Dell's e-Marketing Strategies to Enhance Competitiveness

1.0 Introduction to Dell Asia Pacific Sdn.

Dell Asia Pacific Sdn. is a private and fully owned subsidiary company of Dell Inc., USA. In 1984, Michael Dell, from his dorm room at the University of Texas, Austin, began to assemble and sell PCs to college mates and to the surrounding small businesses i.e. direct to users. Four years later, in 1988, Dell went public with revenues at USD59 million and 650 employees.

Today, Dell Inc. is a USD56 billion revenue multi-national corporation with a market capitalization of more than USD50 billion. Worldwide employee headcount is over 50,000, with over 3,000 in two facilities in Penang, Malaysia.

Dell, well known for its direct business model and extensive usage of information and communication technologies and the Internet is often studied and quoted, or selected for case studies in management, marketing and information technology journals, professional magazines, books, and research.

2.0 E-Marketing Strategies to Enhance Competitiveness

How does Dell continue to maintain market leadership and profitable growth? How does it continue to reach out to customers in existing and new markets? Since we know that Dell extensively uses information and communication technologies and the Internet in its direct business model, let us first map out its business competencies i.e. its strength and unique capabilities, and then explore the types of Internet marketing or e-marketing strategies employed by Dell.

Using the Sloan School of Management’s Delta Model, Figure 2.1 shows the business competencies presently enjoyed by Dell. The Delta Model maps or identifies three major categories of an organization’s core competencies:

• System Lock-In
  The ability of an organization to “lock-in” customers i.e. increase loyalty and repeat patronage through business processes, offline and online exchanges.

• Best Products
  Products and services perceived by customers as superior to others in the areas of feature and functionality, quality, after sales services, value and price proposition through differentiation and/or cost leadership.

• Total Customer Solutions
  The ability of an organization to offer and deliver integrated solutions to meet customer needs and satisfaction. Solutions comprises of products or services, products coupled with services, and customer integration and engagement business processes.

2.1 Marketing Knowledge in E-Marketing Strategy

Internet marketing or e-marketing strategies can be defined as “the design of marketing strategies that capitalizes on the organization’s electronic or information technology capabilities to reach specified objectives.” [Strauss et al, 2006, pg. 41]

With the use of information and communication technology, Dell’s customer information and history are stored in a data warehouse and are easily retrieved online or for reporting needs. The data warehouse system also represents the core repository for Dell’s marketing knowledge management (KM) system and customer relationship management (CRM) system, where customer trends and behaviours are data mined and analyzed for strategic sales and marketing planning and customer retention and service programmes.

2.2 Consumer Behaviour

Understanding the consumer behaviour well is imperative for Dell. Dell uses the Dell Direct Model to deliver the best customer experience to both offline and online customers. The deliverables of the customer experience objective are:

• Best value proposition
• Highest quality and most relevant technologies
• Customized systems
• Superior, tailored service and support
• Products and services that are easy to buy (online 24x7) and use

2.3 Segmentation and Targeting Strategies, and relationship to Product and Pricing Strategies

Dell segments customers into two major groups i.e. Relationship and Transactional. Relationship customers are customers who buy repeatedly and in larger quantities or value, while Transactional customers are customers who buy less frequently and in smaller quantities or value. Both Relationship and Transactional customers are further sub-segmented. Table 2.1 shows the segmentation strategy used by Dell.

Each sub-segment is service by a team of internal sales representatives. Both the Relationship and Transactional segments also own their respective marketing teams who formulate and develop marketing programmes to target the appropriate sub-segments. Furthermore, Dell also employs account managers to manage all Relationship customer accounts.

In targeting offline customers such as those in the Relationship segment, Dell typically engage the customers using direct sales and telesales teams, supported by custom configured Websites known as “Dell Premier Pages” that are specific to the customer account. The Premier Pages enables the customer’s purchasing department personnel to browse a catalogue of products and services containing pre-agreed product and service specifications and pricing, place orders and track order status. Premier Pages can also integrate with the customer’s purchasing system via electronic data interchange (EDI). [Dell, 1999, Pg. 98, 147 – 148]

Dell uses telesales teams and http://www.dell.com/ to target Transactional segment customers. Dell’s online approach to target this segment is via mass marketing. Transactional segment customers are also encouraged to call in using toll-free numbers.

Thus, Dell’s product and pricing strategies are formulated to support the above segmentation and targeting strategies. Product and service offerings are varied and also priced differently between Relationship (where higher volume exists) and Transactional segment customers. Online Transactional customers typically experience segmented pricing that are sales promotional driven via http://www.dell.com/; online Relationship customers enjoy pre-agreed negotiated pricing via Premier Pages; and offline Relationship and Transactional customers enjoy negotiated pricing – all real world examples of dynamic pricing strategy.

2.4 Differentiation and Positioning Strategies, and relationship to Product and Pricing Strategies

With the Dell Direct Model, Dell does not only strategize to be the low cost leader of computer hardware products, but also differentiates its computer hardware offerings, ranging from PCs and notebooks to workstations and servers to other peripherals such as storage, network switches, printers, enterprise software, etc.

For e.g. Dell offers two lines each of personal computers (PCs) and notebooks, namely Optiplex™ and Dimension™ PCs, and Latitude™ and Inspiron™ notebooks. The Optiplex™ and Latitude™ product lines have a longer product roadmap lifecycle, thus more stable and helps meet corporate customers’ asset stability and depreciation lifecycles. In contrast, the Dimension™ and Inspiron™ product lines have shorter product roadmap lifecycles, thus experience more frequent new technology updates and introductions.

Further product differentiation at customer level is possible via “ChoiceBoards” available during the online buying process that enable customers to self-select or change the product configurations for e.g. opting for 512MB of main memory instead of the default 256MB main memory, or selecting a 80GB hard disk instead of the offered 60GB hard disk, or to include a colour inkjet printer. ChoiceBoards enables mass customization. [Slywotzky, 2000, Pg. 60]

A differentiation strategy requires the products and services to become differentiated for different customer segments, thus again this results in and support the need for a dynamic pricing strategy. With the Dell Direct Model, Dell positions itself as engaging the customers directly without traditional sales channel intermediaries. Dell develops direct relationships with the customer in order to:

• Establish the most efficient path to the customer
• Become a single point of accountability
• Develop build-to-order efficiencies
• Become a low cost leader
• Offer standards-based technologies

2.5 Distribution Strategy

In the supply chain management process, Dell employs the direct distribution channel strategy beginning with its suppliers of materials and components, Dell as the assembler, and sells directly to the customer either via offline means e.g. telesales and field sales and/or online via the Internet acting as the cyber-intermediary or cybermediary.

Since Dell’s products and services are not digital products that can be delivered or transmitted across the Internet to the customer, product delivery or shipment fulfillment is outsourced to a logistics service provider for e.g. DHL, FedEx. Figure 2.2 shows the Dell direct distribution channel strategy.

In the direct distribution channel strategy, Dell is responsible for the transactional functions that involve contact with buyers, marketing communications, matching products to buyer’s needs, negotiating pricing and process transactions; and facilitating functions such as market research. Logistical functions are outsourced.

In the upstream portion of Dell’s direct distribution channel model, Dell utilizes B2B e-commerce and EDI technologies with its suppliers, while B2C e-commerce and EDI technologies are deployed in the downstream portion of the distribution channel supporting traditional telesales and field sales activities.

2.6 E-Marketing Communication Strategy

The major e-marketing tools adopted or deployed by Dell in its e-marketing communications strategy are:

• e-Mails
• Permission marketing e.g. opt-in or opt-out promotional e-flyers (in addition to print media e.g. newspaper ads, flyers and direct mailers)
• e-Loyalty programmes e.g. e-Coupons
• Internet advertising e.g. banner ads, keyword search, sponsorships
• Links to online independent product reviews and technology e-magazines
• http://www.dell.com/ website landing pages, information search and shopping experience
• http://www.direct2dell.com/ blog site
• http://www.ideastorm.com/ website for customers to contribute ideas and suggestions
• “Voice of the Customer” e-mails i.e. electronic word-of-mouth endorsements

2.7 Relationship Management Strategy

Dell also utilizes information and communication technologies to support its relationship management strategy. Both customer relationship management (CRM) and partner or supplier relationship management (PRM) software and processes are in place and practiced.

However, relationship management extends beyond using CRM or PRM software to the ability to develop a continuous learning organization and knowledge management culture that will contribute to long-term relationship-oriented results that truly matters.

2.8 Using the Internet to Reshape the Competitive Environment

Dell is able to utilize Internet marketing or e-marketing strategies to impact the competitive forces as follows:

Impact on Competitive Rivalry

The Internet widens the geographic market, thus increasing the number of rivals a typical brick-and-mortar company faces. With economies of scale, increased communication, service and support quality, execution and delivery speed, Dell increases the competitive pressure against competitors.

Impact on Entry Barriers

Entry barriers into the e-commerce marketplace are relatively low. However, while any organization can formulate and implement Internet marketing or e-marketing strategies to try to establish or sustain competitive advantage, few organizations can actually execute the strategies as well as or better than Dell’s track record to date. Competitive advantage is achievable only through a high degree of success in strategy execution and organizational culture development to build core competencies.

Impact on Buyer Bargaining Power

Dell understands that the Internet makes it easy and convenient for customers to gather extensive information about competing products and brands, and to shop for the best value deals. Dell is also a customer – it can join online buying groups to pool their purchasing power together to secure significant volume discounts.

Impact on Supplier Bargaining Power and Supplier-Seller Collaboration

With e-procurement and e-bidding systems via the Internet, Dell can source beyond its national boundaries for the best suppliers and to collaborate with them to achieve efficiency gains and cost savings.

Overall Influence on the IT Industry’s Competitive Structure

While Internet marketing strategies can drive important shifts in competitive forces – intensified rivalry, greater entry threats, somewhat greater bargaining power over suppliers, a better bargaining position for buyers, and strategic collaborations – it only allows a company to enhance its profitability and gain competitive advantage to the extent that the company can clearly do a better job of capitalizing on Internet technology compared to its rivals.


References:

Dell, Michael, with Catherine Fredman. (1999). Direct from Dell: Strategies that Revolutionized an Industry. New York: Harper Business

Holzner, Steven. (2006). How Dell Does It: Using Speed and Innovation to Achieve Extraordinary Results. New York: McGraw-Hill

Kirkpatrick, David. (October 28, 2002). “Can anyone compete against Dell?” Fortune, Vol.146 No 7, pg.42 – 48

Magretta, Joan. (March – April 1998). “The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell.” Harvard Business Review (Reprint 98208), pg.72 – 84

Park, Andrew, with Peter Burrows. (November 3, 2003). “What you don’t know about Dell.” BusinessWeek (Asian Edition), pg.56 – 64

Porter, Michael E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press

Saunders, Rebecca. (2000). Business the Dell Way: 10 Secrets of the World’s Best Computer Business. Oxford: Capstone Publishing Ltd.

Serwer, Andy. (March 7, 2005). “The Education of Michael Dell.” Fortune, Vol.151 No.4, pg.50 – 56

Sloan School of Management. OpenCourseWare: Strategic Management I, Fall 2005. Dell University

Slywotzky, Adrian J. & David J. Morrison, with Karl Weber. (2000). How Digital is your Business? New York: Crown Business

Strauss, Judy; El-Ansary, Adel & Frost, Raymond. (2006). E-Marketing. (4th International Edition). Upper Saddle River, New Jersey: Pearson Prentice Hall