Marketing mix of Dell analysis

In the consumer-centric industry that Dell operates in, the ideal marketing mix is of vital importance. (Kotler) says marketing strategy and marketing mix are closely interlinked and hence, the marketing mix of the organization decides the majority of the operations of the organization.

The four essential aspects of the marketing mix are – Product, Price, Promotion and Place (D.Jobber, 2010). They are often termed as the 4Ps of marketing. One or more of these factors are essential to the running of any business.

An effective marketing strategy will bring the four variables together in order to satisfy customer needs.

With respect to the Dell consumer business, each of these factors plays an important role in the performance and strategy changes in Dell over the years, right from its inception in Michael Dell’s dorm room at the University of Texas in Austin. The best marketing mix can be found if you follow the APPEAL (T. Hannigan) formula,

A – Assess consumer needs

P – Produce appropriate goods

P – Price the goods favourably for both the customer and the organization

E – Ensure excellent service

A – Advertise, reach out to the target customer effectively

L – Launch proper distribution systems

(T. Hannigan)

In the Dell consumer business worldwide, APPEAL has been a key factor of success and at certain stages, the weak links in the same have been the cause for failure.

The Consumer products that Dell sells

Any business is perhaps as good as the products it sells. From Dell’s perspective it is imperative that we examine the products it has sold with respect to the time frame of its existence. Dell started out with trying to “crank out PCs as efficiently as possible” (Cliff Edwards, Business week, Issue 4152). Simply put, Dell’s major objective was to manufacture low cost personal computers, with a rock solid distribution system and excellent after sales customer service. To a world that was just entering into the technology revolution, it was an effective strategy and the business soared. However, with time Dell has slowly diversified its consumer product line to include not just functional machines, but a plethora of other products and services.

Paradigm shift to style and technology

The recent years have seen personal computers evolving from mere machines to a lifestyle essential. Technology has aided greater mobility and smaller sizes, all with exceptional computational power. The key elements to consider here are product design and effective R&D. A sea change from the boxy laptops and desktops of yesteryears, Dell now has the highly personalized Studio and Inspiron laptops, desktops and netbooks (Dell mini). In addition, Dell also created the new line XPS products that were high performance gaming laptops and desktops. Adamo was Dell’s foray into the high end luxury market in response to Macbook Air and HP Voodoo Envy.

Dell is concentrating on changing its image from a cheap PC manufacturer and investing in R&D. However, issues with heating in some laptop models indicate that they definitely need to increase research and test their products more extensively before releasing them into the market.

Customization

Dell prides itself on offering a high level of customizability. For a price, customers can choose exactly what they need in their desktop or laptop. Dell retails online primarily, so providing custom features is not hard.

With APPEAL in mind, it is important for a company to make products that consumers would like to buy. Dell does just that. It makes the customer the king and lets her/him buy exactly what they want.

Diversification into Electronics, Software and Accessories

In 1999, Dell decided to sell software, PC accessories and other electronic products along with its PCs on an online shopping service called Gigabuys.com (BusinessWeek online, March 29,1999 issue) . What originated as an idea during the dotcom boom is now a full-fledged Electronics and Accessories store on Dell.com worldwide. It retails products like gaming consoles, TVs, digital cameras along with Software like Operating systems, Antivirus and Games to name a few.

Gigabuys.com now redirects to Dell.com.

A significant acquisition for the Dell Consumer Business – Alienware

Alienware is a wholly owned subsidiary of Dell Inc. which retails high performance high end gaming laptops and desktops. Alienware was acquired by Dell in March 2006. This added a new range of products to Dell’s existing line of products.

However, it fell roughly under the same category as the XPS range of products. Hence, there was and still is a possibility of an impact of the sales of one on the other.

The Dell Brand

Dell has always been a strong brand. It is ranks 38th in the Fortune 500 companies and is the 5th most admired company in the world. Though there have been significant ups and downs in the company’s market share, Dell is still the second largest PC seller in America just after its arch rival HP.

Brand positioning

Lambin(2005) defines positioning as,

“the decision of the company to choose the benefit(s) that the brand has to gain a distinctive place in the market”

Historically, Dell has always been a maker of affordable PCs “efficiently”. However, due to the changing market scenario, it now wants to reposition its products from being just affordable. They want to be able to skim the high end luxury markets as well as well be a formidable competitor to market leaders in this segment – Apple and HP.

Pricing strategies at Dell

At the onset, price was one of the primary factors that Dell was concerned with. Dell’s direct selling model eliminated the need for middlemen thus making their computers cheaper than their competitors’. It also meant that Dell was reaping higher profits.

However, in the recent years Dell is trying to achieve a brand makeover and establish itself against its competitors Apple, IBM and HP. So how exactly does Dell price its products?

Dell adopts two main pricing strategies – Product mix pricing strategies and Price adjustment pricing strategies (Kotler, Armstrong, 2006). As the range of products that they sell differ so does the price and so do the range of benefits that are on offer.

Product Mix Pricing

Dell sells a variety of products. Given the sheer range, most of Dell’s pricing strategies revolve around the products they sell. The most observable pricing strategies are enlisted below.

Pricing according to the various Line of Businesses (LOBs)

This type of pricing is most evident in the pricing of Laptops and desktops. The various Laptops and Desktops sold are positioned differently in the market. According to their positioning and the respective marketing strategies, they are priced differently.

For instance, Dell Inspiron is targeted towards audiences seeking functional, budget laptops. Dell studio is priced higher as it offers better features and better style. With the introduction of the aforementioned Adamo line, Dell ventured into the high end luxury laptop market and it is priced significantly higher than the latter two.

Kotler and Armstrong(2006) term this as Product Line Pricing and is a type of Product mix pricing.

Paying a price for customization

A very commonly used pricing strategy in Dell is Optional Product Pricing (Kotler,Armstrong, 2006). As mentioned earlier, Dell offers a wide range of options to personalize your purchase. But customization comes at a cost. You pay an amount over the value for each additional feature you add to your purchase. This pricing strategy is widely used when selling PCs.

Optional product pricing can be observed quite clearly in the screenshot of the Dell UK below.

(http://configure.euro.dell.com/dellstore/config.aspx?b=&c=uk&cs=ukdhs1&kc=NRS17454&l=en&m_30=321942&oc=N0074901&rbc=N0074901&s=dhs)(17Nov)

Deals on product clusters

Product bundle pricing (Kotler,Armstrong, 2006) is used by organizations to sell different products together as a cluster or a bundle at a discounted price. Dell uses this strategy primarily for its Electronics and Accessories store. The bundles are priced attractively and can add a level of personalization, like the netbook bundle in the screenshot below.

(http://search.euro.dell.com/results.aspx?s=gen&c=uk&l=en&cs=&k=bundle&cat=all&x=0&y=0)(17Nov)

Price Adjustment Pricing

“Deals” and “Sale” are probably the most attractive words to shoppers worldwide. People often end up buying things they don’t even need. But from the company’s perspective, some price adjustment strategies are essential if the prices on offer are lowered.

Some of the common price adjustment strategies that Dell adopts quite often are Discount and Allowance pricing and Promotional pricing (Kotler, Armstrong, 2006).

Discounts – A magic word

Dell offers deals to its customers throughout the year. The duration of the deals may vary with the demand and the season. One tactic Dell consistently uses to offer savings to its customers is free shipping.

Quite often shipping charges add to the cost of the product which makes it more expensive than it actually is. Free shipping allows customers to save on shipping costs. Indeed customers appreciate the idea of free shipping. A report on online buyer behaviour indicates that as of 2010, 82% UK consumers agreed that free shipping influenced their buying decision( Econsultancy, How we shop in 2010 report, Information obtained from http://econsultancy.com/uk/blog/6426-e-commerce-stats-round-up-2, 17Nov 2010)

Dell also offers some allowances to customers from time to time. Customers can choose to pay for their purchases at a later time based on a credit agreement.

Some of the deals and discounts on offer on Dell.co.uk can be seen in the screenshot below. (http://www1.euro.dell.com/uk/en/home/deals4/fs.aspx?refid=deals4&s=dhs&cs=ukdhs1&c=uk&l=en&~ck=mn&redirect=1)(17Nov,2010)

Promotional Pricing

Dell has a history in Promotional pricing. In the slump in the early 2000s, PC sales were expected to reduce annually. Dell, in an attempt to outdo its competitors HP, Compaq and IBM slashed the prices of its products even higher to steal the market share. This also drove down overall prices in the market. Dell’s direct supply model made it easier for them to provide lower prices without denting their finances too badly but for its competitors, it must have been a force to reckon with. (Business week, Sept 24th, 2001)

Kotler, Armstrong most accurately summarize Promotional pricing as,

“Promotional pricing can be an effective means of generating sales for some companies in certain circumstances.”

However, as the scenario changed and as peoples’ priorities changed, competitors started regaining their positions in the market.

How Dell promotes its products

Promotions are used by an organization to draw attention to its products. Simply put, you start a company and create a product that you would like to sell. But how do you let people know about these developments? How do you tell people that your product is what they need for xyz reason? That’s where Integrated marketing communications comes in the picture and there the sun rises on the Promotional/Communications mix.

An organization as large in scale as Dell does not employ a single promotional strategy, they employ several. Let us look at the various elements of the Promotional mix that are relevant to Dell.

Advertising

“Advertising is a means of communication by which a firm can deliver a message to potential buyers with whom it is not in direct contact” (Jean Jacques Lambi, 2007)

Dell’s initial advertising strategy was around the products it sold, its features and predominantly the price, quite like its overall marketing strategy. Perhaps, it suited the market demand then, which wanted functional, sufficiently feature rich but lower cost PCs. The “Dude, you’re getting a Dell” commercial essentially featured a young boy named Steven who would go on to elaborate the features of Dell and the ease of ordering one.

However, Dell has now shifted its strategy to focus on its customers even where advertising is concerned. The new TV and print Ads lean towards establishing a psychological connection between the consumer and the product. The change in strategy can also clearly be observed from the changes in its tagline – from “Easy as Dell” to “Yours is here”.

The message of customizability is still predominant. But the focus is on customer choice and not on company prowess.(Dell’s RFP: People needing people, AdWeek, vol 51, Issue34).

Dell uses different media for advertising. Dell Adverts on TV are not uncommon in some countries. Dell uses the print media and the internet extensively for advertising. There are featured Dell Ads on most social networking sites, email websites and search engines like Facebook, Gmail and Yahoo.

Dell’s advertisements are creative and visually stimulating. If they are aired frequently during popular TV shows it could help in enriching the brand value and boosting sales.

Sales Promotions

Sales promotions have emerged to be one of the key elements in the communications mix. Buying decisions are often impulsive and hence take place in the time spent at the supermarket or retail outlet. In Dell’s case, the retail presence is still work in progress. Hence, it is essential that the Dell websites worldwide simulate the retail shopping experience and capture the attention of the shopper in the first few seconds/clicks.

Dell uses various techniques in sales promotions. Apart from the usual season sales and festive discounts, dell tries to entice customers with monthly and weekly offers. Apart from this, there are the classic “Buy one and get the second at a discount” offers which is an alteration of the BOGO (Buy one get one) concept.

To maintain customer loyalty and goodwill, Dell issues some coupons to its existing or returning customers. Patrons may utilise these coupons to buy products at discounted prices.

Direct Email marketing

It has been understood from the discussion so far, that Dell’s core consumer business is over the internet. As the lines between the real world and the virtual world have begun to blur, Email marketing has become an important promotional strategy.

Dell sends e-newsletters to its existing customers and prospective customers who register on Dell.com. These newsletters contain information about the latest products, offerings and innovations in the organization that would perhaps interest the customer.

Sponsorships

“Sponsorship can be defined as an investment in cash or kind in an activity in return for access to the exploitable commercial potential associated with this activity” (Pelsmacker, Geuens, Van der Bergh, 2005)

Sponsorships help companies gain reputation and visibility which in turn impact sales. Often, such sponsorship alliances improve the image of the organization. Dell has never shied away from sponsoring events worldwide, be it PC gaming competitions or music video channels. For eg. The UK eSports received a Dell sponsorship last year.

Public relations

In the year 2005, an avid blogger Jeff Jarvis launched his gripes with computer major Dell on his blog, Buzzmachine. What began as a personal opinion soon skyrocketed into a PR nightmare for Dell. A large number of its customers were dissatisfied with Dell’s customer service and made no qualms about it. This scenario soon came to be known as “Dell Hell” a term coined by Jarvis. However, Dell chose not to respond to the mud-slinging but started to consider improving its customer service (Business week 2005, issue 3949). However, this incident injured Dell’s reputation alarmingly. Dell tried to make amends only in July 2006 by trying to respond to the bloggers’ complaints directly. (Marketing news, 12/15/2006, vol40 issue20)

Dell has tried hard since then to regain its reputation. It has tried to undergo a complete image makeover. However, the ghost of “Dell Hell” still haunts the PC maker.

The “Place” factor

Dell Inc. is a truly international organization that makes its presence felt worldwide. It is segmented geographically into, the Americas, EMEA (Europe, middle-east and Africa) and APJ (Asia Pacific and Japan). Different strategies are employed and different products sold in each of these regions.

Dell’s geographic diversity has necessitated the presence of manufacturing units worldwide. There are manufacturing units in China, Malaysia, India, Brazil, Ireland and Poland. This ensures that customers receive their orders on time.

Distribution methodology adopted at Dell

Where the place factor of the marketing mix is concerned, the foremost question that crops up is that of distribution. The distribution channel Dell is uses is “Product direct to consumer” (D.Jobber, 2010). Since Dell primarily follows the direct support model they eliminate the middlemen viz. the distributers and retailers. This helps them to maximize their profit margins and pass on some of their savings to consumers. This process is termed as Disintermediation.

The mechanics of sale at Dell can be elucidated in the flowchart below. The example considers the sale of a laptop.

FIG. : Flowchart depicting the direct selling model at Dell

Factors affecting distribution channels

As has been mentioned many times before, Dell sells directly to its customers. However, there are still a lot of factors that need to be considered which have been the cause for success and in some cases the lack of it. Let us consider these factors individually and their impact on Dell’s global consumer business.

Differentiated segments and competitive forces

Consumer behaviour changes from country to country and region to region, based on the cultural influences, geodemographics and reference groups (D. Jobber). Young, tech savvy individuals are open to the idea of shopping for products online. They appreciate the convenience it provides. Also, the concept is widely accepted in the western countries.

However, in the eastern cultures people are still warming up to the idea of online shopping. In India for instance, people like to physically view their products before they buy it, especially where expensive purchases are concerned. They might not mind paying a slightly higher amount for this experience. Buying online is still viewed with suspicion.

Also, the cases of online fraud are increasing at an alarming rate which dissuades customers from buying products on the internet. In such cases, it becomes essential to open retail outlets.

Dell has now ventured into the retail sector for the consumer business in many countries, partnering with supermarket chains like Walmart and Best buy. (eWeek, Nov26th 2007). However, they are yet to make their presence felt as competitors like HP already have a considerable retail presence.

Distribution Intensity

Dell’s maximum revenue is generated in the US. For the year 2008, over 60% of its revenue ($37.4 billion) was generated in the Americas as compared to only $8.5 billion in the APJ region. This shows that the concentration on distribution is mainly in the country of its origin.

Also the number of consumer products on offer is much higher in the US and UK as compared to other countries and segments.

Increasing the distribution intensity in other geographical locations, by trying to understand the needs of the customer and aggressive promotions could help raise Dell’s market position worldwide.

The physical distribution system

Customer service

“Michael Dell isn’t that interested in the technology nor is he focussed on his competitors, although like any good businessman he monitors their actions. What interests Michael Dell is his customers, present and future, and the quality of service and satisfaction his organization offers.”( R. Saunders, Business the Dell way)

Customer service is a key element in the physical distribution system for Dell. As the sales are primarily online, customer experience should be excellent both pre and post sales. When Dell first came into the business, they prided themselves in the level of customer service they provided. At that point in time Dell was selling through retail outlets. After Dell moved its business almost entirely to the internet in the late 90s, the focus on building CE (customer experience) is even higher.

Dell aims to provide a good customer experience during the search for the product, the order placement, the delivery and the post sales service

Order handling

Once the order is placed, the mechanism of assembly or order retrieval, moves into action. Depending on the inventory available, the customer can actual view the lead times before placing the order on the relevant product page. Lead times are kept as short as possible.

Inventory control

At Dell, Inventory has always been low since they assemble the product only after the order has been placed. Dell follows the negative cash conversion cycle (Fiscal year 2009 in review, Dell company website) and hence they already have the money in hand before they go ahead with the order. Due to this, and due to Dell’s extremely efficient supply chain management (S. Kumar, S. Craig, Information knowledge systems management, 2007, vol6, issue 3), Dell manages to keep its inventory levels low at all times.

The customer experience starts from the moment the customer enters the website. From here, each landing page and every click shapes the opinion in the minds of the customer about the website and hence the company.

The additional Ps

There are various criticisms to the four Ps approach of the marketing mix. In the case of the Dell consumer business, a 7Ps approach (Booms and Bitner), as People or services and Process also play a vital role in the company’s marketing mix.

Dell has always concentrated on customer experience or customer service. Customer experience is a vital aspect in the running of any internet business. The customer experience starts from the moment the customer enters the website. From here, each landing page and every click shapes the opinion in the minds of the customer about the website and hence the company.

The processes that Dell follows are also quite unique especially its supply chain process that has already been discussed earlier.

However, it is poor customer service and extremely long lead times in the mid 2000s that had a negative impact on Dell’s performance and image and an area that Dell is trying to concentrate on.

In a business where the customer is king, developing an efficient marketing mix has taken Dell places. By fixing the loopholes in its operations and taking measures to restore its image is the only way up for Dell on the market share graph and Dell has already made many positive moves in the direction.

To elaborate the same, we will see a detailed SWOT analysis of Dell’s consumer business in the following chapter.