NBC1 2008, (c) 2008 Jay A. Smith 1 Class 5: Dell Online Case Study

NBC1 2008, (c) 2008 Jay A. Smith

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Class 5:

Dell Online Case Study


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Region Goods/Service Promotion Project Review

Product/service: Company/brand: Customer target & size: Promotion message: Place: Channel: Competition: Price: Collaborators:

+ ADVERTISEMENTSample


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Homework: Dell Online Case Issues to Think About (Ps & Cs)

Company History and Choices Industry & Competition Products Customer/Market Segments Pricing Channel/Operations Competitive Advantage Case questions & decisions


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FIT: All Parts Work Together

Business,TechnologyEnvironments

Opportunity Social,GovernmentEnvironments

BusinessStrategy

MarketingStrategy

OperationsStrategy

FinanceStrategy

Do strategies support, fit each other, have flexibility, balance/manage risk?


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PC Industry Structure

DellSuppliers:

Components,Software,Service

Competitors:Compaq, IBM,

HP, Gateway…

Substitutes:Typewriter,

Word Processor,Calculator

Channel

Customers:Businesses,Government,Education,Consumer


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Dell History 1983 Part-time Formatting Disks (Michael 18 才 , left college ）

IBM / Apple / DosV/ NEC 98 DOS 1 4GB iPod = 6.2 650MB CDs = 2, 777 1.44 MB Floppy

1984 Sales $6 million upgrading IBM compatibles 1985 Dell Brand PCs = $70 million 1988 IPO 1990 Sales = $500+ million 　 (IBM 386 delay ga

p) 1993 Sales = $2.8 billion – But Net Loss

Quit the Retail Channel Stopped making laptops until quality improved

1996 Begins Online/Internet Sales


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Dell Sales History

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

1986 1988 1990 1992 1994 1996

Net Sales Net Income

$7.76 billion￥ 9.31千億

(Millions)


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Industry/Market Life-Cycle

Emerging Growing Maturing Declining

SALES

TIME

Awareness Interest Trial Purchase Repurchase


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PC Industry Growing, but Hard Business

Highly competitive Big companies compete at many levels Pricing/Margin pressure

Commodity-like business– cost advantage is keyMargins 35%-40% 1991 => 20% in 1996

Cyclical “Feast-or-famine” demand cycles Strong power of dealers


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Signs of Maturing Markets Home PC Market

49% to 32% first time buyers in ’95-96 38-40% household penetration of PCs Avg. selling price down from $2,400 to $1,500 in 9 months Market becoming “bi-polar”

33% below $1000 66% above $2,000

Corporate Market Maturing 1.1 PCs per worker in U.S. 0.8 PCs per worker in W. Europe & Asia But 75-80% of corporate systems used slower-than-Pentium

processors

Becoming replacement business


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Compaq

Dell

PB/ NEC

HPGateway

Other

IBM

0

10

20

30

40

50

60

70

80

90

100

1997

1997 U.S. Market Share ($85 Billion)


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Basic Dell Products

Laptop Desktop

HigherPrice

LowerPrice

Inspiron

Latitude

Dimension

OptiPlexBig Business?

Consumer?


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A Manufacturer’s Disadvantages

Hardware Only?Software?Consulting/solutions provision?Peripherals?Service?

Perceived as Manufacturer


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Dell Business Areas

DellDirect, DellOnline - computers DellPlus – preinstall software DellWare – other software & hardware

products Dell Asset Management – leasing 3rd party support network

Use of Digital Equipment Corp. (DEC)(DEC acquired by Compaq 1998)


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Full Range Provider

Laptop Desktop

HigherPrice

LowerPrice

Inspiron

Latitude

Dimension

OptiPlex

Servers & /Workstations

Pre-InstallSoftware

After-Service

OtherSoftware

&Hardware

LeaseFinance

DellPlus DellWareDell

AssetMgt.

Contracted(DEC, etc.)


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PC Distribution Channels

Customer

Manufacturer(IBM, HP, Compaq)

National Resellers(MicroAge, CompuCom,

Vanstar, Entex)

National Reseller’s Wholly-Owned Sales

& Service Centers

Franchised Sales & Service

Centers

National Distributors(Ingram, Merisel)

Independent Value-Added Resellers

(I VARs)

National Retail Chains(Circuit City, CompUSA, Sears)

Distribution Center

Distribution Center

Distribution Center

Retail Stores

Retail Stores

Retail Stores

Retail(30%)

VAR(15%)

NationalReseller(33%)

Direct(22%)

Manufacturer(Dell, Gateway, Micron, IBM…)


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Dell Direct Advantages $150 million on marketing communications (1.9% of 1996 sales) Control of channel / No Channel Conflict or Confusion Direct, real-time access to customers

They know exactly the customer (and do market research) Forecasting and planning advantages sales = f (advertising $)

Fresher computers (don’t sit on store shelves, warehouses) Better Cash Flow

Faster cash than via dealers Faster cash from transactional customers

Manufacturing cost Short lead time lowers inventory costs and investment Short lead time lowers parts costs due to downward price trend


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Dell vs. Compaq Etc.

SellParts- $$$

Assemble75-100 days

+$$$

Sell $$$

PartsAssemble & Ship

13 Days

DELL

Compaq, Others


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Dell’s “Fresh” Computers

Ship/Sell

Parts Assemble

75-100 daysInventory

$$$

Sell $$$

PartsAssemble & Ship (36 hrs)

13 Days Inventory

DELL

Compaq, Others


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Why Use Indirect Channels?

Market “reach” “can only reach 30%” VP of Compaq

Need indirect to reach entire market Is that true? Does that change over time? Do you want to reach the entire market?


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Dell Customer Segments

By Organization TypeBusiness/Institutional

Business Government Education

Consumer/Home/Individual Sell to “educated consumer” not only on price With mature market more consumers are “educate

d”


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Dell Market Penetration - – By Size

25% of Fortune 500 10% of 501st – 5,000th

8% of 15,000 companies between 200-2000 employees

5% of 7 million small and medium businesses

??? homes?


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Dell Customer Segments – By Buying Process 40% Relationship

Other issues important beyond price 30% Transactional

Each purchasing time is uniqueComparison shoppersHave to convince them every time

30% Mix of relationship and transactional


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Transactional vs. Relationship

Transactional Relationship

Purchase Focus Price SensitiveReliability, Vendor Strength, Standardization

Info SourcesReviews, editorials, advertising, word of mouth

Sales People, industry analysts, conferences, trials, testing

Complete Solution Requirements

Sometimes Usually

Competitors Gateway, Micron, Retailers IBM, HP, Compaq, VARs,

Salesforce Inside only – up-sellInside-Outside Pairing

(except for small bus. dev.)

Payment Credit CardPurchase Orders, Credit Cards, Leases


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Dell Sales Force

Dell Direct – “phone & feet” - inside & outside sales reps Dell Sales force – U.S. 2,000 in 1997

40% assigned to relationships (40% of business) 35% assigned to mixed (30% of business) 25% assigned to transactional (30% of business)

Retail Shops --- exited this business Dell Online – Internet

“Dell can migrate without upsetting existing channels” Premier Pages reinforce Relationship business

Add value of purchasing control, customers’ procurement process costs in addition to ease-of-access


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Internet Selling Benefits

Self-service transaction (like ATM) Information service

Menu (can configure, select) Reduces number of phone calls


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Comparing Efficiencies - Sales

Traditional Direct Internet Direct

Contact100,000

Catalogs Dropped

100,000

Online Store Visits

Calls 10,000 (10%)

Orders 2,000 (2%)

5,000 (5%)

1,750 (1.7%)500

(.5%)


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Other Advantages

Traditional/Catalog Design Costs High Printing Costs High Shipping Costs Long time to update Hard to customize Interested Customer?

Online/Internet Design Costs Publishing/Hosting No shipping costs Can update easily Customizable Interested Customer!

Lead generation Higher sales quotas Better salesforce usage

Speeds up sales process Creates lots of information


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Online Cost Savings (one approach)

Service Related Site Visits Per Year 800,000 Order Status2,000,000 Technical Service1,600,000 File Downloads ------------- 4,600,000 Service Site Visits@ $10 per call ($5-15 average)------------------ $46,000,000 Savings


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Does Online Really Save Costs?

Would people still have called? (easability)

Are tech and sales staff fired?

Does it matter…what other medium saves costs?


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50% Online in Next Few Years (Michael Dell) 50% = $ OO Billion = $ OO Million/Day? Enough internet/ecommerce users? (reach)

Want to use Dell.com to get more customers, not just those who would buy Dell another way Table C: 63-75% likely would have bought anyway

How to turn Dell Online into sustainable competitive advantage (p1) Many companies trying to copy Dell model to survive in

competitive market

Key Goals


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Dell Online – Internet “Dell can migrate without upsetting existing

channels” Premier Pages reinforce Relationship business

Add value of purchasing control, customers’ procurement process costs

in addition to ease-of-access

Does Online conflict with Salesforce?56% utilized salesforce (37% +19%)Experienced reps better able to “upsell” (p14)


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Decisions Should we promote our Internet channel (now)

“will press coverage mean more/new sales?” Are we enough ahead to do this yet?

Don’t competitors already know about this, so why worry PR had some negative internal reaction DellOnline also “qualified lead” generator

Should we use Online to go after consumer market Will this force down other prices?

How to organize Dell Online to both: Be closer to business units Still reach 50% of revenues


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Fit: Strategies & Methods Support Each Other Direct sales

Problems when tried to go through retail channels Lower margin Long lead-time

Manufacturing speed, cost, inventory advantages “Fresher” computers Virtual distribution of displays, software

Finance: Lowers Cash needs Cash before assembling (made to order)

PC market may be maturing, but e-commerce isn’t “We are now in the consumer market, with a channel c

onsistent w/ Dell Direct” – Michael Dell (Internet will actually boost total demand…)


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Dell Sales History

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

1986 1988 1990 1992 1994 1996



(Millions)

(2005?)


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Dell Sales History II

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

1986 1988 1990 1992 1994 1996 2005


$56 billion￥ 64千億

(Millions)



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And the Competition Gateway grew

But opened own retail stores in 2000 Closed retail stores in 2003 2005 Sales=$3.6 billion　 Net Loss (-$500,000)

DEC acquired by Compaq acquired by H-P

IBM sells PC hardware business to Chinese company 2005

DECCompaq H-P

Total Sales= $79.9 billion


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Change in Stock Price GTW, DELL


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Dell Market Share as of 3/31/2005

Worldwide share: 1 18.5% United States 1 33.9% EMEA 2 13.3% Asia Pacific 3 7.6% Japan 3 11.6%

Worldwide share: Desktops 1 19.0% Notebooks 1 16.4% x86 Servers 2 27.1%

US Segment share: 1 33.9% Education 1 41.9% Government 1 33.9% Home 1 30.8% Large Business 1 1 44.5% SMB 2 1 31.2%

Rank Share

1 Large Business includes sites with more than 500 employees2 Small and Medium Business includes sites with less than 500 employees

Source: IDC, Dell.com


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Japan PC Market 2003

NEC 21%

Fujitsu 21%

Dell 10%

Sony 9%

Toshiba 8%IBM 7% Hitachi 5%

HP 4%

Others 15%

Total = 10 million units

1 million units


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Suggested Readings

Books デルの革命―「ダイレクト」戦略で産業を変える by マイケルデルなぜデルコンピュータはお客の心をつかむのか ― 顧客サポート No.

1 の秘密を探る by 宇井洋コンピュータ直販で成功デルワールドビジネス・サクセスシリー

ズ by レベッカソーンダーズ

WWW Dell.com Dell Online Dell.co.jp Dell Online Japan japan.cnet.com Cnet Japan

Documents

NBC1 2008, (c) 2008 Jay A. Smith 1 Class 5: Dell Online Case Study