Has the use of the Internet (www.dell.com) as a selling channel been successful for Dell and furthered their direct business model?

Dell are currently the worlds number one PC supplier, a position in the market they took from Compaq in April 2001. In short, the company’s success story is mainly down to their innovative direct business model, which pays particular attention to the selling process where Dell completely bypasses all intermediaries and/or middlemen. This is because Michael Dell believed they add little if no value to the end product, instead just gaining a considerable mark-up for selling the product. Hence, they became the first PC manufacturer to completely cut out retailers and instead sold customised computers directly to customers based on their exact specifications. This selling process began over the telephone and via catalogues but in 1996 Dell embarked on Internet based selling on their official website, Dell.com, providing customers the opportunity to buy desktops, notebooks and servers directly from them.

In order to power online commerce successfully for any business, the basic technology required is the installation of servers and data-storage systems. The website Dell.com runs on industry standard Dell PowerEdge servers. These powerful servers are backed up by Dell/EMC Fibre Channel storage. Dell is therefore equipped with backup strategies in case any problems with the servers or software occur and are experienced. This is crucial, as users may begin to view this distribution channel as unreliable if breakdowns are recurrent and could detract them from not only buying from Dell.com but from anything from the company. According to company internal metrics, Dell.com is one of the most responsive web sites on the Internet, with an average download time of 1 second for a page. That briefly explains the technology used to power the website however customers can access it simply via an Internet browser, the most popular being Microsoft Internet Explorer and Netscape Explorer.

Dell’s direct business model (can be seen on the page three) may be simple in theory however it is very complicated executing it in reality. Building PC’s to order means that they must have the parts and components on hand to build a wide range of possible specifications over a short period of time (to ensure minimum time between order and manufacture). To complete these orders quickly, Dell must have first-rate manufacturing and logistics capabilities. These must be supported by information systems that allow it to substitute information for inventory. Dell has used the Internet to coordinate a network ...

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Dells long-term edge over competitors (especially close rival Compaq) in their cost structure is mainly due how efficiently they manage inventory. Selling over the Internet allows them to continue operating the same inventory methods as beforehand. For example different suppliers provide different components for Dell to construct the final system, Hitachi supply the CD-ROMs for Dell PC’s and Samsung supply the monitors. So when a customer places an order for a computer over the Internet, stock control procedures have been implemented so these components will automatically be ordered from Dells suppliers. Therefore the use of Internet selling in stock control at Dell allows for the irregular use of supplies that they require. This is done automatically by creating purchase orders for replacements based upon delivery cycles and its need for use.

As mentioned in the introduction, Dell’s approach to the computer industry is to sell computers directly to consumers, without them having to be purchased through retailers. This can be seen from the ‘Dell model’ under this paragraph also known as their direct business model. The key management issue here is whether selling over the Internet remains in line with their direct selling policy (the Dell Model), which is an integral part of their business strategy, as it is the pathway they use to achieve company goals. The Internet is a direct channel and therefore ideal for Dell, as they do not wish to involve any intermediaries in the selling process. Furthermore the fact that they do not use retailers makes the implementation of e-commerce much easier and continues to give them complete control over their business actions.

Another major issue management faced is one concerning any business selling over the Internet, this is relating to the consumer’s confidence in buying products or services online. Security is particularly important for Dell because the price of purchasing PCs is higher than other popular Internet purchases such as CDs, books and clothes. In other words the general public view PC’s as high-risk goods and will only consider purchasing them once they begin to trust the Internet, probably after several low risk purchases such as CDs and books. As a result management at Dell put much time and effort in providing secure online transactions and privacy with the aim to ensure that customers feel fully confident when purchasing over the Internet. This is therefore an essential issue for management as it has taken a while for the public to trust and think of the Internet as a safe place to trade using a credit/debit card. Security at Dell.com is provided through the use of Data encryption, which jumbles private information and the ‘Dell Secure Shopping Guarantee’ that covers individuals against unauthorised credit card charges.

There was also the need to establish a high quality technical support service online for Dell computer users. This is of great importance, as the users cannot return to the shop asking for advice or solutions to their problems. Dell were well aware of this issue as highlighted by this quote from Michael Dell "The ultimate goal is to move all core capabilities online, creating a super-efficient organization that leverages the Internet in every part of its business". The Internet has allowed Dell to provide the first unlimited technical support and next day onsite service programs, which has proved to be a huge success.

Dell also faced key business (marketing in specific) issues regarding opening a new channel of distribution before the online selling service was actually implemented. These posed many questions such as whether the Internet will attract a new customer base, whether and why existing customers will use channel and what the Internet can provide that telephone selling cannot, were all considered.

In financial terms, Dell have clearly benefited favourably from electronic commerce. Michael Dell having constantly emphasised the role of integrating the Internet into business operations has acknowledged that online sales have played a major role in the growth of the company. Internet sales jumped from $1m to $6m a day from 1996 (when online selling was introduced) to 1998. In the year 2000, sales via www.dell.com were a massive $50 million per day. This includes all web-based services for sale (B2B and B2C).

Internet selling allows Dell to continue providing their unique service of customising computer features to the specific wants of consumers. This has improved their stock control efficiency and also lowered invoice accounting costs. Hence, there are considerable cost savings, which are passed onto the customer in the form of cheaper prices. Customers clearly benefit from this and the website format fact where they can select exactly what they want within their budget. Furthermore e-commerce has given them the opportunity to satisfy the needs of new markets they were not previously dominant in. In particular the small and medium sized business market. This market now accounts for a high percentage of daily online sales and has consequently become an important part in their web-based strategy.

Applying the Internet to the direct business model has given Dell an additional information edge in terms of better advertising performance and customer service. Each advertisement has a unique URL that allows Dell to know within 24 - 48 hours how effective they are. As mentioned, customer service has also improved from an already high standard even further. Dell has created many services online that enables the customer to see the whole purchasing process clearly once they have made an order. It gives the customer the ability to track the progress of their order as it is produced and delivered, providing them with constant feedback of delivery dates and product information. This 24-hour customer service and fast response time helps Dell build a strong relationship with customers.