Adapted from: “Dell Computer Corp.”, Deutsche Banc Alex. Brown


 


Dell was the pioneer in selling its products directly to customers, without the intervention of distributors, retailers or any re-sellers. Before the Internet became a major force in the commercial arena, Dell used telephone, fax, and field-based representatives to contact and serve its customers. Today, the company has seen the power and potential of the Internet, moving a large part of its strategy to leverage on it and using “traditional” channels as complementation.


 


The direct model is a very efficient “customer built to order”, high velocity, low cost distribution system characterized by direct customer relationships, built-to-order manufacturing, and products and services targeted at specific market segments. This model is applying both on the customer and the whole value chain to include all the activities involved to deliver best customer satisfaction. The direct relationship with customers also allows Dell to benefit from real-time input and feedback from them regarding product and service requirements, products on the market, and future products they would like to see developed.


 


Customer built to order products are feasible, due to the flexibility of the manufacturing process which, together with strong supplier partnerships, enable the company to achieve faster inventory turnover and reduced inventories. This also results in a reduced risk of obsolescence, rapid incorporation of new technologies, and reduced time to market, factors that in a fast changing industry like hardware are determinants of success. But products are not the only ones that are customer built. The direct relationship with the customers also allows Dell to offer service and support programs designed to meet specific needs (2000).


 


Figure 8. Dell’s Direct Model Overview


         

 


 


Adapted from:  2000   Dell’s Suppliers-procurement

Dell does not follow the policy of “we have to develop everything” that so describes IBM and Compaq historical attempt to build many components by themselves. On the contrary, Dell seeks for the best in class suppliers for these components and avoids the high fixed costs of the facilities and research and development that being the best in class in any supporting technology entails. This has allowed Dell to grow at more than 50% per year without having to commit the amount of capital required to build plants that Dell could use to be faster at getting the products to the customer.


 


In order to address the above mentioned needs, Dell has built strong partnerships with suppliers. Dell’s practice since the very beginning has been to have as few suppliers as possible (today, 40 suppliers provide 90% of Dell’s material needs) and keep them only for as long as they maintain the leadership in technology and quality. The partnerships are so solid and trustful that Dell’s suppliers know exactly what the daily production requirements are. Information and plans are shared freely and openly with them. Dell’s suppliers have access to information on the level of inventories and also incoming orders; they also ship to Dell every day and every hour, as the company requires. In addition, Dell’s ability to operate in a just-in-time (JIT) basis was facilitated by its suppliers, who have built warehouses for their components within 15 minutes from any Dell factory.


 


 


Industry Analysis


Companies in the industry sell to a few large customers/buyers. Likewise, the industry also displays an apparent impracticality for customers/buyers to switch from one source of supply to another. This is reflected by the cost of raw materials as well as the costs of operations. Moreover, the products offered by companies in the industry are essentially interchangeable and indistinguishable. The product could also be considered as a commodity for the computer industry. Moreover, the industry shows that the cost of the product and service represents a relatively large percentage of the buyer’s and customer’s total cost. Nonetheless, the customers could if desired backward-integrate specifically by acquiring a company in the industry to which Dell is included.


 


The computer industry all over the world is promising. With the current changes in the lifestyle of people and the contributions of technological advancements, the industry growth rate could be deemed in its progression stage. The major industry trend is the emerging culture of all-around computer that will cater to the needs of the clients. Consumers are more knowledgeable and demanding on what product to purchase. The critical success factors of the industry are its ability to serve the needs of the clients as based on the changing lifestyles, consumer behavior, and marketing strategy. Also, the idea of continuous innovation is considered as the most important critical success factor. 


 


Suppliers’ Power


Many suppliers provide raw materials to the industry. Moreover, companies in the industry are not likely to backward-integrate. On the other hand, it could also be posited that the companies in the industry are the primary source of revenues for the suppliers. This makes the competition among suppliers more rigid. Likewise, if raw -material costs get out of line, companies in the industry would be able to have a hard time using a different type of raw material to produce the product. The industry is also characterized with the quality and costs of raw materials having a significant impact on the quality and price of the products and services produced by the industry.


 


Moreover, the raw materials provided by suppliers are essentially interchangeable and indistinguishable. The raw materials are essentially commodities. Likewise, in an industry where loyalty is also considered necessary, there is also the possibility for the suppliers to forward-integrate.


 


Rivalry among Competitors


Companies in the computer industry considered to be diverse in their history and culture and in how they do business. Moreover, the product/service sold by the industry has low storage costs or is not perishable. Nonetheless, the industry is experiencing fast market growth. The products offered by companies in the industry are essentially interchangeable and indistinguishable. It has also been established that the product provided by the company is a commodity to a major part of its stakeholders. Moreover, it also shows that there are considerable numbers of large competitors that dominate the industry.


 


In the said industry, companies in the industry have high fixed costs and spend a lot of money on plant and equipment. Likewise, production capacity, to be economically feasible, must be done in large, expensive increments. Significant barriers as well hinder companies that want to exit the industry. These include regulations, labor agreements, costs of closing facilities, and the absence of secondary market for assets. In addition, it could also be observed that staying in the industry is of great strategic importance to companies in the industry, probably because they have nowhere else to go.


 


Threats of New Entrants


The economies of scale play a significant role in the cost of produce the product and service. Companies in the computer industry have competitive fixed costs and spend relatively large on plant and equipment. Moreover, competitors in the industry are not likely to cut their price to defend their market position. In an industry experiencing fast market growth, patents, proprietary knowledge, and brand reputation are also considered as barriers for companies entering the industry.


 


 


 


Threat of Substitute Products


The price of substitute products is more expensive. This provides the industry a great following. Moreover, the quality, features and benefits of substitute products are generally lower.


 


Analysis of Major Competitors


In this sternly aggressive business world, the goal of most firms is to establish distinctive or unique capabilities to gain a competitive advantage in the marketplace through utilising the most of their core competencies. Competencies refer to the fundamental knowledge owned by the firm (knowledge, know-how, experience, innovation and unique information), and to be distinctive they are not confined to functional domains but cut across the firm and its organisational boundaries (2002). Having a competitive advantage is having a difference, the choice of certain activities to deliver a unique value-mix to a selected market, thus the ability to perform particular activities and manage the linkages between activities is the key source of competitive advantage. The strategic task, then, is to create a distinctive way ahead, using whatever core competencies and resources at its disposal, against the background and influence of the environment. Through these distinctive capabilities the organisation seeks sustainable competitive advantage. Competition in many domestic and international markets appears to be entering a new phase, in which product quality and performance are becoming more important to customers than price. In such markets, the effective management of the new product development process is the essence of competitive advantage.


Dell’s major competitors belong to an oligopolistic market. Competitors such as IBM, Compac, Microsoft, and Nextel are all competing in in the computer market. All these competitors are aiming for corporate sustainable competitive advantage. To address the stiff and rapid competition, Dell’s ongoing new product development and appropriate marketing strategies are the keys to success in the market. The company and its whole workforce maintained its reputation as an innovator by responding to competition and consumer lifestyle trends particularly with the new additions to its satisfactory product line.


 


Dell’s Strategic Capability


Like other major players in the computer business, Dell is also an international company, which deals with a variety of clients, although Dell is more product-oriented compared to other companies, which are mostly serviced-based company. In response to the need of Dell to develop and improve in terms of technology and the use of the World Wide Web, it has been able to come up with marketing strategies that would provide the needs of their customers.


 


In line with Dell’s aim for development with global focus, the company was able to adopt a strategy, which enhances its technology development through information systems operations. This strategy was able to increase staff retention rates, and decrease staff turnover, which brings greater continuity and efficiency to the company’s projects. Moreover, in terms of internet communications, Dell has a single global center of excellence for e-commerce IT, made up of collocated businesses and staff, distributed in international offices. In accordance to this, Dell was also able to implement and introduce another feature of dell.com, the Cyber Shop and Direct Marketing, which is its developed key global platform, designed for commercial customers in other countries. The Cyber Shop and Direct Marketing approach includes services for global markets that are being used regularly by corporate customers. Moreover, as an response to the need of security, the company has developed a second-generation internet technologies, exposing customers to intelligent, personalized content and better targeted marketing, and this feature allows the customers to save time, avoid repetition of tasks by pre-filling in application forms, to come back to a product offer, and get to the end of an application process. Furthermore, the company has also developed the successful credit card authorization and accounting platform, which consists of linked applications, such as credit assessment, risk-based pricing, card ordering and transaction processing and reporting. These strategies enabled Dell to gain competitive advantage over their competitors, by implementing an effective and efficient Internet-based information system. These strategies become relevant to the problems of Dell because like other companies, they can also develop the same strategies and use them for their own advantage.


 


Success in any company that operates for marketing and profit acquisition lies on the ability of the management in positioning and establishing the products/services being offered. Furthermore, the ability of the company and its management to compete and maintain a competitive edge among its competitor is another basis to say that it is successful. The constant development and innovation on the product line and the growing number of clientele also define the corporate standing of a company.


 


As part of the development in Dell, this part of the chapter analyzes the strategic capability of Dell Computer. In analyzing how Dell Computer is competitive, the study utilized SWOT and value chain analyses for the industry attractiveness as well as the key internal strengths and weaknesses. Practical and strategic recommendations are elicited in relation to some pitfalls observed in the study.


 


SWOT Analysis


 


STRENGTHS


 


 


WEAKNESSES


 


1.      Wide knowledge of computer industry


2.      Competent top management and rank & file for operation and maintenance


3.      Existing customer base


4.      Financial investment backing.


5.      Strong IT returns through internet shopping


 


1.      Low supervision on international market


2.      High turnover of employee


3.      Require local partner


 


 


OPPORTUNITIES


 


 


THREATS


 


1.      Expansion of target market


2.      Healthy market environment


3.      Increasing detraction of small computer businesses


 


1.      Economic restructuring


2.      Intensified competition


3.      Government regulation


 


 


Value Chain Management Analysis


Firms respond to conditions in their marketplaces by modifying their competencies such as internal capabilities and linkages with suppliers and associates and the ways in which they position themselves in relation to their competitors specifically their strategic direction (1999). The value chain also is useful in retailing decision-making. Understanding the linkages between activities can lead to more optimal make–or–buy decisions that can result in either a cost advantage or a differentiation advantage. The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit ( 2000). In the case of Dell Computer, the entire operation of the business should be examined and evaluated in order to determine the service delivery processes that strengthen as well as weaken the business. This will result to managerial options to eliminate the liabilities that detract the business or the need to developed and intensify some aspects of the operations. 


 


Meanwhile,  (1996) believe that modern organizations passed by the guild structures and as organizations grew larger, skills become increasingly fragmented and specialized and positions become more functionally differentiated. Stakeholders are defined as the individuals or organizations which can either gain or lose from the success or failure of a system (2004).  (2000) said balance between enhanced company processes and renewed objectives should be critically appraised in order to ensure the success of the company. As such, stakeholder analysis reminds management that it is important to evaluate the interests of the individuals or organizations who can influence or can be affected by the activities of the company.


 


For Dell Computer, the management should be able to take means of identifying of the stakeholders, the priorities of the stakeholders; understanding of the stakeholders’ perspectives and incorporating the stakeholders’ perspectives to the future plans of the company. Moreover, the company should cultivate growing consumer markets to promote growth and development of the business organization. This will address the expansion possibilities of the organization to serve not only the locale consumers but also provide services to a larger customer base. As such international relations and the overall business practices and trends all over the world should be investigated so as to make sound decisions that will realize the goals of the company. Furthermore, the company should continue cultivating community relations and environmental efforts to increase market visibility and improve brand strength such as community programs that will advertise the humanitarian causes of the company, charity and scholarship programs, and advertising messages that translates the environmental concerns.


 


Service delivery is an interactive and dynamic process that from the consumer’s point of view is much more than a passive exchange of money for a particular service. Characteristics of services (e.g., intangibility, heterogeneity, simultaneity, and perishability) often require customers to be actively involved in helping to create the service value – either by serving themselves or by cooperating and often working collaboratively with service personnel. In high-contact systems customers can influence the time of demand, the exact nature of the service, and the quality of service ( 1978; 1979). If consumers somehow become better customers – that is, more knowledgeable, participative, or productive – the quality of the service experience will likely be enhanced for the customer and the organization (1990 ; 2000;  1998). In this regard, the company needs to strengthen relationship with suppliers and increase market share. This effort will result to parallel business interests that will contribute to the company as well as the suppliers’ business objectives. Contract agreements and other business transactions should present advantages and benefits for both parties. Efficient delivery of products and services through premeditated and tactical supply chain management initiatives should be prioritized.


 


As the nature of financial management, finance managers face a wide array of challenges, opportunities and options for him or her to enhance the investing and financing activities of the organization as well as the inherent risks and circumstances of the decisions that will be made. The challenge now for companies is to explore the options and take advantage of the opportunities while taking caution in managing the risks ( 1999). Dell Computer needs to keep operational expenses within budget to be able to devote the necessary financial resources to both exploration and marketing activities of the company. Financial management decisions that will supply for the internal and external business operations of the corporation should be closely monitored to be able to control the flow of cash. Investing on profit-generating projects as well as training-specific programs for the human resources of the company will ensure extended success.


Dell Computer should enhance marketing campaigns and take advantage of company control over the computer industry competition. It should initiate efforts to come up with sound advertising and promotional strategies that will bring the people closer. Lastly, there is a need to improve technological innovations to increase efficiency as well as quality of the service. This includes investments on machineries and equipment that will necessitate the increased and efficient operation of the business organization’s management system. Financial assistance on human resources particularly to knowledgeable and skilled individuals should be accorded in order to improve the overall business operation as well as the engineering, monitoring, and control aspects of the business.


 


Key Internal Strengths and Weaknesses


 (1996) emphasized the idea to take advantage of the competitive situation not just by being better in how that product gets sold, serviced, and marketed at the customer interface. It requires that companies create breakthroughs in how they interact with customers, and design a way of interacting that makes an indelible impression on customers, one that so utterly distinguishes them from others that it becomes a brand in itself (p. 14).


 


More than just a Computer Shop. Dell Computer is undoubtedly a complete computer shop in itself. Everything related to computers is literally found in one roof. No longer limited to hardware only, it offers services that would allow a customer to avail of everything in one stop. Besides the extra selling of books, CDs, digital music, videos, games, software, they also provide computer and installation services.


 


Enhancing Quality. Everyday, top managers of Dell Computer stores gather for an hour-and-a-half customer advocacy meeting to pore over that week’s performance statistics. What makes this unusual is that every performance measure under scrutiny relates to customer satisfaction, and this meeting is the most important one on the corporate schedule. The vice presidents discuss several measures, including on-time delivery (OTD), product returns and their causes, and abandonment rates for calls to Dell Computer’s toll-free number. But the company was already expending a disproportionate effort on getting production to match demand. The business was transformed into a “made-to-order” manufacturing operation with three- to four-day cycle times. The results are apparent. No failure in customer service is easier to identify, measure, and compare.


 


Satisfaction occurs when the product has been able to meet or exceed the conceived expectations that the customer has (1996). Furthermore, customer satisfaction may also be considered as the measure of the high degree of quality of the product (1998). As the customers demand for higher standards, any shortcomings on the part of the companies to deliver would jeopardize the life of their respective company. Hence, it is really important for companies to not only maintain and protect these intangible assets. It is also a must that they increase these assets for future benefits (2003). According to the study of  (1998), relationship with customers should not be regarded as a single transaction, rather, a long-term. Customer satisfaction is considered a must for customer retention and loyalty, and undoubtedly helps in realizing economic goals like profitability, market share, return on investment and other corporate target ( 2000). The management must be highly concerned with their customers’ welfare and satisfaction as this is one of the secret principles on being the leader in their area of industry.


 


Efficiency Enhancement. Dell Computer always put their efforts to do things “better, simpler and cheaper,” for their customers and employees. They usually enhance not by focusing on big aspects of the business, but by providing small enhancements. In customer welfare, consumer feedback system must be reinforced. The resolution of customer complaints and problems is a key for companies to be able to maintain the loyalty of their dissatisfied customers. Dissatisfied customers are more likely to tell people about their experience than satisfied customers are ( 1997). After finding out the problems from the viewpoint of the customers, Dell Computer should undertake actions that would not only address the complaints of the customers but as well as actions that would lead to organizational improvements.


 


In implementing marketing strategies, there is a need for continuing optimization – the ability to assess a myriad of possibilities in order to find the best one or near best one (2003). In cooperation with the other elements of marketing and business management, strategies must be evaluated and improved. In building the impression of people about the company, Dell Computer must reach out to a broader target market and must project an image relevant to every members of the society. Its corporate social responsibility must be defined.


 


In the management of Dell Computer, leadership and administration of the company must be a supplemental mechanism in the workforce. Human resources management improvements must be considered to fully utilize human asset. With the growing market and competitive edge of Sunbeam, its workforce also plays a significant role in materializing defined objectives and achieving success.


 


Synthesis


Today, most companies like Dell Computer find it impossible to create any kind of sustainable competitive advantage based on product alone. It is common knowledge that every one of the successful companies sought and found a precise understanding of how it could create a customer-centered competitive advantage. Thus, there are numerous aspects that every management should tackle. In Dell Computer, the key internal strengths are the appropriate and effective marketing strategies used. On the other hand, the flaws of the marketing strategies implemented by the company serve as its major internal setback. Then again, the continuous effort of every company likes Dell Computer to improve its operational standards is the ultimate solution to emerging conditions brought about by different occurrences such as stiff competition, globalization, technological innovations and others.


            Like other computer companies, Dell can also utilize and improve the use of the World Wide Web through several strategies:


 



  • Development of a Universal Website – Primarily, Dell must be able to utilize and maximize the use of the Internet, particularly of their own website by updating it regularly. Although the company is engage through Cyber Shop and Direct Marketing approach, Dell must make sure that the new models that they will be introducing in their website would be available to their entire market globally, for sometimes the release of the products are not simultaneous to all its target market. In line with this, Dell must be able to develop a universal website, which features its products, based on the needs and functions of the majority of its consumers.


 



  • Improvement of the Universal Website – The Universal Website must be improved in the sense that it must contain an option of ordering directly to Dell, to avoid the delay in the distribution of the products to the respective countries. In relation to direct ordering online is delivery, which offers more convenience to customers. This online feature would be a good option for customers, especially in response to the extent of its reach and contact to that particular country. Similar to other computer business site, the improvement of the Universal Website offers services for global product purchase.


 



  • Dell Credit Card – In line with the option of ordering and delivery being featured in the Universal Website of Dell, the company can introduce the Dell Credit Card, which can be used for the purchase of computer hardware and software products. With the use of this credit card, it would be easier for the consumers to avail the services and even the promos of Nokia. The use of the credit card will also allow the consumers to avail discounts from directly purchasing from the company. In addition, with this, transaction would be easier for both the company and its consumers.


 



  • DellCustomerCare – To answer the needs and provide solutions for the various problems of many consumers, providing a separate website for Dell customer care would be essential. The provision of this website is specifically for answering the complaints of Dell customers through active chat rooms or through electronic mails. In this way, it would be easier for Dell to assess the need for the improvement and innovation of their products. In addition, the company can fully cater to the needs of their customers by providing them with answers, in the company’s aim for customer satisfaction, customer retention and brand loyalty.  


 


From the problems presented by Dell, in terms of Internet marketing strategies, it can be deduced that their use of the Internet is not fully maximized, compared to the internet marketing strategies being implemented and developed by other computer companies. If the internet marketing strategies proposed in this paper will be used, then somehow, they can help Dell to utilize and take advantage of the benefits of the World Wide Web. It is essential that Dell will not only focus on product innovation and invention, but also on customer satisfaction, in providing solutions, and in brand loyalty and retention.


 


 


 


 


 


 


 


 


 


 


 


 




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