Strategic Marketing Management of Dell Essay Example

Dell's continued dominance in the computer industry.

Dell, established in 1984 by Michael Dell, started by upgrading IBM compatibles for local businesses in Texas. Dell's concept was simple: selling computer systems directly to customers enabled a better understanding of their needs and allowed the company to efficiently provide the most effective computing solutions. This direct business model omits retailers, which can add unnecessary time and cost, or disrupt Dell's comprehension of customer expectations.

Dell's direct model allows them to offer customized and fully-configured systems at competitive prices, giving them an advantage over companies with slower indirect distribution channels. With an average inventory turnover of three days, Dell is able to introduce the latest technology faster than their competitors. By 2000, Dell had achieved impressive growth, surpassing $25 billion in sales and generating over $2 billion in net income. However, the sluggish economy in late 2000 resulted in a negative 10% growth rate for the PC industry. Despite this challenge, Dell's wide range of products (such as PCs, workstations, servers, and storage products) allowed them to maintain profitability through difficult decisions. The company consistently outperforms major competitors by balancing growth with profitability and liquidity, which has generated high returns for shareholders. Both Dell and the computer industry as a whole face challenges going forward due to the weak economy.

However, Dell's economic issues are typical and prevalent among all companies in any sector. What sets Dell apart is its challenge of sustaining its dominant position and achieving ambitious growth rates in a particularly unfavorable economic climate. This situation is worsened by terrorist threats and economic uncertainty, causing consumers to be hesitant and reduce spending. Given these

circumstances, Dell may be confronted with the dilemma of whether to stick with its current strategic approach or make significant changes in order to meet its growth targets.

Despite the challenging landscape, Dell Computer appears to have a more favorable outlook compared to its competitors. Dell's approach to business centers around several key factors, including manufacturing products based on customer specifications, offering personalized options at a large scale, forming strategic alliances with a limited number of suppliers, maintaining efficient component inventories through just-in-time practices, directly selling to customers, targeting specific markets, prioritizing customer service, staying attuned to market trends, embracing the internet early on, minimizing operational expenses, and fostering comprehensive data and information exchange with both suppliers and customers.

The company aimed to achieve "virtual integration" by connecting Dell's business with its supply partners and customers in real time, creating a cohesive organizational team. To properly understand Dell's success so far, four key components are crucial: 1. Supply Chain Efficiency: e-Business is similar to any other business in the sense that maintaining an advantage is necessary.

Dell believed that an improved supply chain would contribute significantly to its long-term success. By extending its build-to-order model from suppliers to customers, Dell aimed to maximize operational efficiency and customer satisfaction, while promptly responding to market changes. The goal was to eliminate inventory shortages and overages. Additionally, Dell needed to ensure the availability of the right computer system components at the right time and place for building each customer's desired machine. The cost savings resulting from an efficient supply chain could be passed on to customers, helping Dell maintain a competitive advantage in both good and bad economic

times.

Dell has successfully implemented a supply chain software that enables them to acquire inventory from suppliers in real-time through the web. This allows them to bring materials into their factories every few hours based on customer orders, resulting in a minimal amount of inventory at any given time. This gives Dell an advantage over competitors. Additionally, Dell's segmentation approach enhances customer service efficiency and allows for customized product creation for each customer segment.

It can be inferred from the case that customers, particularly in the new millennium, possess more knowledge and awareness about various PC products and technological advancements in the industry. As a result, it is undeniable that the PC industry has shifted from focusing on "what industry ant" to catering to "what the consumer want." This realization motivated Dell to establish a company that would serve this purpose and ultimately led to Dell's remarkable success in the industry through its Build-to-order model.

One of Michael Dell's strengths was his ability to identify untapped opportunities in the computer industry. Dell's strategic timing in entering the PC market, establishing Dell.com as an online platform, and later venturing into the storage and server market, proved to be perfect moves as they allowed Dell to quickly gain momentum and solidify its position as the top PC manufacturer globally. For instance, in 1996, Dell recognized promising opportunities such as the rapid growth of server usage among corporate customers, high profit margins from server sales, and the understanding that purchase price was not the primary factor influencing server selection. This understanding led Dell to enter the market for low-end or entry-level PC servers, where service, support, and software

were of greater significance.

Dell achieved growth in profit and market share by acquiring shares from competitors HP and MOM. This led rival companies to speculate on Dell's next target. Furthermore, Dell implemented a Direct Model, which involved producing computers, workstations, and servers on demand without maintaining any inventory. This approach enabled customers to personalize their servers and workstations based on their specific application needs.

Customers who purchased desktop and laptop computers from Dell had the opportunity to personalize their configurations by choosing the microprocessor speed, RAM, hard-disk capacity, CD-ROM drive, fax/modem, monitor size, speakers, and additional accessories they wanted. Unlike competitors who adhered to the traditional value chain model, Dell did not have to wait for resellers to sell off their current inventory before introducing new models. Furthermore, customers who bought from Dell were satisfied with the fact that their computers were tailored based on their specific preferences and budget.

Therefore, this aided in effectively serving consumers, reducing production time, receiving immediate consumer feedback, and building enduring relationships with diverse customers. (Exhibit 1 displays a poster displayed in every Dell office, Dell.Com). The subsequent model merely demonstrates Dell's positioning in relation to its competitors within the number of channels/Product anger matrix. Number of Channels IBM Many Dell Gateway Narrow Broad Product Range 1. Environmental Analysis The comprehensive environment in which the Dell Corporation operates encompasses trends/influences that may potentially affect the company.

An evaluation of the environment involves analyzing Coloratura Forces, Economic Forces, Technological Forces, and Company culture/Competition Forces. In each of these four areas, we assess the most significant trends/influences and determine the optimal strategies for addressing them in our SWAT analysis. A.

Coloratura Forces: Dell's segmentation strategy enables it to effectively target different customer groups, such as corporations, educational and government institutions. These segments account for 60% of Dell's sales and offer longer payment periods. Dell faces competition from rivals such as MOM, HP, and Compact.

Small and Medium Business make up 30% of sales and are a growing market segment that has not yet been fully tapped. Consumer Business, on the other hand, accounts for approximately 10% of sales and is price sensitive. However, it generates more cash due to the nature of payment. Dell's main competitors in these segments are HP, Compact, and Gateway. Dell also recognizes the importance of expanding into international markets to sustain growth, as currently only 5% of their revenues come from abroad.

To target these international markets, Dell utilizes a mix of direct and indirect selling strategies. In Western Europe, direct selling is employed with a 9.5% market share. Fajitas Siemens and Compact are the main competitors in this region. In APAC/Japan, direct business is utilized with a very low market share but high market growth and intense competition. In Latin America, the direct model is used with a smaller customer base. The Rest of the World segment relies on indirect selling due to government regulations, barriers, lack of infrastructure, and insignificant growth.

This segmentation has positioned Dell as the market leader in the US, where it holds about 25% market share. The differences in the size, frequency, and purpose of purchases determine the variations between customers within the US market.

S. 9 different segments. B. Economic Forces: The primary factor in this area is the weakened economy and slow consumer

spending. Although Dell achieved an impressive return on invested capital of 355% in 2001 and experienced increased growth, its total revenue for the fiscal year 2001 significantly declined to $23, MOM from 1999's $31,888 Mil. This drop is primarily attributed to Dell's aggressive price cuts, which we perceive as detrimental to the company as they negatively impacted both sales and brand image. Another economic force that poses a challenge is the threat of competition.

With the PC industry becoming increasingly competitive, there is a possibility of a significant merger between two rival companies or a hostile takeover by a competitor. Dell has successfully attained server market dominance, capturing 25.5% share by leveraging advanced technology and meeting strong demand in the server and storage sectors.

Competition Forces: The PC market has 5 major competitors, with Dell leading the pack with a 24.6% market share. Dell sets itself apart from its competitors thanks to the entrepreneurial spirit of Michael Dell, who invented the Direct Model. This model allows Dell to custom-build computers based on consumer reference, giving it a competitive edge. (Exhibit 3 displays Dell's competitive advantages over its competitors) Dell positions itself as the market leader, supplying PC products to various segments with diverse needs. Additionally, Dell positions itself as a relationship company.

The text presents a compressed SOOT analysis that focuses on the internal and external conditions relevant to the situation. It highlights Dell's strengths, such as its dominant market share in the computer industry. Tables C, D, and E in the case demonstrate Dell's leading position in all major product categories compared to its competitors. Additionally, Dell's emphasis on Just-in-time inventory management resulted in

significant cost advantages and faster introduction of new computer models to the market.

The rapid progress of computer parts and components like microprocessors, disk drives, and modems caused inventory items to become obsolete quickly. The Direct Model is the foundation of Dell's triumph and power. It focuses on customers and utilizes direct communication. With a team of experts, Dell provides customers with great value, customized technology, outstanding service and support, as well as user-friendly products and services.

The combination of increased cost efficiency and improved customer relationships has made Dell more competitive. Moreover, Dell leads the industry in Internet sales. The exceptional Dell.com website has played a significant role in enhancing business contacts, streamlining manufacturing processes, and effectively delivering its acclaimed products and services. Nevertheless, the company's low inventory and dependence on a small number of suppliers serve as both a source of pride and a potential weakness due to heavy reliance on component suppliers.

Dell's inventory supplies and efficiency would be impacted if one or more companies go bankrupt. Despite operating with the lowest budget in the industry, Dell's sales opportunities and growth may suffer. However, there are favorable prospects in Europe and Asia that can allow Dell to expand and gain momentum. Additionally, due to its cost-effective approach and advanced technology, Dell is capable of delivering superior products at a competitive price compared to its main competitors.

Dell has the opportunity to increase its growth rate by tapping into the high-end server market. One way to achieve this is by acquiring Gateway, a struggling competitor. This acquisition would not only help Dell gain a larger market share but also eliminate one of its

rivals. Furthermore, it would allow Dell to transfer technology from Gateway to enhance its own capabilities. In addition, Dell can leverage its knowledge and expertise in consulting services, which have become an appealing field for corporations. By offering services to target markets or other companies, Dell can further expand its business.

Over time, this strategy has proven effective for companies. Nevertheless, Dell must take into account various risks. The computer industry is currently experiencing intense competition in the US and abroad, making it challenging for Dell to venture into new products like storage and servers. Moreover, currency fluctuations in foreign countries may harm the company, resulting in substantial costs if a country's currency loses value. Additionally, political instability and trade barriers could also have adverse effects on Dell.

If a domestic Japanese computer manufacturer is surpassed by Dell in Japan, the option for Japan is to impose tariffs and additional taxes on Dell's products in order to provide support for Japanese companies. Furthermore, Dell stands out from its competitors through its acclaimed customer service, exceptional growth within the industry, and consistently impressive financial performance. One of its strengths lies in offering potent and well-designed systems at competitive prices through efficient procurement, manufacturing, and distribution procedures.

Dell customizes every system to meet customers' specific requirements, guaranteeing satisfaction. Their renowned reliability and personalized customer service contribute to their success. Dell's efficient inventory management allows them to promptly introduce cutting-edge technology while keeping expenses minimal. In recent years, Dell common stock has nearly doubled in value, offering exceptional returns for shareholders.

Dell's direct customer focus has led to its success as a top-performing stock from 2000 to

2001, with 243% and 355% returns on invested capital. The constant interaction with customers allows Dell to understand and cater to unique computing needs that drive productivity for individuals and enterprises. To achieve the $60 Billion sales target, several strategic options need to be considered.

We would assess each alternative individually to determine which one would achieve the desired level of profitability. One of the alternatives is to solely concentrate on the four main core products (Desktops, Laptops, Workstations, Servers). This option proposes that Dell should prioritize operations related to these products and potentially downsize or divest its investments in International and service portfolios.

Alternative #2 - The second alternative proposes focusing on four major products (Desktops, Laptops, Workstations, Servers) as well as International and Service Portfolio Investments. This approach suggests that Dell should continue its current strategies but with minor improvements such as expanding international business, offering more services, and enhancing their operations in the four major product lines. In order to evaluate these marketing alternatives, the following decision criteria were chosen. We will first examine the economics and some numerical data.