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³It¶s amazing to me that our competitors think the customer is the dealer.

´ Michael Dell ³Sales Leader: Tops in Global Basis.´

Be Direct: DELL
The Challenges and Evolution of Marketing

Introduction  

Before Michael Dell, innovation was about well-schooled engineers in R&D labs inventing high-margin products and technologies. Dell instead trained his eye on finding the most efficient way to get tech products into the hands of the consumers. Perfected the credo² ³Cut out the middleman.´ 

The Challenges and Evolution of Marketing

Introduction 


Perfected the credo² ³Cut out the middleman.´ DELL eliminated the need for inventory or middlemen and gave itself a built-in price advantage, which it in part keeps as profit and in part passes on to customers.´ Fortune 11/28/2005

The Challenges and Evolution of Marketing

´ The Challenges and Evolution of Marketing . We have to take advantage of change and not let it take advantage of us.Introduction  Michael Dell: ³The only constant thing about business is that everything is changing.

they haven¶t been so great at finding the next paradigm.´ BusinessWeek 3/6/06 The Challenges and Evolution of Marketing .Introduction  ³Selling tech products by telephone and then the Internet« Michael broke the paradigm about how to run a computer business.

000. Continues to differentiate Dell from other companies. the company he founded in ¶84 for $1. to operating responsibly and. to the team. to being direct.Introduction    Michael Dell is the chairman of the Board of Directors of Dell. ultimately to winning. With an unprecedented idea---build relationships directly with consumers (born in February µ65). Dell¶s commitment to consumer value. The Challenges and Evolution of Marketing .

2006 is the year they need to reinvent themselves. 3. HP has narrowed the gap on productivity and price. 4.Introduction  Michael Dell and Executive Management ponder: 1. A global strategy to manage the sales in the international markets. Decision making in a dynamic environment. Whether or not to enter new product markets with laptops and servers? 2. The Challenges and Evolution of Marketing .

 The Challenges and Evolution of Marketing .Introduction DELL did not want the ³unsophisticated´ customer.  DELL wants to sell to the ³educated´ customer. It¶s more profitable and easier.  DELL wants the consumer to buy their third or fourth system from DELL.

solutions for vertical markets like banking.Introduction Why DELL case: We¶ll look at direct marketing and marketing strategies.  Look at more efficient way of going to market. manufacturing and retailing.  Just-in-time (JIT) manufacturing.  VAR¶s (Value-added resellers).  The Challenges and Evolution of Marketing .

Software. Networking. Handhelds.Introduction  The Future: The power of laptops became compatible with desktops.  The Challenges and Evolution of Marketing . Servers. Storage. Workstations and more. Peripherals. manufacturing and usage. TV¶s. because of design. Added: Printers. Projectors.

Introduction  What does SWOT analysis reveal about Dell¶s situation? The Challenges and Evolution of Marketing .

SWOT Analysis Business to Consumer Strengths Customization Price Business to Business Strengths Customization Price Customer Opportunities Server Opportunities Server Focused Technical Knowledge Market Diversification Strong Brand/Positioning Media Savvy Direct Marketing Model Non-myopic strategy Customer Market International strategy Product extensions Focused Technical Knowledge Market Diversification Strong Brand/Positioning Media Savvy Direct Marketing Model Non-myopic strategy Market International strategy Additional markets Product extensions Strategic partnerships Tangibility Technology Competition across Technology Inventory Market Competition across Market Commoditization Inventory markets Commodity pricing (shrinking margins) Complexity of Mgmt. Growth exceeding productivity Weaknesses Threats The Challenges and Evolution of Marketing Weaknesses Threats . Growth exceeding productivity markets Commodity pricing (shrinking margins) Complexity of Mgmt.

3. What impresses you about this company? What is your assessment of the job Michael Dell has done. and Sam¶s Clubs. 2. why did Dell have a problem with the retail entry? The Challenges and Evolution of Marketing . 4. 5. CompUSA.Case Questions 1. as CEO? Senior management? How did Dell segment its customers? What types of customers? What were they like? Who¶s the competition for ³transaction´ customers? Who¶s the competition of the other segmented customer? What are the advantages of this direct marketing and direct manufacturing model? With its past distribution agreements with Staples. 7. 6.

Why did Dell fail in its first entry in laptops? 9. how would you characterize its strategies? The Challenges and Evolution of Marketing . What are the implications of a server failure versus a desktop failure? 10. What are the sales and customer service implications of a server failure versus a desktop failure? 11. Does Dell¶s expansion into other products and services make good strategic sense? 12. Given that Dell is a global player.Case Questions 8.

DELL: Number One in PC Sales DELL is one of the Most Admired Companies Fortune¶s Annual issue In 2003. Compaq and HP turn over is 13. less overhead and delivers lower prices to the customers for DELL. DELL turns over its inventory 52 times a year.8. With one week of parts on hand.5 and 9. The Challenges and Evolution of Marketing . generated 80% of profits from sales to businesses.Wrap Up: Now and Then      Avoiding dealers means less mark-ups.

5% on research. Competition is Sony.´  Consumers will benefit. What about new ones with google and AMD.  Morphing into a leading consumer-electronics firm. Spends only 1. The Challenges and Evolution of Marketing . Prices will drop.  Dell isn¶t very innovative.Wrap Up: Now and Then  Dell¶s invasion into living rooms with flatscreens and other electronics will be a $100 Billion ³free for all. Intel. but ³We just do it better. Samsung and Toshiba.´  Looking at partnerships with Microsoft.

´  Problems dealt with: Quickly. Microsoft. and without Excuses.  ³The status quo is never good enough.´  ³Celebrate for a nanosecond. Loftier than IBM.´ Then move on. WalMart and GE.´ The Challenges and Evolution of Marketing .´ ³Five seconds of celebration and five hours of postmortem on what could have been done better.  Dell stock has been valued at a P/E multiple above 40.Wrap Up: Now and Then  Michael Dell cares about operating margins. Directly.

9 Billion (est. #3 consumer brand.8 Billion  Sales in ¶04: $41.  Sales in ¶00: $25.´ The Challenges and Evolution of Marketing . Dell was #6 in computer.Wrap Up: Now and Then  µ00.4 Billion  Sales in ¶05: $49.  µ03. Dell moves in.) ³When a market is ready to explode.2 Billion  Sales in ¶02: $35.2 Billion  Sales in ¶06: $55. with a market share of 6%. it was #1 with a 30% share.2 Billion  Sales in ¶03: $40.

windows of opportunities open and close.  Successful companies see the opportunities sooner. The Challenges and Evolution of Marketing .Summary  Just like in your own businesses.

Michael was still be the wealthiest person under 40. in 2000. 2001. 2004. until his birthday in 2/05.Wrap Up: Now and Then  Michael Dell: -Named CEO of the Year 2001 -Wealthiest individual under 40. -If his DELL stock lost all value. The Challenges and Evolution of Marketing . 2003.

Summary DELL is to the computer industry what Dominos is to the pizza business. TIME magazine The Challenges and Evolution of Marketing .

Summary  Heart of the case: Understanding the DELL Direct Marketing Model. The Challenges and Evolution of Marketing . Inventory is the worst thing to have in an industry in which value of materials and technology declines quickly. Can it be extended into new markets.  The question of entering new markets is in reality looking at the Direct Marketing model.  Inventory has the shelf life of lettuce.

 Dell¶s ³all in one´ printer. copy and fax are #2 (private label of Lexmark). it automatically detects when ink is running low and directs user to the Dell website. Free shipping.  In the Dell software. with emphasis on printers. The Challenges and Evolution of Marketing . direct sales approach will allow it to torpedo prices in many markets.Summary  Dell believes its low-cost.  Rival HO gets 70% of profits from printers and ink. that can scan. behind Lexmark.

The Challenges and Evolution of Marketing . competitors. channels and technology.  Pioneered first money-back guarantee ¶86. Anticipate and research the evolution of customers.Summary  Markets evolve over time. products.

Summary  Three Golden Rules of DELL: 1. The Challenges and Evolution of Marketing . Always listen to the customer 3. Disdain inventory 2. Never sell indirect.

Execs must do both. Overshoot it and you¶re leaving sales on the table. Reassigned. Despite solid results. storage and networking chiefs) who didn¶t use all of the bullets in the gun. The Challenges and Evolution of Marketing .  Miss a profit goal and you¶re not cutting costs fast enough.  Pity the execs (server.Summary  It¶s not enough to rack up profits or turbo charge growth.

 In 2004: 50% of revenue came from desktop PC¶s.Summary  Dell-lizing Printers  Dell entered printer market in ¶03.  Market share: 19% in early 2005. Will drop to 30-35% in coming years. The Challenges and Evolution of Marketing .

#10 in US in 2005 with 2. digital market. looking to be category killer in flat-screen. The Challenges and Evolution of Marketing .4% share.  Dell uses same suppliers.Summary  Dell is competing against 50 different manufacturers.  The convergence of entertainment and computing or birth of ³digital home´ should only help Dell.

Summary  Developing Dell Direct stores. but the purchasing decisions/behaviors are different. see and browse.  Offering existing customers deals. and kiosks in malls. The Challenges and Evolution of Marketing . Places to touch.

Dell. The Challenges and Evolution of Marketing . Aggressively battling Dell to claim bragging rights as top PC seller.Summary  HP vs. HP¶s approach. HP¶s business has long faced the difficult choice«focusing on grabbing market share or improving profitability.  ¶03 & ¶04.

´  Investors are applauding. WSJ 1/19/05 The Challenges and Evolution of Marketing .Summary  HP is backing away from seeking market share at all costs or going all-out to upseat Dell from the top.´ Saying it¶s a positive thing for HP.

There¶s no easy way out.´  ³Buying Compaq hasn¶t paid off for HP¶s investors.Summary Fortune cover 2/7/05  ³Why Carly¶s Big Bet is Failing.´  Carly is forced out on 2/9/2005 The Challenges and Evolution of Marketing .

500 jobs in a restructuring plan meant to save $1. 2005 The Challenges and Evolution of Marketing . WSJ July 19.Summary  Hewlett-Packard plans to cut 14.9 billion a year.

´  ³In past ten years our sales are up 15 times and earnings and stock price are up 20 times.Summary  ³Our model continues to be the best in the business.´ Michael Dell: Fortune 11/15/2005 The Challenges and Evolution of Marketing .

The Challenges and Evolution of Marketing .Summary  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 spend more on customer service and new product development.  Needs to increase R&D spending.  Cutting price. Look for future trends. Undercutting rivals.

Michael Dell Be Direct: DELL The Challenges and Evolution of Marketing .´ ³No victory laps«It¶s a marathon« Celebration breeds complacency.³It¶s amazing to me that our competitors think the customer is the dealer.

³Every company needs to challenge and reinvent itself.´ The big question for DELL in 2006 is HOW? Be Direct: DELL The Challenges and Evolution of Marketing .