Critical Marketing Issues of Dell - Research Paper Example

CRITICAL ISSUE IN MARKETING A Theoretically-underpinned Analysis of the Critical Marketing Issues of Dell (1998)’ TABLE OF CONTENTS 1. INTRODUCTION ……………………………………….…… 3 1.1 Dell: Market Overview ………………..………………….. 3 1.2 Dell: Marketing Concepts ……………..………………….. 3 2. FINDINGS ……………………………………………….…… 4 2.1 ‘Going Direct’ Model- (Finding- 1). ………..……………. 4 2.1.1 Greater efficiency and Cost advantages……. 5 2.1.2 Flow of Information………………………. 6 2.2 Virtual Integration (Finding- 2) …………………………… 7 2.3 Customer Focus (Finding -3) …………………………….. 8 2.3.1 Identifying the Customer …………………… 9 3. DELL MARKETING ANALYSIS …………………………. 10 3.1 Porter’s Five Force Analysis …………………………….. 10 3.2 Market Orientation (Kholi and Jaworski)…………………. 11 3.3 Market Metrics (Ambler) …………………………………. 12 3.4 Global Marketing (Levitt) …………………………………. 13 3.5 Social Marketing ………………………………………….. 13 4. CONCLUSION ………………………………………………. 13 5. REFERENCES………………………………………………… 14 1. INTRODUCTION 1.1 - Dell: Market Overview Dell Inc, started on November 1984, has grown to become the largest PC maker and seller in the world by 1990 with its strong marketing vision of ‘going directly’ to the customers. Michael Dell, the founder and current CEO of Dell, started his lucrative business with systematic process of giving high-quality computers to the customers at competitive price. According to Holzner (2005), Dell, from its very early years, focused on providing computers as quickly as possible backed by great services (p. 4-6) With its marketing mission to provide customers with superb value and high quality computers, Dell could rank 34th in the Fortune 500 companies by 2008. Dell employs more than 63,000 people in more than 170 countries. 1.2 - Dell: Marketing Concepts Dell has been selling its computer products using a direct-sales model with the help of internet or telephone network to both its end-use or corporate customers. With direct model distribution strategy, Dell has been eliminating middlemen mark ups, inventory handling expenses and risk associated with it and thus it benefited substantial cost advantages. This direct model marketing strategy led Dell directly to achieve great success in the worldwide PC market. By 2008, Dell held second spot in the worldwide PC market behind the Hewlett-Packard Company. The direct model, as a result, uses innovative information technology and customer relationship management in order to capture data about its customers. Dell’s marketing concept has been primarily driven by Virtual Integration in which specific marketing ingredients like customer focus, supplier partnership, just in time manufacturing are well organized. Dell applied negative cash conversion cycle which means that Dell was able to receive payments from customers well before it has o pay for the materials needed. This report presents a case analysis of marketing strategies that have been practiced by Dell in order to gain competitive advantages. It is mainly based on the interview held by Joan Magretta (1999) with Michael Dell regarding the marketing strategies and success keys of Dell. This work finds out most important strategic keys direct business model, Virtual integration and customer focus of Dell from the interview and these are underpinned with the help of relevant marketing theories. 2. FINDINGS This section describes Direct Business Model, Virtual Integration and Customer Focus as the basic marketing strategies that have been applied by Dell for the last two decades. How Dell could create a unique success story of its own market within a short marketing period and how it could uncover all the marketing opportunities even from the extreme fierce competitive environment are emphasized in this section with relevant marketing theories. 2.1. - ‘Going direct’ model - (Finding- 1) Direct Model has been considered to be the backbone and valuable growth tool that Dell achieved through its marketing pathway. Thomas B (2002) stated that Michael Dell was pursuing direct business model one step further with his virtual integration model. Dell was using web technology to blur the traditional boundaries and limitations in the distribution channels between suppliers, manufactures and customers (p. 163). 2.1.1 - Greater efficiency and cost advantages Dell’s direct business model resulted in a particular supply management system that helped maintain just enough inventories so as to satisfy customer requirements. John Magretta (1998) identified the way most firms face inefficiencies in their marketing process that if there is a 90-days lag between the points of demand and supply, it is going to be of greater inefficiencies (p.119). Dell’s model shows the power of channel it has used and it was powerful even to influence rival’s decision processes. Paley (1999) argued that Just in Time (JIT) delivery had been practiced by Dell in 1980s that in turn became the differentiating point of its direct market going approach and it thus resulted in greater marketing advantages (p. 374). With direct going perspectives, Dell has created a product strategy with efficient inventory management system. Only most widely used computer components needed to be stored in the warehouse and this resulted in cost control and gave flexibility towards using price as a tool to undercut competition and to increase its profitability. Dell has specialized in uncovering areas where profits are going up or greater opportunities are there with simple marketing strategy like eliminating intermediary profits and costs. Apart from eliminating intermediary profits and costs, the ‘going direct’ model benefits from eliminating time delays and risks associated with handling inventories. This helped Dell concentrate on using innovative strategies and outstanding technology in order to better serve customers by offering high quality machines. In the very early days of PC marketplace, when PCs were largely sold through retailers, going direct has given Dell great hallmark in the initial times as Dell computers were cheaper as compared to those that go indirectly (Holzner, 2005, p. 5). For these initial years, Dell did not actively pursue consumer markets. According to Magretta (1999), Dell could not reach its profits objectives in the initial years and hence it let its competitors introduce machines. It was like they teach consumers about PCs and at the same time, Dell concentrated on more profitable areas (p.200). The computer industry had been getting so fat and thus becoming careless in their marketplace, while Dell was just looking at the greater possibilities behind it. Dell was stepping up in order to take fuller advantages and going direct business model was forming to be a perfect advertising model as it starts from picking the phone or answering the fax (p. 7). 2.1.2 - Flow of Information The direct business model provides more accurate and real information to the business. As Magretta (1998) describes, when there are longer the distances in channels and more intermediary channels are added then the business is less likely to have good information about demand (p.199). When Dell went directly to customers via phones, fax and websites or emails, it was giving accurate and more useful information from customers regarding the products and services it offers. It helped Dell anticipate demand in more effective way than competitors. Facilitating customization for customers purchasing has been designed to help both customers to decide on their needs and Dell to understand customer behavior more specifically. According to Bidgoli (2004), most computer buyers usually search for information before they buy. Dell’s website allows those buyers to move immediately to their interested areas and decide on purchase. In 1997, Dell received one website visit for every one phone call, and it came to be 3.5 web visits for every one phone call (p. 532). The website visits have been increased day by day resulting customers to know more about Dell’s PCs and Dell to know more about customers’ needs and changing attitudes. The internet and Dell’s own intranet provided flow of information that sent bulk documents and reviews to customers via email. 2.2 - Virtual Integration (Finding- 2) Magretta (1998) describes virtual integration as stitching together a business with partners who are treated as if they are inside the company (p. 194). In the virtual integration model, the value chain links are brought together by informal arrangements between suppliers and customers. Dell’s Virtual Integration model has been attracting many marketers because; companies would be able to get customers and entire value chain online. The ‘going direct’ business model has allowed Dell to leverage the relationship and thus to enhance Virtual Integration in its strategic perspectives. According to Rainey (2005), in Dell’s virtual integration model, suppliers assign engineers to a designing team and these engineers are treated like Dell’s own employees. From the customers’ point of view, virtual integration means ongoing market segmentation in order to give Dell better customer focus (p. 419). With virtual integration strategy, Dell was able to deal suppliers and customers as if they are parts of Dell allowing them to function more effectively. Dell’s virtual integration combines the advantages of two different business models. It provides the benefits of a tightly-coordinated supply chain of vertical integration. The virtual integration, at the same time, benefits from the specialization that has been driven by virtual organizations. One of the advantages of virtual integration is that it offers exceptional opportunities for individual dialogues, learning relationship, mass customization and just in time manufacturing (Gronstedt, 2000, p. 214) Virtual integration directly results in a healthy collaboration that has been considered to be a recent trend in marketing concepts. According to Gary Fields (2004), the relationship imperatives of virtual integration have profound results on supply chain, mainly because of that virtual integration requires a close collaboration with component producers and this has forced Dell to consolidate its supply base (p. 200). Collaboration or healthy relationship with suppliers helps share tacit knowledge among them in order to work together to accomplish certain goals. Dell has followed strong rule that it had minimum number of partners. As long as partners or suppliers perform well, Dell will continue maintaining relationship with them. Dell’s virtual integration was, in that way, a flexible tool that allows them to stitch between suppliers as and when it is so required. 2.3 - Customer Focus (Finding- 3) Maximizing the profits by reducing the expenses has been one o the fundamental objectives and main focus of corporate strategies for years. But, within last few decades, the whole marketing strategy has been turned towards achieving business success by focusing on external factors like customers. The customers, then onwards, largely affect decision process and product specification or designing and thus customers have been considered to be the ‘boss’ in the market by many marketing researchers. Dell is an enlightening example that applied ‘customer focus’ strategy from its very early years of marketing. When Michael Dell started his ‘direct going’ strategy, the main goal was directly getting in to customers in order to know them more effectively. The virtual integration strategy applied by Dell encompasses the customer as an individual piece of it. Holzner (2005) emphasized that, in the early times of PC market, marketers were concentrating on technology and whether customers wanted such machines remained a secondary issue. Dells’ early competitors did not have much focus on customers side, but in the long run, Dell won out with its customer focus strategy (p. 46). Dells’ early competitors did not much concentrate on customers because the market was very hot and, still, the machines were sold out. 2.3.1 - Identifying the Customer Identifying customer plays foremost role in ‘customer focus’ strategy and in Customer relationship management. Only when customers’ need and wants are recognized and changing attitudes are better measured, the business can say that it is ‘customer focused’. It includes collecting data regarding customers’ profile or gathering information that have been used by others in order to make use of it to enhance customer oriented business strategies. The Dell example shows that direct business forms to be a direct way for information inflow. Many companies recently have extended their database including customers’ profile, demographics, products they purchased, responds towards certain products and features. This data has been used by management and marketing or strategic decision makers to determine market trends, customer preferences, service and helps required by customers etc (Brian Foss, 2001, p. 3). Dell was extremely rich with information that it gathered from customers who contact Dell via phone, fax or website visits. Every website visit formed parts of Dell’s strategic decisions. It helped them design its machines and include as many features as customers need. Dell’s website offered customizing option to the customers that in turn enabled Dell to identify the preferences of customers. Dowling (2004) argues that dell’s customer value proposition can be termed as a customer-designed product at highly competitive price (p. 57). Dell, by eliminating middlemen profits, costs and risks associated with more inventory handling and by applying just-in-time manufacturing strategy, it could cut down its overhead expenses and this helped Dell to make their PCs more competitive in the market. This is the way Dell focused on customers as there were greater demand for competitive computers. 3 - DELL MARKETING ANALYSIS 3.1 – Porter’s Five Force Analysis The Five Force analysis brought by Michael E Porter (1979) helps a marketer contrast its competitive environment and analyze its operational efficiencies. The Figure above shows Dell’s five force analysis that helps determine the severity of the competitive strategy in its marketplace. The Dell’s five force analysis would help determine the competitive intensity and identify Dell’s strategic effectiveness within its micro and macro environments. Dell always concentrated for Direct Model which shows its free flowing approach towards distribution that resulted to increase brand loyalty and awareness among the target customers. Being second largest in Worldwide PC market with increased opportunities of supply chain shows how successful Dell can be in its marketplace. Customer focus resulting customer satisfaction forms to be of greater benefits to retain the brand awareness. Dell can enjoy advantages of going direct strategy, just in time manufacturing and virtual integration strategies. 3.2 - Market Orientation (Kholi and Jaworski) The term market orientation has been used to refer to the implementation marketing concepts. Customers have been traditionally considered to be the principal factor and basic focus of a market- oriented firm. According to Kholi and Jaworski, “a market-oriented firm is one which has adopted marketing concepts”(Hart, 2003, p. 99). Kholi and Jaworski embraced broader concepts on market orientation and they included other factors that largely influence customers’ needs like competition and government regulations. Customer focus and coordinated marketing were considered to be the two pillars of marketing orientation concept. According to Kholi and Jaworski, market orientation comprises of three organization wide activities that are market intelligence generation, the dissemination of this intelligence across firms departments and the responsiveness to the intelligence (Hart, 2003, p. 100) Dell’s market strategies prove that it is basically market oriented. The main factors that Michael Dell gave priority from the very early years were customer focus and coordinated marketing. The virtual integration applied by Dell shows how Dell could coordinate ‘going direct’ model and its competitive supply chain more effectively. Dell remains to be an example for market oriented firm as its marketing processes were successful to generate intelligence through its ‘going direct’ and virtual integration strategies. Its operation was highly successful to circulate this intelligence across the departments through information flow and documents handling assisted by intranet facilities inside the firm. The dells’ success story itself is the response to its intelligence created. 3.3 - Marketing Metrics (Ambler) Ambler (2001) believes that marketing metrics are the keys of providing insights to check whether the brand asset has truly grown or not (Jain, 2003, 447). The marketing metrics fell in to a number of categories like awareness, market share, consumer satisfaction, relative price, distribution and loyalty etc. In the case of Dell, it can be observed that its virtual integration strategy shows how it has responded towards the marketing metrics concepts. Dell held first or second leading share in Worldwide PC market with its strong customers base through its ‘direct going’ strategy. Dell is an illuminating example for creating better awareness among its targeted customers and gaining their satisfaction. The number of customers, regardless of end- user or corporate, is very large and its services are profound. These metrics show that Dell’s brand has grown leading to its longer time profitability. 3.4 - Global Marketing (Levitt) Theodore Levitt viewed Global Marketing with the following preposition. “If a company forces costs and prices down and pushes quality and reliability up- while maintaining reasonable concern for suitability- customers will prefer its world-standardized products” (Applbaum,2004, p 79). Dell, with its strong strategic perspective of going direct, could cut down middlemen costs and risks associated with it and make its products more competitive in the worldwide market. Dell has concentrated much on increasing the standard of its machines with innovative technologies and pushed the quality and reliability of its machines. Within just two decades, Dell created a worldwide customer base that prefers Dell machines to others due to its increased reliability 3.5 - Social Marketing According to Andreasen (2001), “social marketing is the application of marketing technologies developed in the commercial sector to the solution of social problems where the bottom line is behavior change”(p. 71). Social marketing is looking at assumptions that there are always behaviors that are worth changing and this is the responsibility of society to help people make the right choice. Dell has been focusing on customers not only as to help make demand forecast but also as to help society satisfy with their ever changing PC requirements. It shows that Dell case is a social marketing example as well. 4. CONCLUSION Michael Dell started thinking of business once his father bought an Apple computer for him. Within the next three years, he became a computer seller and within few years his business became one among Fortune 200 companies. Dell’s success story has enlightened many marketing strategic perspectives. It was Michael Dell who went direct to customers rather than approaching many middle men and making its machines costly to customers. Dell, thus, has turned to be a ‘go direct’ model. Suppliers are treated as if they are inside Dell and thus it became an example for ‘virtual integration’. The go direct and virtual integration have resulted in effective ‘customer focus’ strategy that helped Dell gain with highly volume of information inflow. This report presents the strategies that led Dell to be highly successful in its PC market. This work finds three strategic dimensions that are direct model, virtual integration and customer focus. This work presents and analyses how Dell applied Global marketing, Market oriented, Market Metrics and Social marketing ideologies. REFERENCES Andreasen AR (2001), Ethics in social marketing, Georgetown University Press Applbaum K (2004), The marketing era: from professional practice to global provisioning, Edition: illustrated, Routledge Bidgoli H (2004), The Internet encyclopedia, Edition: illustrated, John Wiley and Sons Dowling GR (2004), The Art and Science of Marketing: Marketing for Marketing Managers, Edition: illustrated, Oxford University Press Fields G (2004), Territories of profit: communications, capitalist development, and the innovative enterprises of G.F. 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