Slide 1
Case study in the E-MARKETING coursePresented by: Ashraf Hatem
Hlouh
The Dell Direct Model
Dell Computer Corporation
Founded by 19-year-old Michael Dell in a dorm room, grew by more
than 50% a year over 1995-1998Dell produces custom build PCs in a
matter of hours and producing no PC component it could sustain a
large portion of PC market comparing to IBM, HP, Compaq, Hitachi,
Sony, Fujistu.
Dell Background
Dell: Birth and Childhood (1983 1990)Michael Dell University of
Texas at AustinUpgraded IBM-compatible PCs in his spare time in
dorm room. Then he assembled entire PC with 15% discount to
established brands.On May 3, 1984 Dell Computer Corp was officially
established.Efficient and Low Cost operations Support services such
as 24-hour hotline and guaranteed shipment of replacement
partAttractive to technology literate customers who looked for
quality at a reasonable price
Dell Background
Dell grew from nothing to $5 million at 1985International
Expansion : 1987 UK ,1990: Limerick, relend to serve the European,
middle eastern and African markets.Sales In 1990: $500 million
Michael Dell became the richest person in Texas.Dells Model being
imitated by other vendors like Gateway 2000
Dell Background
Dell Background
Dell employees worldwideApproximately 103300 employees end of
Fiscal 2011
100300 regular employees
3000 temporary
36,900 of the regular employees at end of 2011 located in the
U.S
Acquisition of Perot Systems Corporation in Fiscal 2010 added
23,800 regular employees
Dell Direct Model
Indirect Channels
Reseller Customized the PC to customer requirements, installed
components and provided additional service and support
Dell Direct Model
The Direct ModelDirect Sales From the PC manufacturer to the
corporate customer or consumer.
Bypassing the dealer channel, selling directly to consumerFocus
on Speed of Execution and Minimum Inventory
Dell Direct Model
The Direct Model CharacteristicsEliminate costs and risks of
carrying large finished good inventoriesHigh velocityLow-cost
distributionDirect customer relationshipBuild-to-orderJust-in-time
manufacturingProducts and Services aimed at specific market
segments
Dell
End user
Dell Direct Model
The Direct Model CharacteristicsReduced channel costs: from
13.5%-15.5% to 2% of product revenueLatest Technology was
introduced faster than indirect channelsDell can use IT to directly
control its value chain, set quality measures and monitor in real
time how material is flowing throughout the chainManaging
Information to Increase Velocity, Track data on margins, selling
price, Utilize info. to get the suppliers in sync with the
high-velocity model
Dell Direct Model
The Direct Model CharacteristicsMost of Dells suppliers keep
components warehoused less than 20 minutes away from Dells
factoriesDell has small number of suppliers Even it reduced their
number from 204 in 1992 to 47 in 1997Dell's Inventory sales after
Direct Model
Dell Direct Model
Manufacturing ProcessNo warehouse Space,No inventory other than
work in processManufacturing is synchronized to avoid storing parts
or finished systemsThis needs close relationship with suppliers
Trust Manufactures like Sony, Logistics like UPS No test time
Dell Direct Model
Products
Desktops
Laptops & notebooks
Mobile phones & Devices
Printers & Ink
Electronics & Software
HDTVs & Home theater
Dell Direct Model
Major competitors
Dell Direct Model
Customer ServiceIn 1986, San Francisco, Dell determines the
companys future direction:
The first: to really grow our business, we would have to target
large companies. The second: to land large companies we would have
to offer the absolute best support in the industry. That was how we
came up with the idea to provide the industrys first on-site
service for PCs. if a customer called us with a problem, wed say,
Well be out tomorrow to fix it
Dell Direct Model
Customer Service1,300 technical support personnelAccessible by
phone 24 hours a day90% of calls can be solved on the phone by
standardtroubleshooting proceduresThird-party maintenance providers
like Unisys, Wang, Decision one consulting and Digital
EquipmentTight coordination with supplier, vendors and maintenance
providers feels like Just one large company
Dell Direct Model
Customer ServiceIn Computerworlds 1998 survey Dell ranked first
in user satisfaction followed by GatewayAccording to Computerworld
traditional vendors depends too heavily on resellers that prevents
them from reacting quickly to customer needs, because resellers may
place their own interests first
Dell Direct Model
Financial highlights For fiscal year 2010, second quarter (ended
July 30, 2010)
Revenue $15.5 billion
Operating income $745 million
Net income $545 million
Earnings per share $0.28
Dell Direct Model
Dell computer Corp. Financial Data, 2009 - 2012
Currencyin $Millions
As of:
Jan 302009Reclassified
Jan 292010Reclassified
Jan 282011
Feb 032012PressRelease
Revenues
61,101.0
52,902.0
61,494.0
62,071.0
Total Revenues
61,101.0
52,902.0
61,494.0
62,071.0
Cost Of Goods Sold
49,998.0
43,404.0
50,041.0
48,211.0
Gross Profit
11,103.0
9,498.0
11,453.0
13,860.0
Selling General & Admin Expenses, Total
6,966.0
6,227.0
7,234.0
8,524.0
R&D Expenses
665.0
617.0
653.0
856.0
Other Operating Expenses, Total
7,631.0
6,844.0
7,887.0
9,380.0
Operating Income
3,472.0
2,654.0
3,566.0
4,480.0
Global PC Market Share - 2001-2005
Global PC Market Share by Units, Percent. 2001-2005
Rank
2001
2002
2003
2004
2005
1
Dell
13.3
HP-Compaq
16.2
Dell
15.0
Dell
16.4
Dell
16.8
2
Compaq
11.1
Dell
15.2
HP
14.3
HP
14.6
HP
14.5
3
HP
7.2
IBM
6.0
IBM
5.1
IBM
5.5
Lenovo
6.9
4
IBM
6.4
NEC
3.4
Fujitsu
3.8
Fujitsu
3.8
Acer
4.6
5
NEC
3.8
Toshiba
3.2
Toshiba
2.9
Acer
3.4
Fujitsu
3.8
Others
58.1
56.0
58.9
56.4
53.3
Global PC Market Share - 2006-2011
Global PC Market Share by Units,Percent.2006-2011.
Rank
2006
2007
2008
2009
2010
2011
1
Dell
15.9
HP
18.2
HP
18.4
HP
19.3
HP
17.9
HP
17.2
2
HP
15.9
Dell
14.3
Dell
14.3
Acer
13.0
Dell
12.9
Lenovo
13.0
3
Lenovo
7.0
Acer
8.9
Acer
11.1
Dell
12.2
Acer
12.0
Dell
12.1
4
Acer
5.8
Lenovo
7.4
Lenovo
7.2
Lenovo
8.1
Lenovo
9.7
Acer
11.2
5
Toshiba
3.8
Toshiba
4.0
Toshiba
4.5
Toshiba
5.1
Toshiba
5.4
ASUS
5.9
Other
51.6
47.1
44.5
42.3
42.1
40.7
Dell Direct Model
Dells motivation for rethinking direct sell business model
IN THE PAST
TODAY
PC customizability was highly appreciated by customersSurplus
stock lost value quicklyDemand was typically low for each product
variantAssembly-to-order more effective than selling pre-configured
PCs in retail stores
Customers are willing to choose from a few standardized PCs
model.Inventory of standardized models moves fastDemand was
relatively high for each standardized modelPC became a popular
commodity, price has dropped significantlyDirect sell model is less
effective in todays more standardized market
Dell Direct Model
Customers And SegmentationTransactionalIndividuals or businesses
who make transaction-by-transactionbuying decision - based on the
Economics of the purchase Focus on performance, specification,
featured, reviews, awardsRelationshipBased on total cost of
ownership TCO and price is a secondaryconcern. Like business,
government or education accounts in medium-to-large organizations.
Focus on service, reliability, vendor reputation and
standardization
Dell Direct Model
Customers And Segmentation (Cash flow)Payment type
Transactional: Credit card or charged full upon
deliveryRelationship: Purchase orders, Credit cards, lease
agreements, Longerpayment cyclesVelocity of generating cash from
orders Transactional: less than 24 hours compared to 2 weeks for
GatewayRelationship: 40 days compared to 56 days for Dells
payableoutstanding
Dell Direct Model
Customers And SegmentationMakes it easier to know the customer
and identify unique opportunities Better attention and FocusBring
Dell closer to customer to understand their needs and operating
environmentLarge Corporate Accounts Gold $5-$10 millionLargest
Account Platinum exceed of $10 million Periodic regional Platinum
Council for discussion and interaction with Platinum accounts
Dell Direct Model
Customers And SegmentationGeographic: America( target, occupy
50% of net revenue)EuropeAsiaMiddle EastBRIC( Brazil, Russia, India
& China) PsychographicInterest communitySupport forumBlogsIdea
storm Behavioral
Dell Direct Model
Behavioral Based on light, medium, and heavy product usage
DELL: direct e-marketing through B2B market and B2C market with
market segment based on level of product usage
B2C: for home (individual)- LIGHT PRODUCT USAGE
B2B: a. small & medium businesses- MEDIUM PRODUCT
USAGEPublic sector( state & local government, federal
government, education, health care)- MEDIUM PRODUCT USAGELarge
enterprises HEAVY PRODUCT USAGE
WWW.DELL.COM
Developing www.dell.comDesigning Started in 1995 Emphasize on
early internet leadershipIts better to be in front with an
imperfect internetimplementation than to be late with the perfect
Website Site Launched in July 1996 Sales on the Web By December
1996 : $1 Million a day By May 2000: $40 million daily {50% of
total sales} In 2003: $16 billionInitially it was geared to
Transactional CustomersManual order processor Order tracking system
Technical support manuals, FAQs, troubleshooting info.
Configuration diagrams, software upgrades, device drivers
WWW.DELL.COM
premier.dell.comProblem: Convincing large corporate customers to
buy through WebDell studied how they evaluated and acquired
systemsDell designed Customized Websites called Dell Premier Pages
for platinum accounts, later for gold accounts.
In fall 1997 Premier sites designed in less than a day for every
customer who has an agreement with Dell.
They place the order, it gets routed up to whoever in their
company needs to approve it, then is sent directly to us,
McNair
September 2000 -> more than 50,000 Premier sites
WWW.DELL.COM
valuechain.dell.comCustomized Supplier Web pages Suppliers to
share real-time information with Dell on their Capacity, quality
metrics, costs Dell to share information on customer demand,
product quality and technical customer requirements
Conclusion
The key to Dells success has been its direct sales and
build-to-order business model.This model is simple in concept but
highly complex in its execution, especially under conditions of
rapid growth and New product lines Ended up forcing its CEO to
resign in 1999
Problem: Conflicts between its traditional indirect sales
channels and its attempt to increase direct sales.
Dells service advantage may be a greater differentiator than its
10-15% cost advantage, Dell has everything we want in a tech
company, especially Focus, Dell does nothing but PCs
Conclusion
Dell doesnt even need the best product or price anymore, because
it is starting to own the PC space in buyers mind
Dells use of IT plays a vital role in the implementation of its
business model. The company has used IT to coordinate its
build-to-order processes from order taking through procurement,
logistics, production, service, and support.
Conclusion
Companies such as Dell that are industry leaders in Internet
commerce will be able to expand their customer base and increase
their business with existing companies at a low marginal cost. They
also can reduce the cost of coordinating their supply chain through
electronic linkages. This will enable them to offer incentives to
customers and suppliers to do business electronically and continue
to drive their own costs down.
Thank you for your attention
