By John Dudovskiy
November 3, 2012

DellDell Inc., one of the world’s largest computer manufacturers in the world, has developed its business in a unique way, by selling equipment directly to customers around the globe. The company was founded in 1984, and has grown from its original base inTexas,USA, into a key international player in the computer industry.

Dell Computer Corporation has been extremely successful generating a 13 billion empire only within 13 years of operation in computers market.

“Direct Business Model” has enabled the company to be that successful within short period of time. This strategy, as implemented by the founder of Dell Company Michael Dell, let the company to configure computers and sell them directly to customers or final users at incredibly low prices. This was due to eliminating the mark-ups by intermediaries and the risks of carrying slow-moving, large inventories in the warehouses.

Direct model turned out to be a success factor for the company as it not only helped to produce and offer computers and services in lower prices, but also enabled the company to interact with customers and satisfy their needs and wants through producing customer-build computers for them.

Most importantly Dell proposed the idea of “Virtual Integration” that gave a competitive edge and comparative advantage for the company over its competitors.


Financial analysis

 International markets are now extremely competitive due to the liberalization of the world trade and investment environment in new technology and IT systems.  Strategy is often regarded with identifying and taking action that lowers the costs and differentiate Dell’s product offering through superior design, quality, service, and functionality.

Dell has been achieving consistent solid annual growth both on sales and net profit due to its market dominance, demand and product innovation. Sales of external storage systems increased 73 percent and continue on an annual run rate of more than $1 billion.

The company has been achieving great revenue and market share growth in its newly diversified product ranges as well such as the sale of external systems increased 73 percent and continues on an annual run rate of $1 billion.

And there has been enormous hike in share prices of the company due its rapid growth where the company’s share prices rose from $12.43 in 1998 to $26.80 in 2002 which more than doubled. Or the investment of $100 in 1988 jumped to $28300 in 2002 which indicates extremely rapid growth of the company in value which benefits the shareholders.

And the sales in Americas increased by 33% in 2002 and Mexico saw more than double increase in shipments. The company’s overall sales rose to $25.669 Billion in 2002 from 23,107 in 2001 even though the world economy slowed down affecting most companies all around the world.


Market positioning

Gupta (2005) mentions that after the organization have selected their target market, the next stage is to decide how they want to position themselves within that chosen segment.

As Dell produces and sells computer and computer related products to all levels of customers, starting from individual customers to governments and corporate clients, the chosen market for the company is really huge and diverse.

However, the company always tries to keep its products as low priced, well designed and reliable. Therefore, the company has benefited hugely from this strategy and market focus. Moreover, the company differentiates its products as part of its stated obligation to the customers.


Customer Relationship Management in Dell 

Kotler et al (1999) state that relationship marketing involves creating, maintaining and enhancing strong relationships with customers and other stakeholders. And the reason for the development of relationship marketing has been the moving away of marketing from a focus on individual transactions and towards a focus on building value laden relationships and marketing networks.

They further indicate that the relationship marketing is a long term goal of the company and its main focus is to deliver long-term value to customers and the measure of success is a long-term customer satisfaction.

In case of Dell, the company has been successful due to implementing the direct selling strategy by building strong relationship with the final users and customers.

Moreover, Dell has not only been selling PCs to customers, but also ensuring that it looks after the maintenance and procurement of the machines after sales as well which builds long term customer relationships with customers.

Parvatiyar and Sheth, (2001) defined relationship marketing as a method of acquiring, retaining and liaising with targeted customers to provide better value for both the organisation and the customers. The combination of marketing, sales and customer service and the distribution elements of the organisation in an integrated manner enable higher efficiencies and improved effectiveness, which lead to better value for the customers.

Kotler et al (1999) points out 5 different types of relationship between the company and customers, as follows:

  1. Basic: the company salesperson sells the product but does not follow up in any way.
  2. Reactive: the salesperson sells the product and encourages the customer whenever there is an issue or question
  3. Accountable:the salesperson sells the product and phones the customer in a short period of time to find out if the product is meeting their expectations takes note of any product improvements
  4. Proactive: the salesperson or someone from the company phones the customer time to time to suggest about improved products and services
  5. Partnership: the company works continuously with the customer and with other customers to discover ways to deliver better value

It can be seen from the case provided that Dell has a partnership approach with its customers as it not only sell the PCs, but also manages their large customers PC department.

As mentioned by M. Dell in the case, they sell and manage the total purchase of PCs of large customers by selling them a standard product. And if the customer has any problems with the PCs, then Dell technicians would not spend first 30 minutes figuring out what configuration the customer has, but straight away fix the problems as they already know all specifications of customer PCs.And that way Dell becomes the IT Department of large companies by charging less for maintenance as they can even place their own technician in the customers company as it was seen in Boeing Company.

This indicates that Dell has been not only a seller, but also a part of large companies’ business operations.  Moreover, Lancaster, Massingham and Ashford (2002) mention the following implications of Relationship Management.

  • The need for two way communication

Relationship marketing heightens the need for more effective two-way communication between the marketer and customers.In the case of Dell, the company has close relationship with its customers due to its Direct Selling strategy where it can easily identify the needs and wants of customers which is a main part of marketing concept.

As mentioned by M. Dell, the salespeople find out the need of customers over the phone when taking the order and even the founder of Dell, Michael Dell spends his 40% of time with customers.

Furthermore, Platinum Council also gives a very good chance for the company to review and analyse the needs of its customers as the ratio of attendees for the Platinum Council meetings are 1 Dell employees to one customer which indicates that the company really appreciates the customer presence for upgrading its systems and products.

However, there is a lack of communication between small and public consumers as the company mainly focuses on large customers who make up 90% of its total revenue.

This can be a disadvantage of the company as it may lose significant proportion of its customers. And moreover, customers do not have the chance of testing and trying the computers before they buy it as it is not available in the high street shops.

  • Everyone in the company works towards customer satisfaction

Another major implication of Relationship Marketing as described by Lancaster, Massingham and Ashford (2002) is the importance of the entire organization working towards satisfying customers. To ensure successful relationship management, there must be effective levels and systems of customer care. And any failings in customer service normally lead to the loss of customers. Like customer service, relationship marketing needs an appropriate supportive organizational culture where everyone in the company is seeking to help build relationships with the customers.

In case of Dell, the company has been successful to the fact that it has built a very strong relationship with its customers where the company managed to develop at a rate of 57% per annum.

And Dell’s technicians usually meet with customer technicians to exchange knowledge and solve customer issues together.

However, as the company mainly concentrates on increasing its sales, it may miss out vital issues such as other departments than marketing department may not work for the satisfaction of the customers that may result in damaging the company relationships with customers.

  • Customer often leads the whole of the marketing process

This part reminds the marketing concept as the company has to put customers in the heart of its operations and decision making and build its marketing process around customers’ needs and wants.

This can be seen in Dell, as it’s almost all productions are based on customer orders.

As mentioned By Michael Dell, the company operates based on customer orders, producing all its products according to specific orders which already counts for satisfying the needs and wants of customers.


Development issues – international strategy

Dell’s operations in international markets have been well arranged by choosing vitally important locations for manufacturing, distributing and selling. The company manufactures its computer products in six locations, which basically cover the whole potential markets where Dell can sell its products.

By having six locations, company can reach all its potential customers with less distribution costs. This gives the company another benefit to keep its product prices low and deliver them as quick as possible. This way, the company can treat all its customers in the same way as it treats its domestic customers in the US where it gained its first huge market share and competitive advantage over its competitors can give the company international advantage over its competitions.

However, Dell has to consider different segments of international market where customers and corporate clients may have different tastes for computer and other computer related products. Therefore, it is advisable for the company to do thorough marketing research to identify differing market segments and their preferences before penetrating into those markets.


 Strategy alliances

Background to Dell alliances

The company has been working with many business enterprises, in most cases, Dell makes a deal with those companies it finds appropriate and puts Dell brand name on the products being produced by those companies. Dell went into deal with Lexmark after found that it was time to diversify its products due to world computer market as it could not make billions in computer market alone, and in 2002, more 20% of its total revenue came from non-computer products.

Moreover, the company started using the laptop and desktop screens from Sony, and the company is happy with the arrangement as it finds Sony monitors reliable.


Main reason for move

The main reason for move to go into alliance with other enterprises has been to keep its market share and consistent growth both in sales and market leadership.

Moreover, the company did not want to lose out to other competitors such as IBM and others as those companies have already been offering diversified range of products such as handheld systems and other portable gadgets used by medium and large businesses.


Strategic alliances

Dell went into alliance with EMC which created huge value and strong relationship that resulted in more than 1500 Dell/EMC in installations by the partnerships first anniversary in October 2002.

In the first year of a partnership between the two companies, more than 1,500 customers purchased Dell/EMC storage systems. Demand for related enterprise products and services grew strongly and it is expected to be consistently growing in the future as well.

Moreover, the company was also a leading provider of Linux based server clusters during the first half of the year which made about 40% of the whole world market.

Furthermore, Dell also signed a deal with Lexmark to produce Dell branded printers and ink cartridges. This helps the company to further develop by diversifying its product lines which gives extra advantage over its competitors.


Competitor analysis

The impacts of merger on Dell

The merger between HP and Compaq Computer Corporation was going to rank the combined companies to be number one computer producer in theUSpushing Dell into number two position.

This has huge impact on not only Dell, but also on other computer producers such as EMC, Sun Microsystems, and IBM. As it was stated byLivermore, the consolidation of two companies would change the entire IT industry and in the long run only 3 companies out of big 5 would survive.

This is a bad news to all computer producers including Dell as both companies could use their competitive advantages to overtake the leadership position in computer products market.

The overall impact on Dell would be on the following spheres:

  • PC and Servers market

As it is stated by HP and Compaq, they would be leading the market in sales of servers and PCs.

This indicates that Dell will suffer enormously as it makes majority of its sales through PC sales.

Moreover, Dell will also be squeezed in sales of servers as it was newly entering servers market which indicates that Dell may lose future growth of market share in the new market.

  • Service division

Furthermore, the service divisions of HP is also strongly growing which employs 65,000 employees, and if this department is given further boost by the merger, this adversely affects on Dell by reducing Dell’s potential sales and market share in service sector.

  • Printing and Imaging Business

HP saw growth of around 10% on printing and imaging market which can be further developed and invested by the merger.

Even though printing and imaging businesses do not affect Dell hugely, it still affects on the company’s future potential market as this market was new opportunity for Dell.


The possible strategies by Dell against merger

Dell can use attack and defense strategies in order to survive, maintain and develop its existence in the market against new merger.

The possible strategies for Dell are the following:

Online presence

As long as Dell has competitive advantage over all its competitors by selling its products online, the company still can use online sales platform as a tool for aggressive marketing by promoting its newly diversified product ranges such as printers and servers.

Customer relationship marketing

Dell has been establishing good customer relationships both pre and post sales, therefore, the company may benefit by winning the both individual and corporate customers loyalty by selling the products and offering complimentary products such as printers and storage devices, and provide them with technical support that makes customers stick to Dell.



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Category: Strategy