Marketing Concepts And Strategies Adopted By Dell Computers Marketing Essay

INTRODUCTION

“It’s through curiosity and looking at opportunities in new ways that we’ve always mapped our path at Dell. There’s always an opportunity to make a difference.” Michael Dell

One of the remarkable stories that have inspired the business realm was the birth and growth of Dell computers. In May 1984, Dell Computer Corporation was established and booked a place on the map. The real beginning of the entrepreneur rooted much earlier when Dell at the tender age of 12 made a profit of 12,000 from a nationwide mail -order auction. His drive to reap profits didn’t burn out but increased with his fascination for computers. Dell was the first to come out with its unique and successful Strategy – customized computers for end users.

In 1986, Dell showcased the fastest growing computer and in 1987 – established the first international unit in UK. Later over a span of ten years Dell expanded to 33 other countries. In 1988, it raised 30 million with its IPO.

For Michael Dell, every year post 1984 was full of activities. In 1991 Dell unveils their first notebook series and its first work station in 1997. Dell openly challenged the traditional style of sale when it introduced internet as a platform for sale. It massed $ 1 million per day which even rose to 12 million per day in 1998 and topped up further to 35 million per day in 1999.

The above chart represents a revenue performance indicator for the past 9 years. It clearly displays Dell’s philosophies, competencies and strategies that were and still are aiding them in multiplying their revenue year after year. Currently Dell is placed in the top 5 list of computer manufacturers. (Kutty 2009)

Market Orientation

In this era, a majority of organizations follow “the marketing orientation” as their philosophy. The objective of any business is to develop and maintain a satisfied customer. Marketing oriented companies displays customer priority throughout the business, understands their wants and needs and tries to align their products and services to the demands of the customers. A typical marketing orientation model is shown below.

“Market orientation is concerned with the processes and activities associated with creating and satisfying customers by continually assessing their needs and wants, and doing so in a way that there is a demonstrable and measurable impact on business performance.” (Uncles 2000: 1)

Dell is a prime example of a market oriented company. For Dell, customers and their satisfaction is high value and at the same time they are very careful not to ignore competition. Dell’s aim was to forge lasting relationships with all its customers. From Dell’s perspective, not only customer’s money but also their time is a top concern. Dell achieves this through its direct marketing strategy, maximum utilization of internet, JIT manufacturing, cost efficient products & excellent after sales service.

Michael Dell has asserted in his book direct from DELL “We partner with them in every way we can, as our direct relationships with our customers enable us to be simultaneously cost efficient and customer -responsive. Those relationships have proven to be one of our greatest competitive strengths.”(Fredman 1999: 158)

Components of a Market Oriented company

There are three major components of a market oriented company,

1. Customer focus

Dell is popular for its “Customer Driven innovation” theme which is as follows,

“At the core of Dell’s innovation approach, however, remains an unwavering commitment to delivering new and better solutions that directly address customer needs.” Its elements are mentioned below. (Dell, 2009)

Ø Listen

Dell gathers suggestions and requirements from thousands of customers on a daily basis through numerous methods to keep themselves updated with the computing world.

Ø Solve

Innovations begin in two ways. A majority of them happens in house with a team of top engineers, product designers, consultants and other experts. Strategic partners also play an important role in delivering cost effective innovative solutions to solve customers’ daily challenges.

Ø Impact

Rather than competing Dell focuses to use the synergistic principle by partnering with top technology manufacturers and suppliers.

Dell kicked off their venture with the direct marketing model eliminating the intermediaries. In the beginning, customers had to make a phone call to place their order. Later as time progressed, Dell utilized internet as a platform to conduct the sale. The direct model has several advantages. Dell builds systems customized to the requirements of the end user. Unlike conventional manufacturing which requires a stock of raw materials, Dell with its direct model minimizes inventory and hence reduces the risk of excess inventory in stock as well as distribution channel. (Fredman 1999: 80-81)

Currently Dell is pretty unsure of how customers structure their choice of purchase. Dell has understood that some customers conduct a research online and then purchase from the stores and others check out the stores first to place an order online.

Dell has ventured into retail in the past with its direct stores and exited out of it. However as a part of cost cutting due to unfavorable economic situations, Dell pulled out all their direct stores. Currently, Dell products are being sold at many retail outlets through their VARs (value added resellers). This is to target those emerging markets like India, China and Middle East where the application of the direct model is not feasible and those non internet savvy customers who prefer to buy basic systems from stores like BEST BUY.

The objective behind Dell’s segmentation is Divide and Conquer. Dell segments its market based on customers rather than product. A generalized segmentation model is shown below:

2. Competitor focus

“Understanding the profit pool of your industry-where your competitors really make money-can open your eyes to new opportunities” (Fredman 1999: 201)

To create a superior product, customer satisfaction is not the only requirement. We must closely study the competitors and identify if the competitors are the alternate satisfiers for the potential and current customers. In competitor focus, we will look along the following lines:

Ø Product Differentiation

Product differentiation is a strategy employed by firms to create differences in their products and capitalize those differences to provide an edge over the competitors. There are two possible outcomes of product differentiation. Firstly, the customer develops a preference for the firm’s products and services and secondly they would be willing to pay for the extra benefits. (Hooley, Saunders and Piercy 1998: 47)

At Dell, two units have been formed to address the product development-The Business product group targeting the B2B segment and the consumer group targeting the B2C segment. (Krazit, 2006)

Here Research and development must receive and act on immediate information to prevent competitors from stealing the customer base.

For instance the Dell studio hybrid is “anywhere-you-want-it” desktop. It is smaller and uses 70% less power than all its standard desktops. Dell also has launched its smallest desktop “Inspiron Zino HD”. It appears like a jewelry box but can be customized for high end multimedia and is directly competing with Apple’s Mac Mini.

In the laptop series, the Studio XPS 13″ was launched in January 2009 with standard processor is Intel Core 2 Duo P7450. The processor is basically designed to lessen energy consumption, but generally, the machine is designed to support demanding applications, such as graphics, multimedia functions, speed and power, all in a very small 13″ model.

Ø Product and Market Diversification

In 1996, Dell launched a new line of servers at prices aimed to compete with the market shareholders at that time. Dell’s product line does not limit itself with laptops and desktops. It also includes projectors, printers, supercomputers, and various consumer electronics sold through its website.

As a part of its diversification plan, Dell has entered into a number of strategic partnerships and acquisitions. Dell has also entered into an OEM agreement with Juniper Networks to offer customers optimum network solutions under Power Connect brand. Dell has also acquired Perot systems that have a host of services under its belt.

Recently, Dell has confirmed its entrance into the Smartphone world through strategic relationships with two of the world’s major telecommunication players. On 13 Nov 2009 Dell has confirmed through its press release that the distribution will take place through China Mobile (largest telecommunication company with over 500 million customers) and Claro which serves people in Brazil. (Dell, 2009)

3 Interfunctional orientation:

The third and final component of Market orientation is interfunctional orientation.

” The achievement of customer satisfaction relies on integrated effort. The responsibility for the implementation of the concept lies not just within the marketing department. The belief that customer needs are central to the operation of a company runs right through production, finance, research and development, engineering and other departments.” (Jobber 2004: 5)

The planning discipline created a common language across the whole organization. All parts of the organization enter into a business agreement concerning the various stages of product life cycle. “Sharing responsibility results in a joint accountability and encourages collaboration, but it also results in sharing different perspectives and ideas across the company” (Fredman 1999: 71). Dell follows and implements the concept of dual reporting quite effectively inducing business accountability as well as maintaining functional excellence.

The Impact, Positive and Negative, of the Organisation’s Marketing Mix

Marketing Mix:

Marketing mix is defined as “the tactical tools that marketers use to implement their strategies “(Kotler 2008: 202), mixing the controllableelementsof aproduct’s marketing plan which arecommonly termed as 4P’s: product,price, place and promotion. These elements are adjusted until a balanced proportionis found thatservestheneedsof the customerswhile generatingoptimumincome.

1. Product:

The key element of the marketing mix is the product, as this being a tangible or intangible means by which the customer needs are met. Dell as an organization offers and meets its customer needs through physical products (tangible) such as laptops, desktops, servers, storage and networking routers & switches and offers service products (intangible) in the fields of Dell pro support, enterprise customer infrastructure consulting ,deployment, education and IT simplification assessment. The company has rooted deep with its brands of laptops in terms of product line and spread across widely with the other product mix thus proving as a threat to its competitors. Dell laptops and desktops are diversified basically to target the business needs and domestic needs depending on the configuration requirements.

For a core product to be distinguished from its competitors it should be from a reputed brand with additional features forming a total product. The customers not only focuses on the features and branding of the product but also looks in to the aspect of warranty/guarantee after sales of the product , service and support offered by the organization along with the product it delivers which is the end augmented product. Dell understanding this aspect of its branding has an extended service line and support centre operating across the world there by satisfying its customers.

For a product to reach its customers, these are some of the major aspects that are to be considered

Ø Functionality: Product functionality is a feature which is unique in its characteristic that sets it apart from similar products in the market and meets the customer’s needs. Dell’s global presence brings a diverse range of innovations employing skills, offering a better answer to customer’s technological challenges.

Ø Brand: The power of a brand leads to high sales, retains its current customer through” brand loyalty”(Jobber 2007: 334), who are less price sensitive because of the affinity towards the brand. This makes the business feel secured about its customer in the competitive market. The strong brand name influences the customer’s perception. Dell being the no 2 in the computer market, as a brand has captivated the customer through its “direct-to-the-customer” (Fredman 1999: x) way of doing business that is the customers have their choice to decide on the configuration of their laptop or desktop at a competitive price. This strategy of customization attracted the market as it was authentic and easy for the customers to place the order with the growing usage of internet. Thus the company was making money, “with the benefits being clear: firms operate at maximum efficiency by not producing a product until they know it is sold” (Fredman 1999: x). The new approach to the business created a strong impression and reputation of the brand amongst the customer.

Ø Brand Equity-“Measure of the strength of a brand in the market place” (Jobber 2007: 331) the impact of the strong perception of the customers about the brand means it is difficult for the competitors to capture the market share thus acting as a barrier to competition. Initially when Dell entered the market it was the 25th -ranked computer company in the world, its business model was an alternative approach thus moving Dell to the number one ranked company in the US and the second -largest company globally by 1998. Dell has positive customer-based brand equity, as there was a lofty awareness and image for its branded products and services in the market.

“A brand is created by augmenting a core product with values that makes the product unique and distinguishes it from the competitors”(Jobber 2007: 334).For a brand to be successful and sustain in the market it should deliver a product concentrating on the aspects which would retain its customers and promote its brand. The quality of the product plays a key role in influencing the sustainability in the market. Dell as an organization was always focused on providing best solutions to its end users rather than the best technology, thus targeted its customers with high quality laptops and computers which were efficient in terms of meeting the customers need.

Managing the Product Mix – Positioning and Repositioning: Dell as mentioned by Michael, right from its scratch have targeted its market position with a good sense of market research and embattled the market with the business models such as, Direct-to-the-customer to being pioneer in the burgeoning market for computers sold through consumer retail store such as CompUS and Best Buy, though the company later realized that the retail-store model did not meet its financial objectives in the early days of 1990. In order to meet the demand with the growing competition and targeting on new geographic markets, where the customers feel more authentic about their product when they personally decide on them, to meet these needs of the market Dell has again entered in to the retail-store model. This proves that Dell is cautious about positioning and repositioning its market place. In order to keep track with the growing needs and technologies dell has allocated departments such as technology initiatives, global product development, innovation approach and white papers to reposition and sustain their position amongst its target customers.

Jobber (2007: 405) explains Product Strategy as

“The emphasis on product portfolio analysis is managing an existing set of products in such a way as to maximize their strengths. But companies also need to look to new products and markets for future growth. A useful way of looking at growth opportunities is the Ansoff Matrix.”

Ansoff Matrix – The matrix comprises of four segments as shown in the image below,

Ø Market Penetration: Market penetration is nothing but the most basic method of penetrating the existing markets with current products by winning competitor’s customers. This may be achieved by more effective use of promotion or distribution, or by cutting prices. Another way of gaining market penetration is to acquire competitors.

Ø Diversification/MarketExpansion: Market expansion is when a company attempting to expand a market that they already serve by converting non-users to users of their product. This can be an attractive option in new markets when non-users form a sizeable segment and may be willing to try the product given suitable inducement.

Ø Product Development: The product development also knows as product expansion option involves the development of new products for existing market. One variant is to extend existing product lines to given current customers greater choice. Product development activities involve the replacement of old brands/models with new ones.

Ø Market Development: Market development entails the promotion of new uses of existing product to new customers or the marketing of existing products (and their current uses) to new market segments.

New Product development: Dell is more in to product development by innovating new products to be the market leaders. The company’s continuous innovations in the product development require no new customer behaviour, thus holding them intact.

“Dell is betting small computers will be perfect for tiny hands as it launches a new “rugged” netbook targeted at students. Called the Latitude 2100, the netbook comes with an anti-microbial keyboard (perfect for germy little hands), a 10.1-inch touchscreen, a case with a rubber-like feel and a choice of five colors.

“Compared to plastic or magnesium alloy, the rubberized casing makes the device easy to grip and non-slip,” says David Lord, senior manager at Dell. “It shows our intent of using the netbook form factor in a way that benefits the education market.”

The Latitude 2100’s rubber-like coating is interesting and is in step with the industry-wide trend towards using innovative materialssuch as leather, fabric and bamboo in laptops. The device’s touchscreen also allows for innovative use of educational software, saysDavid Ruth, product manager for Dell.” (Ganapati 2009)

Addition to existing lines-Dell’s product based co branding desire to create a new image and position in the market place for offering IT solutions and services can be clearly stated with its recent acquisition of Perot system.

Being first in the market with its new business models which are alternative to the traditional models, Dell has imprinted a clear position among its target customers. The company also believes in promoting its product within the organization and encouraging its employees to share their experience as a customer thus creating a feel of responsibility and accountability, Michael Dell feels this act helps in knowing his customers needs and provide them with the best solution.

Managing product over time – Product life cycle: “The course of a product’s sales and profits over its life time .It involves five distinctive stages: product development, introduction, growth, maturity and decline” (Kotler 2008: 251).

The image below shows the graphical representation of a PLC

Figure 9: Product Life cycle (http://mbarreiro.files.wordpress.com/2009/05/plc.jpg)

Stages of PLC:

Product development is the stage when company designs and develops a new product, during this stage the sales is zero as the company is yet to enter the market.

Introduction is when the product is being launched in the market; there will be a small growth in sales. In this stage, the profit is negligent because of the high expense incurred in the product introduction.

Growth is the period of acceptance of the product in the market with increasing profit.

Maturity is the slowdown of sales growth because the product has reached majority of its potential buyers. Profit level declines due to the increasing marketing outlays to defend its product in the competition. Dell has reached its matured stage as it has been accepted well and has reached most of its target customers but the increase in the competition has declined its profit. “Acer’s ever growing dominance has apparently now moved them to second place in the worlds PC Sales Chart pushing Dell to the third position”( Nov 14 2009).The company by introducing new innovations such as “Dell Vostro” is trying to regain its market position.

Decline is the fall of sales and profit.

The Boston consulting Group, leading management consultancy designed and developed the BCG growth share matrix. The matrix provides guidelines for setting strategic objectives and allows portfolios of products to be depicted in a 2 X 2 matrix based on the cash flow and categorized as.

Ø Stars are likely to have cash flow balance

Ø Problem children cause a drain on cash flow

Ø Cash Cows generate large positive cash flow

Ø Dogs usually produce low or negative cash flow

On analyzing the products of Dell the portfolio of the product can be depicted as follows

Alien ware MX1 being the new model entering the market, is relatively strong with its graphical features compared to its competitors. They have the high point share. Dell-XPS was a star but now with the upgrading technologies have relatively lost their attractiveness. Dell studio was a big flop among the customers as its initial series had created a very bad impact about the quality of the company’s product.

2. Price:

Price is an important steering factor in marketing mix that drives a product to the customers’ vicinity. It is the only revenue earner in the marketing mix whereas all other elements are costs. (Jobber. 2004: 376). Elements influencing a customer’s price assessments include functional, operational, personal, financial and quality. External factors influencing the pricing decision includes legal, channels of distribution, competitors, demand and price elasticity, customers and consumers.

The behaviour of marginal supply with marginal cost. The demand curve is also shown in the same figure. As the price increases, the demand decreases. The profit will be maximized when the marginal revenue matches the marginal cost. Dell is always cautious about their pricing strategies and hence makes sure that pricing depends on the product segment.

Pricing strategies:

We have identified that Dell follows the following pricing strategies.

Marketing penetrating strategy of the company is to attract a larger chunk of potential customers with the ultimate aim to capture a large market share. They sold high quality desktop computers through their direct channels. Their competitors like Apple, IBM could not meet the pricing of Dell. Their JIT system, direct marketing reduces their costs and enables them to fix competitive price to all their products.

Market premium strategy’s is to classify their top notch products as exclusive. For instance, Dell upholds their new AlienwareM17X laptop with great prestige. At present this product is priced about 2000 dollars.

Market optional product strategy’s is clearly evident in their direct sales method. In market optional product pricing, companies tend to increase their margin by offering additional services along with the product the customer intends to purchase. The company as a whole is known for its mass customization. Once you decide on the product, Dell charges for additional items antivirus, warranty and for some premium colours.

The company is also popular for is promotional pricing strategy. Current promotions include purchasing a laptop starting at $449 and receiving 40 % off on the on a fully loaded inspiron 15.

New product launch strategy

“Price should also be blended with the other elements of the marketing mix” (Jobber 2007: 467). The new product launch strategies can be blocked-out as follows:

PROMOTION

Unlike its competitors Dell follows slow skimming strategy to launch their new products into their existing as well as latent markets .For instance Dell Lattitude XFR6400 series is a precise example for this category.

Price Quality matrix

Price quality matrix displays the positioning of the products of a company with respect to price and quality. Dell has positioned is “AlienwareM17x” under premium positioning tag , XPS under High price – Medium quality and Inspiron series under Medium quality- Low price.

3. Promotion

“Promotion means activities that communicate the merits of the products and persuade the target customers to buy it”. (Armstrong and Kotler 2009: 84)

Promotion is the factor of influencing the customer’s purchase behaviour. Promotion is very relevant in order to educate, inform, and remind people about the product. It is not enough to develop the strategies and put them in black and white but it is vital to put them in practice.

Dell is using many means of introducing their product .Hence they use to advertise through television, books, internet, e-commerce, news papers and direct marketing. These are the strategies followed by the dell company in order to effective in their field.

Elements of Promotion:

Ø Direct Marketing: As stated by Peter Drucker, Marketing is not a function; it is the whole business seen from the customers’ point of view. Direct marketing captures the customers by avoiding intermediaries. Dell is one of the pioneers in direct marketing. They use various methods to promote their product such as, direct mail, telephone, telemarketing, e-marketing etc.

Ø Advertising: “Advertisement can be defined as any paid form of non personal promotion transmitted through mass medium” (Brassington and Pettitt 2006: 669). Dell can be grouped under the product oriented advertiser category. Such companies’ highlights product features, services, price through various advertising channels such as television, internet, magazines, e-marketing etc.

Ø Internet Promotion and Sales Promotion: The customers can access the web at any time and make a purchase. Twenty Four hours on line support is provided. This type of strategy is referred to as internet marketing. Dell uses this particular media very efficiently and they have placed themselves as the top provider amongst their competitors. On line marketing enables potential customers to be updated with the latest promotional deals.

Sales promotion helps the company to increase their sales and the customers to buy their product in bulk. The sales promotion gives many incentives to the customers in order to increase their sales. There are various offers like, (consumer promotion, money off vouchers, gifts).

Ø Personal Selling: Personal selling involves face to face communication and it becomes very effective in terms of selling the product. This particular element has a large impact on customers as the seller can influence the customer in making the final purchase. Also here the buyer can negotiate or demand for better discounts for large scale order. The seller can assure customers on behalf of the company in order to establish their product. Dell employs this strategy especially with the B2B segment.

Setting the Advertising budget:

There are four elements:

Ø Percentage of sales,

Ø Matching competition,

Ø Objective and task,

Ø Affordability.

The percentage of sales refers to how much sales have been achieved this year and the criteria that has been followed.

Matching competition means, the other competitors who are competing with dell. Hence Dell has to compete with them in order to establish their market.

Objective and task means, dell has set these things to achieve their objective and it has to work towards its goal.

Affordability means, the company has to set the target