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Competitive advantage and market superiority tends to be among the top of the list of priorities of any business or commercial entity nowadays. Dell as a company has often been viewed as having a singular strategy, manufacturing build and selling products that are cheaper and more efficient than its competitors. In 1984, with only $1,000 in startup capital, Michael Dell established Dell as the first company in its industry to sell custom-built computers directly to end users, bypassing the dominant system of using resellers to sell mass produced computers. The following will explain how Dell utilizes the direct business model which increase the speed to market, superior customer service and dedication, and how Dell applies the latest technology more efficiently than the leading competitors.
Since a young age Michael Dell has been intrigued and fascinated in the idea of eliminating unnecessary steps. So it was not surprising when he established a company where there marketing strategy was based on eliminating the middleman. "We sell computers directly to our consumers, deals directly with our suppliers, and communicate directly with our people, all without the unnecessary and inefficient presence of intermediaries. We call this "the direct model," and it has taken us, to use a common phrase at Dell Computer Corporation, "direct to the top"" (Dell, xvii). The direct business model eliminates retailers that add unnecessary time and cost, that could diminish Dell's understanding of customer expectations. The direct model allows Dell to build every system in order to provide customers more powerful, better configured systems at competitive prices.
Dell's direct business model is based on direct selling, eliminating the use of resellers and channels of retail. Dell was able to build brand loyalty amongst its consumers over a period of time through building direct relationships with them, constantly speaking to customers, and analyzing their preferences when purchasing a product. Through building these direct relationships which is a key component of the direct business method, Dell was able to understand and analyze the specific preferences of their consumers to satisfy their needs and wants. Expanding on the theme, Michael Dell expresses the emphasis of using the direct method thru direct relationship marketing:
With an average of approximately 1,400 telephone calls received daily, Dell gets real-time input from its customers regarding their product and service requirement, their views on various products in the market, and their response to Company advertising. This input gives the Company a competitive advantage in tailoring its product offerings and communication programs to meet its customers' needs. Direct relationship marketing also eliminates the 25% to 45% dealer mark-up, thereby enabling the Company to price its products aggressively. In addition, the Company's marketing strategy allows it to sell its products through Company employees who are trained specifically to sell Dell product.(Dell, 31)
The efficiency of the direct business model by of direct marketing relationships benefited Dell tremendously. Rather than doing guesswork on what they thought customers wanted; they were able to find out exactly what customers desired and preferred. So not only was Dell able to manufacture the products that customers wanted, but they were also able to develop them at high quality. "Our ability to produce a line of high performance products compatible with accepted IBM standards.( In fact, many of our products had performance features that were superior to IBM systems, and were frequently top-ranked by publication such as PC Magazine and PC World.)" (Dell. 31)
Dell has been able to excel ahead of its competitors through the use of the direct model. One key strength that gave Dell a competitive advantage according to Michael Dell was, "Michael Dell's focus on concrete issues like cutting operation costs, improving delivery time, and maintaining customer service is the underlying force that has driven the company. Michael Dell's establishment of the "direct model," as well as his exploitation of the benefits of the Internet, has contributed vitally to the company's successes in both the US and overseas markets." (Richard San Juan, Gaebler Ventures)
In 1998, Dell became the number two manufacturers and marketer of personal computers in the world. Michael Dell was able to take his company that he started with the little money he earned in college, and turn it into one of the most profitable company's today. Dell grew five times faster than the industry rate. Stocks rose more than two hundred percent, which is the largest share gain in the S&P 500 and NASDAQ 100. In the chart below, statistics shows that Dell has been able to thrive within the PC market, having the second largest market shares behind Hewlett-Packard in 2009. Although this chart is from the first quartile of 2009, in 2010 Dell's market shares increased by 12.6 percent.
Dell's market share in U.S. and Worldwide (in Q1 2009) compared to other top PC makers.( Dell's "Direct Model" to Success - Dell's Business Plan, San Juan)
Dell has been able to excel ahead of its competition within their industry. They were able to do this because companies continued to guess what products their customers actually wanted, Dell was already aware of their customers wants and needs for their products. Dell had the upper hand on its competitors because other company's were manufacturing product based on the assumptions. Companies such as HP, Acer, Toshiba, Gateway, and Apple were losing a lot of capital. This is from their lack of knowledge of the consumers.
Although many analyst may have criticized Dell's marketing strategy as one that is very simple and basic, it has been proven to be very efficient. Dell continues to maintain market leadership and profitable growth, and continues to reach out to new markets. Although later on in the text we will get into how Dell marketing strategies were incorporated thru the Internet, information and communication technologies and the Internet are greatly used in its direct business model. In the figure below of The Delta Model Map, the three major categories of Dell's core competencies are shown. These three major categories are system lock in, best products, and total customer solution. The strengths and capabilities of Dell's company can be seen on the map.
The Delta Model maps identifies three major categories of an organization's core competencies.( Dell's e-Marketing Strategies to Enhance Competitiveness, Chen)
System Lock-In - is the ability for a company like Dell to "lock-in" customers. Having customers that are brand loyal and continuously purchase products from that company such as Dell is to be "lock-in". Dell having websites, and phone numbers for customers to assist them with any issues they may have increases the trust and loyalty customers have for the company.
Best Product- is products or services that are perceived by customers to be more efficient in the areas of quality, feature, functionality, sales services, and cost leadership. Dell provides customer with high quality prices at low cost because they take part in direct sales.
Total Customer Solution- The ability of an organization to offer and deliver integrated solutions to meet customer needs and satisfaction. Solutions comprises of products or services, products coupled with services, and customer integration and engagement business processes.( Dell's "Direct Model" to Success - Dell's Business Plan, San Juan)
Dell also introduces the latest relevant technology much more quickly than companies with slow moving, indirect distribution channels, and turning over inventory every three days on average.
Dell success is due in part to that they always had the willingness to look at things differently. In the industry that they are in that is important, and to stay motivated. This is important because when Dell first began using the Internet and expanding their business, many people said that it would not work. These were the same people who had doubted the direct business model and said it would fail. When Dell first began using the Internet to expand their business they had three objectives: "to make it easier to do business with Dell, to reduce the cost of doing business with Dell, and to enhance our customer relationship."(Dell, 101) By using the Internet to help quicken the speed of information flowing between companies, made it possible to obtain precision and speed to market for products and services in very positive way.
Internet marketing or e-marketing strategies can be defined as "the design of marketing strategies that capitalizes on the organization's electronic or information technology capabilities to reach specified objectives." (Strauss et al, 2006, pg. 41). With the use of communication and technology, Dell has been able obtain customers information and history and store it in a warehouse. This information can be retrieved and accessed anytime for reporting issues. This data system warehouse serves as the safe of Dell's marketing knowledge management system. So this is where Dell employee go to when analyzing customers behaviors and trends.
Understand the behavior of the customers is a very critical part in Dell's marketing strategy. So thru having this data systems warehouse and the use of the direct business model, Dell is able to deliver the best experience to customers, whether it's online or in stores. "The deliverables of the customer experience objective are: Best value proposition,; highest quality and most relevant technologies; customized systems; superior tailored service and support Products and services that are easy to buy (online 24x7) and use." (Dell's "Direct Model" to Success - Dell's Business Plan, San Juan)
Dell divides their customers into two major groups, relationship and transactional. These two groups are very essential in the success of Dell's products. "Relationship customers are customers who buy repeatedly and in larger quantities or value, while Transactional customers are customers who buy less frequently and in smaller quantities or value. Both Relationship and Transactional customers are further sub-segmented." (Dell Marketing Strategies, Cage)