECM. Fickle buyers can lead to service costs greater then the revenues they generate. Managers now had to meet service goals and accomplish several objectives: 1) 2) 3) 4) Increase brand loyalty Increased repeat business Add value to the Dell buying experience Leverage customer information to expand product offerings To facilitate managers in meeting the objectives. Traditionally the computer industry’s measurement of quality had been based on product failure rates.

It shows that segments 1 & 3 are very attractive when calculating promotional costs over a small period of time.Proposition 3 Positive probability for a profitable lifetime relationship. much money is spent on long term communications with longtime buyers. typically pay the most per item but when measured . customers who fit into Proposition 3. IT is assumed these buyers also develop brand loyalty causing the promotional mix to be more more effect with in this segment. However. no empirical evidence supports this Lifetime Revenues Low High This model reveals valuable consumer insight which Dell seems to have been aware of when developing what is now their current business strategy. the short life high value segment. Additionally. as In theory cost of targeted promotions should be favorable However.

Below is a breakdown of the contributed revenue by market segment. Dell could no longer focus solely on the consumer market so with customer data analysis in hand. in quarter 3 of 2011. the most profitable customers are those in Proposition 4. We are focused on expanding our customer solutions business by delivering best-value solutions in the enterprise. Our acquisition strategy targets businesses that we believe will expand our customer solutions business by delivering best-value solutions in the enterprise. While the consumer space continued to be a battle field fought over narrow margins. These numbers seem to be a drastic reduction from the figures published in the 1990s. (E-Marketing Strategy. in part to: “Shift Portfolio to Higher-Margin and Recurring Revenue Offerings.over a lifetime.7 billion. storage.3 billion. However.4 billion. access to customers of all sizes. Information Week Nov. We will focus our investments to grow our business organically as well as inorganically through alliances and strategic acquisitions. and enabled the integration of ERP systems (SAP and Baan) into their CRM existing CRM. including servers. Dell defined several profitable business segments and began to include enterprise customers in their strategy by building the Premier Pages website for enterprise buyers. 1999).4 Billion in sales over that 3 month period. 2011). The new business strategy as stated in their 10-K form is. (Dell finds Success. simplification. Education. We believe that our installed customer base. (Dell Finds Success. 2011). sales through Premier Pages had increased Dells revenues by 50% from the previous year. choosing to decrease the company’s reliance on desktop systems. and more open data center solutions. a 20 percent increase from Q3 2010 Small and Medium Business revenue was $3. storage. Premier Pages allowed Dell to become a major supplier of IT consulting services for enterprise corporations. 1999) Seeing business sales sky rocket while the consumer market became saturated. and capabilities position us to achieve growth of our customer solutions business. Dell realized what needed to be done. Dell's consumer division accounts for approximately 20% of the company’s total revenues. Dell Incorporated currently ranks 3rd among PC manufacturers (Dell Profits Triple. Our view is that a large majority of the data centers and the server and storage opportunities now and in the future will be based on best value. Information Week Nov. long term contract business buyers. Large Enterprise: $4. services and software. Dell forecast that by the end of 2000 production of consumer PC’s would be cut by 50%. Medical) revenue was $4. Realizing more profit could be had with business buyers. services and software. An immediate success. These are the kind of solutions that we believe Dell is well positioned to provide.” The Market Continues to Evolve Today. a 24 percent increase from Q3 2010 . including servers. Dell had earned record revenues when it achieved $15. a 27 percent increase from Q3 2010 Public (Government.

Further proof that there is little money to be gained in this segment is depicted in the chart below which shows that none of the Top 3 PC manufacturers have made positive gains in the market. Dell continues to strengthen its enterprise strategy.ars To fend of decreasing consumer sales. data storage devices. Figure 3 http://arstechnica.dell. a 4 percent increase from Q3 2010 and improving to a break-even operating income for the quarter Footnote: The company’s EqualLogic storage business grew 66 percent. focusing on servers. Expected revenue for all of 2011 is expected to grow by 5% to 9%. for a total of $67 billion. and technology consulting services which have higher margins and are more profitable than the company's basic PC business.com/us/en/corp/d/secure/fy11_q3_earnings_release Clearly Dell made the right choice by moving away from the consumer market. (Dell profits Triple.com/gadgets/news/2011/04/gartner-tablet-hype-fueling-worldwide-dip-in-pcsales. 2011). http://content. Dell’s revenue per .Consumer revenue was $3 billion.

1st being Apple. The tech world moves fast. Preparing for the Future As one of the computer industry’s few stalwarts. and 2nd Super Micro Computer (Highest Revenue per Employee. 2011). 2011). reducing the need for consumer level tech support. Dell knows their current success does not guaranty success in the future. Today we are moving away from physical media. and Dell needs to have solutions in place for the cloud computing future by 2013 if they want to stay ahead of the industry. data storage and network equipment and having increased their annual research and development budget to $1 billion. and increasing the need for corporate solutions and data center technicians.employee (RPE) figure of $598. or even Hard Drives. Technology is ever changing and data processing needs evolve. I can see this impacting the computer industry in 3 ways: 1) The need for enterprise storage solutions will continue to soar as both business and consumers begin to store files off site to the cloud 2) Workstations and PCs become less complex as the cloud will house and process data.000 is currently 3rd in the industry. REFERENCE LIST . having spent $2. 3) The need for different cloud technologies to be interoperable will again increase demand for corporate solutions providers Dell seems to be anticipating these changes as well. CD-ROMs. No longer needed are things such as floppy disks.7 billion so far this year on acquisitions of businesses that provide data security. Files can now be stored remotely over high speed internet connections and accessed anywhere in the world via “the cloud”. (Dell Needs a Broader Product and Service Offering.

2011 from http://ycharts.co. 2011 from http://www. Retrieved on November 1. 2011 from http://content.com/content/topics/global.dell.com/money/companies/earnings/2011-05-18dell_n.informationweek. Nov 1999. 2011 from http://www.com/clients/casestudies/dell Dell Profits Triples as Computer Maker Cuts Costs. Retrieved on December 2.pdf E-marketing Strategy. 2011 from http://www.usatoday.com/761/infdell. 2011 from http://www.usatoday.com/money/companies/earnings/2011-05-18dell_n. Retrieved on November 27.com/news/files/dell_case_study.com/story/fast-lane/331-highest-revenue-employee-computer-hardwareindustrydetected-apple-aapl-smci-dell-fast-lane-0) Dell Profits Triple as Computer Maker Sees Cuts.com.htm Diversity Facts: Dell.marketing-insights.typepad.fnno. Retrieved Oct 14. Information Week. USA Today.solutionset.com/analysis/story/dell_needs_a_broader_product_and_service_offering_but_spends_o n_stock_buybacks Highest Revenue per Employee.aspx Dell: Develop Existing Customers.htm Dell Finds Success. Retrieved on November 27. Retrieved on December 3.dell.uk/wnim0502.htm Navigating the Company Timeline. 2011 from http://www.com/us/en/corp/our-storycompany-timeline. Retrieved December 4. Retrieved on December 1. Retrieved December 8. 2011 from http://www.aspx/about_dell/investors/main/en/faqs?c=us&l=en#faq8 Dell Computer Corporation: A Zero-Time Organization.htm . 2011 from http://www. March 18. 2011 from http://cyberlibris.Dell Needs a Broader Product and Service Offering.

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