The Range and Market Segments of Dell - Essay Example

Dell Table of Contents Executive Summary 2 Introduction 2 The Range and Market Segments 4 The Size and Nature of the Market 8 Positioning of the Products 10 Marketing Communications Mix and Costs 12 Conclusion 15 Works Cited 16 Executive Summary Although Dell has been the market leader in selling computers in the past, it has recently lost its throne to HP due to a variety of reasons which connect directly with ineffective marketing and product positioning. Although Dell produces equipment which could be attractive to almost any one seeking computers for home or business use, comparative products from suppliers like HP are often more attractive in terms of price, design or features which means that Dell’s product line up often fails in comparison without discounts or special offers. Dell might be able to play with its perceived image of reliability and dependability to ensure that it becomes and remains the top player in the computer industry. It can also offer multiple operating systems and more choices to its buyers to make the product line more attractive overall (LaGesse, 2007). Introduction Dell, from a company formed in a dorm room with just $1,000, has come a long way to being one of the most admired and richest companies in the world (Fortune, 2006). Early on in its history it managed to give the image of being a giant while it was running as a small firm (Chozich, 2005). As a company it has managed to give the IBM, HP, Compaq, and many others stiff competition by selling individual computers that are assembled from custom ordered components. Its business philosophy was to sell directly to the customers, which enabled the company to closely interact with the clients and helped the clients in understanding their own requirements with needs analysis (Berfield, 2006). The strategy enabled the organization to serve the needs of their customers with some very effective solutions. Dell custom assembled each computer according to the selection of options by the clients, which lead to lower prices than competitors but enhanced convenience to customers and to the company (Wikipedia, 2007). Over the past twenty three years, Dell worked hard and overtook industry giants following their own business model of direct selling instead of going through retailers and reseller (Lee, 2006). Dells mission is simple enough for both the customer and for all other stakeholders in the company. They wish to be the most successful computer company in the world at delivering the best customer experience in markets they serve. However recently the company has faced multiple challenges and has missed their sales forecast figures in six consecutive quarters, surprising for a company which consistently produced results beyond expectations. In the third quarter of 2006, Hewlett Packard dislodged Dell from its leadership position and sold more notebooks (Olenick, 2006). This paper aims to analyse the product line of the company and view how the products are positioned within the market in terms of marketing for those products. The Range and Market Segments The product range of the company can be broken down into three segments. The first is the home and enthusiast section which includes basic computers for simply home and internet usage and more powerful computers for media editing and gaming use. The second segment is the business line of computers which includes machines ranging from the low end of the business spectrum to workhorse computers for business applications. The third segment connects itself with the sale of enterprise level computers, storage servers and other large machines which have a small market at the moment but the profit margins remain quit significant (Walsh, 2007). The product range for Dell includes: Home and small business range Dell Dimension PCs Dell Inspiron portables Midsize business and professional range Dell OptiPlex desktops Dell Precision workstations Dell Latitude notebooks Enterprise Severs Dell PowerEdge servers Dell PowerVault storage units Other implements like corporate training and support services are also carried out by Dell but these are often included in the package sold to the customers and seldom as a stand alone service. The biggest strength of Dell’s product line up is based on its direct business model. Dell wasn’t the first company to try the direct sales model, but was the first one to make it a success in the technology industry (Wikipedia, 2007). The fine tuning of the data regarding the offers accepted by the customers has allowed Dell to create a range which is customisable as per the needs of the client. The business model helped accurately identify customer’s needs and made their computer assembly model as well as the product range one of the leanest in the industry. The focus on the model helped company develop their supply chain where components are delivered just in time for assembly (Margulius, 2006). This means that components can be added to the range of products as soon as companies like Intel or nVidia produce them. The company orders the required components only after the customer places the order for the system and things such as RFID managed supply chains will further optimise the systems of the future (Fitchard, K. 2005). This facilitates in not only identifying the individual customer’s requirements but also the future component requirements for the company’s product range. The product range can only be managed if Dell has the competitive edge of an efficient supply chain and excellent customer services for all their clients (Margulius, 2006). However with the burst of dot com bubble, the market growth rate for new computers shrank considerably and Dell immediately had to cut on its labour cost and therefore it outsourced a major portion if its customer services. The Dell brand that was once considered trade mark of customer service is now looking at customer satisfaction as its weakness. This has certainly affected the product range negatively since support services are a requirement for Dell’s products without which the company can not bank on selling computers to non-professionals. However, the range is still very viable since vanilla PC systems still make the bulk of PC sales and Dell has diversified its product portfolio by including printers and PDAs, however since the market dynamics have changed, Dell needs to focus again on their ideology of servicing client’s requirements along with fixing its house (Fajt, 2006). Companies such as Apple have created an innovative trend to transform everyday common computer products into entertainment systems. The successful turn around of Apple is a testament to the growing market of PCs as home entertainment centres which is simply due to careful market positioning (Beckman and Hirsch, 2001). Dell’s products and marketing do not reflect the understanding of this idea while this idea has been picked up by competitors such as HP and Acer. Even though Dell is not a primary mover in many categories, it can still capture market share based on their core competency of JIT supply chain and direct contact with customers (Margulius, 2006). Apple offers a well integrated home entertainment solution while products based on ‘wintel’ computers are still along the lines of ‘assemble your own’ by buying components (PC Magazine. 2006). Being in the position the company is, Dell can target the small but growing market by providing a completely new digital home entertainment system range of personal computers in the future. One of the largest PC sales segments is the corporate segment which require standard configuration PCs in high volume. This decreases the production cost and raises volume orders thereby increasing profitability. Therefore, this is the PC market segment Dell has been focusing on even at the cost of some of its home based PC consumer business since the returns from the business sector are significantly higher (Lee, 2006). If Dell can increase its market share in this segment it could outperform its competitors in an overall standing. However, many companies have reduced their hardware upgrades in recent times and are focusing on increasing productivity from their existing computers. More importantly, the recent technological advancements such as new operating systems do not make it necessary for them to upgrade. Dell therefore needs to provide them with a significantly lower cost alternative which comes with cheaper maintenance costs and higher reliability than the present solutions which the companies are using (Lee, 2006). The Size and Nature of the Market The global computer market is not only difficult to estimate it is almost impossible to calculate when we consider that computers and computer technology may be used in everything from traffic signals to space shuttles. It is slightly easier to calculate the total sums gathered by computer equipment manufactures and then tabulate the amount of money put out by corporations and the public at large for the acquisition of personal computers and related equipment. The market saw the fastest period of growth between the years 1985 to 1995 when new computers were acquired at a blistering pace (Kraemer and Dedrick, 1992). From 1995 to 2005, companies and individuals were more focused on upgrading existing computers rather than using outright replacements (DataMonitor, 2007). In 1985, the global computer industry stood at $164 billion while in 1990 it had grown to $305 billion. In terms of market share in 1990, North America had $119.0 billion while Europe had $109.8 billion (Kraemer and Dedrick, 1992). These figures may sound extremely large but consider the figures of today, they seem quite small. Today the global computer market stands at nearly 400 billion dollars with a compound annual growth rate of 4.8%. Computers systems which do not include PCs gathered $208.2 billion which forms slightly more than half of the market. By the end of this decade, the market is expected to reach $489.1 billion with a significant share being dedicated to computers which are not actually personal computers as we know them today (DataMonitor, 2007). These may be handheld devices such as extremely powerful mobile phones or extremely small multimedia computers. The market can be faced with several issues which affect its future. For instance, it is commonly known that computer equipment and allied hardware are often considered hazardous waste once they have to be discarded or replaced altogether. Dell does this with great benefits to the customers since the recycling plans at Dell are sufficient enough to match the needs of the company (Walsh, 2007). Unless new and more stringent requirements are placed by the industry or the government, it is unlikely that such market factors would affect Dell in the near terms. On the other hand, legal issues such as those surrounding SEC probes or other finance related scandals could certainly create legal issues for the company (Burt, 2006). Things which strongly affect the global market are very likely to shake up Dell’s plan of being the global leader in computer sales (Olenick, 2006). For example, another Asian crisis could negatively affect exchange rates and force Dell to change their strategy in developing countries such as China or India where the marker for computers is expanding rapidly. On the other hand, economic improvements in these countries would lead to more sales in computers which would be good for manufacturers such as Dell. In terms of market growth, the global social situation is certainly upbeat for a company like Dell since they have access to vast growing markets such as India and China along with several manufacturing and research facilities along the Pacific Rim. As these countries improve in social terms, Dell is likely to reap the benefits not only in terms of better human resource availability but also due to the increasing social awareness about home and business computers as well as the value derived from using information technology tools. Positioning of the Products The segmentation of Dell’s products into home and business use shows that Dell is trying to affectively cater to both markets. However, there are several rivalling products coming from various competitive players in the market of which HP is the primary source of competition. Dell has already lost the position of being the world’s biggest computer manufacturer and has been unable to answer the questions being tabled by investors or the competition (Olenick, 2006). Declining customer satisfaction levels have also hurt the business of the company while SEC probes into the accounting processes at Dell have also raised some eyebrows (Burt, 2006). In such situations, the product placement and positioning becomes vital for Dell and while the general idea of having a business range and a home user range might have been affective a few years ago, the present situations shows that Dell is certainly diversifying its offerings by making more products available under the same categories. Dell acquired a specific game computer manufacturing company i.e. Alienware. This was a made to order computer selling company based on similar model to Dell’s but Alienware was primarily servicing high end gaming customers. The acquisition helped in allowing Dell to sell AMD based machines as well as Intel based computers. It has also allowed AMD to make game centric machines such as the XPS range of laptops and desktops for the home users and computer enthusiast. If Dell keeps this up, it can use the global exposure and distribution network which it has to capture a considerably large gaming based market share for the company (Lee, 2007). A part of the home entertainment segment includes the gaming community, which is increasingly demanding latest technology and better performance. Dell has only recently focused on this segment since many of the latest games push normal PC systems to their limits and the gaming consumer is always demanding top end computer systems. It seems that Dell acknowledges this development and has from time to time produced computers which have high end components such as the XPS range for laptops and desktops both (Lee, 2007). Of course, high end products come with high end prices. The business range of Latitude portable computers is much more expensive than the Inspiron range which is more focused on the home market. However, within the Inspiron range, Dell offers the XPS brand which shows portable computers which are outfitted with high end graphics cards and heavy duty processors for gaming (Dell, 2007). On the other hand, the PCs which are focused on the business side of things come with high amounts of RAM for running multiple business applications at the same time but may not include powerful graphics cards since business needs can be satisfied with minimal graphics power (Lee, 2007). Marketing Communications Mix and Costs While Dell uses radio, television, billboards as well as print media to advertise its products, it seems that it lost the battle for the top position of computer manufactures to HP simply due the marketing done by HP in terms of online marketing. It is understood that the internet is extensively used as a marketing tool by various businesses especially technology related companies but it is not clear why Dell did not make the internet a primary focus for their marketing need and went to other channels (Anderson, 2005). HP uses the internet extensively to market their IT solutions in Europe, Africa and the Middle East. HP conducted a market study which showed their analysts that people’s research for IT Products is almost always done on the internet even if the purchase itself is made offline. Secondly, the IT professionals in Europe may conduct several activities online at the same time as conducting their research. Finally, they confirmed that the market segment is heavily targeted by other companies as well therefore their brand image and message will need to stand out amongst other messages to hold any meaning for the average IT guru in a mid size company (Gates, 2005). Naturally HP went for online brand imaging in a big way. Online banners were on top of their agenda and they created banners in thirteen different languages for covering almost all regions of Europe. HP was also heavily involved in pay per click search engines ads and they knew that more than three fourths of their market exclusively uses search engines to locate IT related products. This placed them in a good position to target certain key words with great significance for IT professionals (Gates, 2005). Dell appears to have banked on their name alone and not focused on getting business customers to their website for a quick view and tour of the product. Of course, getting the user to view the page is only half the battle, HP also discovered that most users go to price comparison pages once they have seen their products. HP partnered with major price comparison engines to provide them with real time data feeds on the lowest prices based on location and quantities available in stock. Additionally, they created their own price comparison engine limited to HP products which showed which of their partners was selling the product at what price. The user would also be able to click on a price and be able to buy the product directly from HP or from a provider as required (Gates, 2005). As an IT solutions provider, such techniques certainly help the image of the brand and show how good the company is in understanding the field it is working in. What HP realized (and apparently Dell did not) was that the small to medium enterprise IT guru is very often an accomplished internet user. They read reviews online, they study prices and feature comparison charts and know how to navigate search engines to conduct their research. This realization made them make certain changes to their advertising and B2B e-commerce setup which resulted in improved sales and better customer retention for their current enterprise clients (Gates, 2005). For HP, what it all comes down to is making sure that the image of the brand remains consistent with the advertising being done for the brand and the technology being used for the placement of the brand. Dell, remaining focused on offline advertising considering online advertising to be little more than creating brand awareness, paid a heavy price with lost returns on investment. Surprisingly, Dell spends a lot more on marketing than HP therefore the effectiveness of their marketing strategy and marketing mix has to be questioned by analysts (AdBrands, 2007). The costs show a very bleak picture for Dell. In 2005, Dell spent an estimated $1.1 billion in global marketing costs which included everything from billboards on the streets of Malaysia to television ads in Europe and America. This figure makes Dell the 28th largest advertiser in the world. On the other hand, the reigning king of personal and business computers, i.e. HP, spent less than $800 million which makes it the world’s 39th largest advertiser (AdBrands, 2007). Clearly, even with less advertising, HP sells more computers than Dell which shows that their marketing mix which focuses on the internet is more successful than Dell’s model for the marketing mix. Conclusion As Dell develops into a greater and stronger company the primary focus of the company should be on the need to diversify its interests into other products and product ranges by aligning themselves correctly with the needs of the market. The personal computer is coming to a mature stage of its lifecycle and more and more entrants into the niche markets as well as competitive forces would squeeze the profits to a very low level in the future. I believe that Dell needs to focus on consumers for consumer related products as well as PCs and on the enterprise clients for total solutions just as Apple has done recently. Of course the mainstay of Apple comes from its consumer related products but there is no reason why Dell can not be the Apple of the enterprise level buyer. I feel that in time, Dell will certainly regain its lost crown and it certainly has the ability to turn the computer world upside down as it has successfully done in the past. Word Count: 3,561 Works Cited AdBrands. 2007, ‘Dell’, [Online] Available at: http://www.adbrands.net/us/dell_us.htm Anderson, E. 2005, ‘The Land of B2B. Brand Strategy’, vol. 9, no. 1, pp. 61-64. Beckman, D. and Hirsch, D. 2001, ‘Mac Is Back in Town’, ABA Journal, vol. 87, no. 8, pp. 70-72. Berfield, S. 2006, ‘The Worst Leaders’, Business Week, 4014(1), pg 74–79. Burt, J. 2006, ‘Hits & Misses’, eWeek, 23(50), p. 20-22. Chozich, A. 2005, ‘Managing Technology; Appearances Are Deceiving’, Wall Street Journal. 19 Sep, p. R7. 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