An Analysis of the Marketing Strategy of DELL Inc.
Executive Summary
In the subsequent report the Marketing Management Strategy of DELL Inc. will be presented and analysed. Overall the
report is structured into four parts.
Incipient the reader will be introduced to DELL and a short history of the company will be provided to continue in the
main part providing a short summary of their actual marketing strategy and their strategic change from a consumer PC seller to one of the world's largest corporate solutions provider, showing
early trends by selling direct through the internet to today's challenges due to changes in the market and declining PC sales in the industry. DELL's opportunities and threats, their strengths
and weaknesses are outlined using different tools like SWOT, Porter's five forces and PEST, their business portfolio is analysed using a BCG matrix and the reader will be led through the
application of Porter's generic strategies. DELL was always very effective balancing their demand and supply which will be shown and DELL's marketing mix, their effective pricing strategy applied
on their favourite market place, the internet will be examined not leaving out their expansion to emerging markets where they sell through their own retail stores. The main part will close
summarising their Sales strategy by outlining DELL's current growth plans being 'in it to win it'. They signalise by that they are 'back'. After a short period of downturn in the mid
2000's Michael Dell returned as CEO, they restructured, still focussing on their major business, corporate, but emphasizing on gaining their strength on the consumer market back to where they
were in the 80's and 90's by targeting the new market for mobile and hybrid solutions.
Concluding that DELL is doing well the final part will still give recommendations and suggestions on how to maintain and
improve their still strong position in the PC industry.
1. Introduction
The following report attempts to identify, analyse and interpret the Marketing Strategy of DELL Inc..
The first part will introduce the company and its history while the second part outlines the company's current marketing
strategies showing their corporate mission and vision, their target market, DELL's business model and philosophy and the actual market trends.
The main part examines DELL's strategic business units using SWOT, Porter's five forces and PEST. Furthermore an
analysis of DELL's business portfolio will be undertaken using the Boston-Consulting-Group-Matrix. It will be examined which of Porter's Generic Strategies they follow and what kind of demand
DELL faces and how they balance between demand and supply. Also DELL's marketing mix will be studied and their general sales strategy will be examined.
Finally the report concludes using the findings to provide recommendations and suggestions for potential solutions and
future development.
2. DELL Inc. – The Company's History in short
DELL Inc. is a computer technology company with their headquarters in Round Rock, Texas, USA. Today privately owned
again, they are a multinational company developing, selling, repairing and supporting computers and related products and services. DELL sell directly to their customers, small to large
businesses, healthcare and educational institutions, and government agencies through dedicated sales representatives, telephone-based sales, and online via their company web
site.
Founded in 1984 as 'PC's Limited' and renamed then after its then 22-year old founder, Michael Dell, the company today
counts as one of the world's largest technological corporations employing more than 103,300 staff worldwide (Statista Inc., 2014)
After opening their first subsidiary in 1987 in UK the company went public in 1988. 1990 DELL were the first in selling
through retail stores like CompUSA, Best Buy and WalMart but quickly withdrew again after they determined the model did not meet their financial objectives. In 1992 27-year old Michael Dell was
the youngest CEO of a company ranked in Fortune magazine's list of the top 500 corporations. In 1994 the launch of the Latitude XP with a record-breaking battery life brought breath-taking
success. The same year they launched operations in Asia-Pacific. 1996 their announcement that their daily internet sales reached $1m revolutionized the market. By 1998 daily internet sales topped
$12m and in 1999 DELL opened an integrated sales, manufacturing and support centre in China. By the year 2000 within 15 years in business Michael Dell became the 9th richest man in the
world. In 2003 Michael Dell steps back as CEO to return in 2007 to face the company's crisis. To regain the company's flexibility Michael Dell completed in 2013 the largest corporate
privatization in history. Together with 'Silver Lake Partners' and 'Microsoft' he bought his own company back for 25bn.
Being listed number 51 (Fortune.com,2014) in the Fortune 500 list until 2014, they are not listed anymore due to the
confidential nature of its financial information after going private in 2013 (DELL-Financial News, 2013) which Michael Dell called 'the world's biggest startup' (Spring,
2013).
In 2014 DELL was, after Lenovo and HP, the world's third largest PC vendor (Pettey,2015). Currently DELL is the number 1
seller of PC monitors in the world (Song&Shirer,2013).
DELL maintains five production facilities worldwide, two in the USA, located in Texas and Tennessee, one in Brazil and
two in Malaysia and China, the factory in Limerick, Ireland was closed 2010 and they manufacture most of the products they sell. About two-thirds of their revenue is generated in the Americas,
22% originating in Europe, the Middle East, and Africa and about 11% coming from the Asia-Pacific region.
3. Current Marketing Strategies
Until 2013 'The Soul of DELL' (DELL UK, 2015a)(DELL ZA, 2015b) defined their mission to be the most
successful computer company in the world at delivering the best customer experience in markets we serve"
and their vision [...] to create a better world for all [...] an image of the future we seek to create, the way we
interpret the world around us – our customer needs, the future of technology, and the global business climate.
DELL's tagline 'The power to do
more' signalises that they 'enable innovation, embrace potential and find solutions. Dell empowers countries, communities, customers and people everywhere to use technology to realize
their dreams.' (DELL, n.d.)
2013 DELL introduced the 'DELL 2020
Legacy of Good Plan' extensively outlining the '10x20-Goal' which is, as Michael Dell expressed it '[…] about capturing the innovative ways our customers are using Dell
technology to do good in the world' (DELL, 2013).
3.1. Target market
DELL's success builds on direct sales
and their build-to-order strategy for producing and selling PCs. Originally targeting individual PC-users they, by the end of the 1980's, evolved targeting the corporate market. Developing their
own sales force and starting dealing with CIOs and other top executives directly, they penetrated corporate accounts that long were dominated by established IT-vendors such as HP, IBM or Compaq
(2002 acquired by HP).
3.2. Dell's business model and Philosophy
The immanent advantages of their
business model enabled quick growth by offering competitive prices, customised products and high levels of support.
Their sophisticated
supply-chain-management-system is the key advantage of their build-to-order and direct sales model. Expensive inventory is not building up in warehouses and therefor not losing value before sold
and as well new products can be introduced without the obligation to clear old inventory. Dell's inventory turnover rate of 60 times per year compares to 12-15 times for most indirect vendors.
Customers at DELL often pay the final product before suppliers are paid for the parts that go into a PC, so that DELL operates on a negative cash conversion cycle. Probably most important are the
benefits that Dell gains from the direct relationship to their customers.
Unlike their competitors whose channel
partners often refuse to reveal who the final customer is, DELL knows the end-user, what equipment they previously bought and where it was delivered. Using that information to offer add-on
products and services, DELL coordinates maintenance and technical support helping the customer plan its PC replacement and upgrade cycle. For many of their corporate customers DELL has become
what they call a 'PC outsourcer', managing the customer's PC inventory, from purchase to disposition.
3.3. Market trends
DELL, ahead of its competitors,
enthusiastically converted to the Internet early, creating their first web site 1994 and moving many of its activities online. They recognised that their direct model provided an advantage in
selling online. DELL, unlike indirect sellers as IBM, Apple and HP, need not worry about conflicts with resellers and distributors when they started selling online. Their build-to-order
manufacturing processes were already in place which made offering opportunities for the consumer to configure products online just as they already did on the phone easy.
By the early 2000s, DELL's daily
internet sales went up to $50m, but not enough, DELL also developed extranets called 'Premier Pages' (now 'Premier Dell.com') using the actual Internet link to their customers.
By the mid-2000s DELL had over 50,000 Premier Pages for thousands of large business customers, these being used to configure, order, service and support the customer's systems and needs. Small
and medium customers could buy hard- and software online from Dell.com and receive technical support and other services through the DELL.com web sites. Probably as important is DELL's effort
using the Internet to coordinate their complete value network, including suppliers, third-party-product-distributors and system integrators, logistics providers and service providers which is
only possible because of the tight information linkages between DELL and its customers.
Most of DELLs revenue comes from the
sales of hardware as part of e-business-solutions including high-margin items as large server and storage devices needed to support e-commerce, as well as desktops and laptops but DELL also does
make money from services.
Looking at Ansoff's
Product-Market-Expansion-Grid DELL follows a market-penetration strategy (DELL,2014). Their strategy over the long-term is to turn Dell into an IT-services company that can compete with IBM , HP
or Cisco and therefore they keep targeting corporate customers with their strategy they used to dominate the PC sales market almost 20 years ago – focussing on low prices and service (Kelleher,
2015).
4. Strategic Business Units
According to Hussey
(Hussey, 2002, p. 45) there are several mnemonics for a SWOT analysis like TOWS, SOFT or Steiner's (Steiner, 1979) WOTS UP – adding 'underlying planning'.
Therefor in the
following paragraphs a SWOT analysis in the form of OTSW will be undertaken.
4.1. External Environment
To evaluate external factors first
DELL's opportunities and threats will be examined while using Porter's Five Forces and PEST and then internal factors, strengths and weaknesses, will be considered. Prunckun (Prunckun,
2010,p.138) sees the PESTLE analysis 'as the macro scene, and SWOT is the micro perspective'.
4.1.1. Opportunities
Dell provides various services
(infrastructure, security and cloud) and enterprise solutions (storage, servers, networking), which at present are their most profitable business. Focussingon growing these divisions is highly
important as they promise better growth opportunities and higher profit margins.
DELL, to diversify, requires new
technology patents and new ideas. Having not invested much in R&D facilities means to obtain these quickly they need to acquire other companies.
Emerging markets are the fastest
growing markets for laptops, tablets and other electronic devices. Dell has a good presence in India, China and Brazil but should strengthen its position considering the PC industry experiencing
declining market share.
The market expectance for mobile
devices like tablets is growth in double digits within the next few years and the company has great opportunities due to their newly established partnership with Microsoft to grasp market share
from developing new Windows devices.
4.1.2. Threats
Our society is 'on-the-go' and therefor
the consumer demand for tablets and smartphones will further increase. Due to the lower price and strongly improved capabilities, consumers will more often choose these 'mobile solutions' over
laptops. This growing demand takes a share out of DELL's laptop market and the growth rate for PCs and laptops is slowing down. Apple dominating the market for smartphones and tablets it proves
hard for DELL to compete.
DELL faces strong competition in all
its business areas in terms of quality and price, and furthermore in regards of reputation, distribution and their range of products.
4.1.2.1. Competition and Competitors – Porter's Five Forces
According to Michael
Porter (Porter,1998,pp.3-5) the five competitive forces jointly
determine the strength of industry competition and profitability. The strongest force (or forces) rules and should be the focal point of any industry analysis and resulting competitive
strategy.
Porter model based on the idea that an
industry's attractiveness is determined by:
The intensity of competitive
rivalry in the industry;
The threat of potential new
entrants;
The threat of substitute
products;
The bargaining power of
suppliers;
The bargaining power of
buyers.
Competitive rivalry is strong in DELL's
core markets. Being the world's third largest PC vendor after HP and Lenovo (acquired IBM's PC business in 2005) and before Acer, DELL faces strong competition from various competitors. The
following figure provides an overview of Porter's five forces.
4.1.2.2. DELL's Macro-Environment – PEST analysis
To analyse DELL's operational
macro-environment figure 10 provides an overview of Political, Economic, Socio-Cultural and Technological factors that may influence DELL's macro-environment.
4.2. Internal Environment
Within DELL's internal environment
their value chain will be analysed and their strengths and weaknesses will be examined.
4.2.1. DELL's Value Chain
Although DELL's value chain is very
similar to the standard in the industry they developed some distinct advantages within their value chain. As mentioned before they operate on a negative cash conversion cycle. They have built a
collaborative supply chain and an innovative ordering and production system which as a result brings value from supplier to the customer and provides DELL with a competitive
advantage.
4.2.2. Strengths
Instead of selling through retail
stores DELL sells directly to corporate and individual customers, keeping the thin profit margin to themselves.
DELL's individual product customization
services add great value to the customers providing a sustainable competitive advantage as similar services are not offered by many competitors.
Beneficial for business with public and
government agencies is DELL's well known and respected brand reputation for quality products and their standing ethical standards being know two years in a row nominated to be one of the
'World's most ethical companies' (Ethisphere® Institute,2015). Further advantage is their involvement in many green initiatives having received many awards for being an eco-friendly
business.
Over the last years DELL has spent
billions for successful mergers and acquisitions, which brought new capabilities and assets, new patents and skills for the company.
4.2.3. Weaknesses
Although the major proportion of DELL's
revenue comes from the corporate high-margin server market their income from commodities (PCs, laptops) is small as these products are sold with a rather low profit margin.
DELL's customer service, once praised,
subsided due to outsourced offshore call centers. They already invested large amounts in regaining their reputation for service, but they have not yet reached their previous standards in this
area.
Due to their low spending on R&D
DELL long missed opportunities to develop product lines for the tablet and mobile market and therefor as well is late on the market for mobile services. Their weak portfolio of patents hampered
their ability to compete in the lucrative market for smartphones and tablets.
Selling products online and allowing
product customization may be cost effective but provides less visibility for the products as many consumers want to touch and see a product before they buy.
DELL's cost leadership strategy
providing competitive advantage became increasingly challenging on today's market being only little differentiated from competitors' products and considering the increasing Asian presence on the
markets. DELL are even in competitive disadvantage if competitor's prices are lower.
4.3. Business Portfolio Analysis
Using the
Boston-Consulting-Group-Analysis (Team FME,2013) DELL can be considered a 'cash cow'. DELL, with a high relative market share ranking third worldwide after Lenovo and HP (Statista
Inc.,2015) and competing in a low growth industry – global PC shipments in the first quarter of 2015 the first time since 2009 fell below 75 million units (Statista Inc.,2015). Examining the
matrix below and based on DELL's position, product development and/or diversification are strategies that they could adopt.
4.4. Porter's Generic Strategies
Looking at Porter's Generic Strategies
DELL follows a cost leadership strategy – best value for the best price. They achieve to increase their market share through charging lower prices while still being profitable because of their
effective direct sales model.
Except of Apple – their customers are
considered less price sensitive – the majority of competitors on the market as HP and Lenovo follow cost leadership strategy. Differentiating is difficult on this market as PC standards have been
set and determined long time.
While customers are primarily
interested in products with low prices the quality still is extremely important. Mobile products, smartphones and tablets, will make it more important for DELL to begin to differentiate as these
may be considered by many people as substitute products.
5. DELL's Balance between Demand and Supply
Their sophisticated supply-chain-system
kept DELL always a step ahead of their competitors. Their ability to alter pricing and product mixes in real-time gave them a clear competitive advantage for long. For example if they were short
of 17-inch-screens they offered 19-inch-screens at a lower or even the same price. Their competitors, relying on their retail channels cannot manage demand like this.
The PC industry in general is in the
declining stage as showed in figure 14. Applying this on DELL they had a short introduction phase with an enormous demand, to have a long growth phase reaching their maturity in the early 2000's
and started declining since the mid 2000's. In 2015's first quarter global PC shipments are the lowest in the past six years (Statista Inc., 2015).
In the declining phase DELL reduced
costs, closed factories and outsourced staff to be in the position to offer their products for a lower price while still harvesting and expanding on the enterprise market. They also focussed on
emerging markets like China and India which still have huge growth rates (Prasad, 2011). While desktop and laptop sales are decreasing DELL jumped into the tablet market by offering several
hybrid laptop/tablet solutions to adapt to the changing demand and partnering with Microsoft the market will soon see some exciting Windows 10 tablet products on the market.
To meet the market requirements DELL as
well spent several billion acquiring businesses on the market. At the moment they are in talks to acquire the storage giant EMC, as are Lenovo and HP (McDougall, 2014). Whoever may win would gain
an important advantage on the market.
6. DELL's Marketing Mix
At DELL marketing their products is
about offering tangible and intangible benefits to their customer's changing requirements. DELL provides a large variety of products, in many cases customised to the individual customer's needs
and demands, for small, medium and large customers, corporate and private. Their product range starts from handheld devices to tablets, laptops and desktops, and large server solutions which are
their major business.
DELL's pricing strategies change
depending on the product's life-cycle, while their main objective is to provide the best product for the best price. This reflects as well in the customisation process that DELL offers. The
customer, depending on needs, demands and affordability can configure the product which is then priced accordingly. To continuously gain market share DELL undercuts competitor's prices as
possible.
DELL's focus on the internet as a
direct sales channel is maximising the profit margins and keeping the prices low. In the emerging markets China (Einhorn, et al., 2013) and India (Prasad, 2011) DELL is selling through their own
retail-outlets and are constantly increasing numbers by building a franchise network.
Until the late 1990's marketing
communication at DELL was not very strong. Since the early 2000's DELL market their products through TV-advertisements and through the Internet. Promotions through retailers like BestBuy,
WalMart, Tesco and Carrefour improved brand awareness although quickly withdrawn again.
7. DELL's Sales Strategy – 'In it to win it'
Since the foundation of the company
their direct-sales model provided a sustained competitive advantage. At one point they started prioritizing their server business over PCs as profit margins looked much better. PCs is a large
volume business today, and as Jeff Clarke, DELL's vice chairman said they are 'in it to win it' (Moorhead, 2013).
Their growth plan focusses
on:
Simplifying services and
products
Attract new
customers
Win with industry-leading
end-user-computing-solutions
Scale alternative computing
solutions
Their configure-to-order customisation
process led to a wait-time from order placement to shipment of 7-10 days. They changed this to a so called 'Smart Selection' – built-to-order – model which means they pre-build what they
believe to be the most popular configurations and reduced the shipping time to 24 hours.
With their new tablet solutions
covering the 7-8" (iPad mini) and 10" inch they challenge Apple and with several hybrid solutions in 11", 12" and 13" size they target tablet users that want full laptop functionality. Apple had
the enormous advantage that there was no alternative and therefor even enterprises deployed iPads despite the, for enterprise purposes incompatible, iOS but with Windows 10 in front of the door
DELL will take the opportunity to shine with a full range of Windows tablets.
By targeting the cloud-client computing
business they look into the real big volume business. While for the 'normal' customer not looking as attractive as a new DELL XPS 11, it may be DELL's cloud-client high-margin corporate computing
business that could drive long-term growth.
In order to pay for all these
investments DELL's decision to go private was important because that enabled necessary cash flow, providing more flexibility and finally this is a long-term decision that will pay out. HP and
Lenovo need to be prepared for a strong competition.
8. Conclusion
DELL quickly became incredible
successful in its early years growing within short time from a start-up into one of the market leaders. Their business model and philosophy, and their sophisticated supply-chain-management-system
enabled them for a long time to sustain their competitive advantage by providing low price products while still delivering high quality. This brand image is still alive although the company had
hard years in the mid 2000's. Competition is getting stronger and profit margins smaller. While Apple grew quickly with their high-prized iPods, iPhones and iPads and the related services, DELL
missed the point to jump on that train and still relied on desktop, laptop and server business.
Considering the decline of the PC
industry they finally made the right choice to expand their product palette with exactly these devices while still expanding on corporate business. The decision to take the company private again
at a perfect time, shares were incredibly low, brought them the necessary flexibility to operate without the restrictions of a public company.
For many years the strategy of not
providing 'all things to all people', their strong market segmentation and specialization, brought the lasting success. Based on market research they were able to formulate their action
plan which ultimately became DELL's brand repositioning and the 'Power to do more' campaign.
Finally the decision to generally stick
to their direct model, but with modifications of pre-built configurations but to enter the emerging markets China and India with thousands of own retail stores was the right choice.
Since the share price cannot be a
metric for success anymore DELL monitoring the global sales trends and their share of this became as essential as the obligation of constantly assessing the 'voice of the customer'. For
corporate customers this may be easy through dedicated sales and service representatives but for PC consumers they closely need to monitor product and customer service reviews on dedicated
portals and on their own web clients.
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