Differentiation
We can easily say that Dell differentiates with the quality of the products they provide and that is one strong characteristic that Dell has, but still their strongest differentiation activity is the ability to offer what the consumers want. You can just go online and choose the computer you want, the storage in it, the speed, the graphics and almost everything and in no time you will get your order placed. This is one huge advantage that Dell has over others. They differentiate on shopping experience.
Focus
Last but not least is the focus. As we can assume from what we said above the focus of Dell is fully on consumers. They are known as experts in what they do and that they do it really fast. The ability that the consumers have to customize their product in just some clicks shows that they offer what each consumer wants. Fully consumer oriented.
So until now we have seen where Dell is right now and how they are dealing with the environment, but to have a completed view of what’s their corporate strategy we need to look at where Dell wants to go and how will they do it.
Of course Dell has its mission statement and that tells us everything about what they aim to achieve, but the environment is changing and some of the competitors has caught up or even surpassed Dell. We mentioned that their online shopping was one of the strong points of Dell and it had helped Dell grow to where it is now and that is true but nowadays the grows of PC sales has slowed to around 5% a year and around 60% of the net revenue of Dell was composed by desktop computers and mobility. People have started to prefer retail stores lately and want high-featured digital technology like Apple’s iPod. Dell is falling short now, because of a lack of retail stores. Their absence in retail stores is hurting the company’s attempts to expand beyond the PC business into consumer electronics, such as TV. So the company needs to do something in order to remain one of the main players around. How they will do it its not yet very clear but initial indications say that Dell is trying to turn their focus more into making business with other businesses and providing different networking and storage services. Of course this takes a good strategic plan to analyze every detail on what are the opportunities in this environment. Internal environment and external micro and macro environments need to be analyzed before making further big and important decisions.
Still Dell is one of the most successful companies in the world. Seeing their PC line share they dominate the market with a huge 18.1% and converted to revenue that’s around $50 billion. If we made a further analysis and place a Dells product in the BCG matrix their PC products will definitely be placed very well. High market share but low growth, “a Cow”, and very profitable.
Marketing Strategy
Segmentation
A market segment is a group of people, individuals, firms that share the same characteristics and needs for a certain product. In order to be useful there are several criterions that a market segment should have:
1. Measurable
2.Substantial
3.Accessible
4.Differentiable
5.Actionable
On this basis we can proceed with the segments that Dell has identified. Dell divided their market into four segments according to the nature of usage.
- Home & home office – These consumers are interested in custom PCs, the main criterion for them is the price and they don’t need much technical support
- Small Business – Such business probably have limited budgets and require more service.
- Medium & Large Business – These businesses usually spend more on professional products and services. Their purchases are based on a contractual plan for a number of periods.
- Government, education & healthcare – These organizations have serious requirements for PC and PC systems. They spend large amount of money for big quantities and certain variety, requiring technical support and lifecycle management.
As we can see the size, purchasing power and needs is ascending amongst the different segments. Each one is the largest possible homogenous group, can be effectively reached and served, is distinguishable and can be served and attract with a certain program.
On the basis of Geography Dell segments three different regions:
- APJ – Pacific Rim, Australia, India) This is one of the fastest growing markets, Sales are made to corporate, government, healthcare and education, also to small businesses.
- EMEA – Europe, Middle East, Africa – Marketing strategy in this countries is strongly based on the national culture, for example, Dell has found that customers in Germany are more interested in technical characteristic, while in France price is important.
- America – the US market is the strongest one but it’s becoming saturated.
Targeting
Dell targets two market segments : individual consumers and business. There are some basic difference between these groups. Business actually represent 85 % of Dell’s sales, they are more willing to spend more one computer products and individuals, they usually buy on a regular basis, while individuals might buy a product and repeat the purchase either in a couple of years or never. Corporate customers are interested in price, technical support and easiness of upgrade. Based on these difference, Dell uses a direct marketing model and in the past it used to target mainly business users. Nowadays this resulted to the adoption of Dell’s products in many large US companies for their domestic and foreign plants as well. Dell continues to target those customers in a direct one to one way, putting importance on the efficient quality and cost, not taking account of the design and fashion trends. Also their main focus is on large corporation, secondary efforts on small and medium sized businesses and last put minimal effort on the global consumer.
Positioning
Dell’s position in the market is set by their differentiating attributes – building evert computer to order and offer powerful, richly-configured systems at competitive prices. They also sell the computers directly without any retailer, thus knowing customer’s needs better.
The keys to their differentiation are:
- Build to order manufacturing
- Low prices
- No intermediaries
- High Customer Satisfaction
- Better knowing Customer needs
The lack of inventory and channel of distrubition helps Dell to introduce faster technology, and bring laptops at lower prices. Their competitive advantage comes from the way they designed the channel of distribution – through direct selling, and also from the fact that it provides computers at equivalent quality as others but at a much lower price. It can provide the products at the lower prices exactly because of the fact that it keeps no inventory and low cost of distribution.
The position within customers is based on the following way:
- Corporate Customers – 60 % of the relationships – These are global, large corporations, federal governments, education, state & local government
- Small/ Medium Business – 30 % of relationships – Preferred account division, Business systems division
- Consumers- Transactional Relationship – 10% - preferred buyers with good knowledge of IT
Apart from the low cost products, Dell has also came up with some laptops that are at a more expensive price but provide a bit more characteristics to customers who have some specific needs in their laptops.
Given the fact, that Dell is a company that operates worldwide and tries to reflect the needs of customers it would be better to maintain differentiated but integrative marketing strategy so that it has a niche in each of the markets in which it operates.
Competition Analysis
Porter’s Five Forces
Threat of New Entrants : Low
It is very easy to set up a new Pc Company. This is the reason why there are a lot of such companies and the market is extremely price competitive. Each component of a PC can be sourced from outside, and the operating sytem can be either Microsoft or Linux. On the other hand is that there are high economies of scale, thus even though a company might enter the market it should start selling in very big quantities in order to make profit and will need a lot of promotion in order to compete with the market leaders. A possible barrier to entry might be the strong brand name that Dell has, a new company will have diffuculties to take market share from them. In general, there are a couple of key manufacturers that have strong brand names and a small manufacturer might find it impossible to compete against. It will be difficult for a small firm to acquite the capital needed to compete with the giants. Moreover, Dell’s brand loyalty is very high as they are doing their best to keep customers satisfied .
The Switching Costs are also very high, because the computers are made I a certain way to work with certain products- programs and switching to a different brand can cause them pay more or another product. Moreover, Dell has created a unique value proposition giving a high quality product in a lower price. Switching to a different brand will mean probably necessity to pay more.
Threat Of Substitutes : Moderate
PC has a very strong presence in the society, so it will be difficult to be substitituted by another product in the near future. On the other hand customer preferences are changing very fast and a company should be able to answer to those needs fastly. On the other hand PC and laptops are believed to be replaced by hand-held devices such as the Apple’s Ipad and smartphones, but Dell is preparing as well such products in order to remain competitive.
Bargaining power of Suppliers : High
Intel and Microsoft are very powerful suppliers, as it is diffucult, not to say impossible to substitute the core inputs for a computer. Microsoft supplies operating system to alost 90 % of the market, so they have a very big bargaining power as they don’t have a substitute. Moreover, Intel is one of the main producer of the processor which a key component. There is very low margin for the suppliers, as companies are trying to keep prices down in order to remain competitive. In order for a supplier to understand the demand, they should collaborate with the entire supply chain network.
Moreover, for Dell to stay competitive it had formed some strategic alliances with its suppliers. These partnerships allow Dell to keep low inventory and to rely on the just in time inventory. What is more, Dell relies significantly on the information provided by its partners regarding customer’s tastes and preferences.
Bargaining power of Buyers: High
The PC market is very price sensitive. The goal for each customer is to find the desired product at the lowest possible price. They can buy the product either through direct or indirect marketing. Moreover, users of laptops would not hesitate to change the brand if the one they are using gets more expensive. Large companies can insist on having a lower price as they represent almost 80 % of the total customers of Dell.
Rivalry amongst Competitors:High
The rivalry amongst the market leaders in the PC market and the laptop market is very high, and each one of them have their own strategy. Dell is relying on their unique supply chain, Apple on the innovative products and IBM/ Lenovo on the customer satisfaction services and response. The technological requirements are increasing with each year passing and thus the competition is getting more intense. Each company wants to be the first to present a new product at the lowest price. Since consumers are better informed for all the innovations they are putting really a pressure on computer firms to compete even more against each other. Firms are taking actions constantly to take market share and block their rivals. They are actually racing with each other to provide speed service, quality, new products, advertising and promotions.
Main Competitors
Dell’s main competitors are Lenovo/IBM, HP and ACER.
Acer Incorporated is a multinational computer technology company, naturally from Taiwan, which produces desktop and laptop computer,PDAs, display, smartphones and servers. It is a direct competitor because it sell its products at a very low price and even in 2004-2006 grew by 155% and was the bestselling laptop manufacturer of laptops in the UK.
Apple Inc. is a multinational organization that manufactures consumer electronics. Its best known for the Mac, the iPod, the I-Phone, the recently launched iPad and for software the Mac OS X, iTunes, iLife. It was established on April 1, 1976 in California. It changed its name to Apple Inc. from Apple Computer Inc. on 9th January, 2007 since it was changing its focus to consumer electronics from personal computers. As of 2009, 35000 employees are registered with Apple.
Apple is known to revolutionize the computer industry with its innovating and user-friendly devices which are powerful and look eye-candy.
HP/Compaq
HP provides personal computer, imaging and printing products, access devices, consulting and IT to both individuals and corporate customers. It has a presence in more than 170 countries. It is said to be setting the standards for the notebook industry, with the best combination of advanced features, fancy look and competitive prices.
IBM/Lenovo
Lenovo was the largest personal manufacturer in the Asia-Pacific region until 2006. After it emerges with IBM it produces desktop, laptop, servers, handheld computer, business and computer solutions, mobile phone handsets, support services. This is a company that has a globally know brand and the notebooks it manufactures have a very competitive price.
As Dell is one of the market leaders it has to adopt certain strategies to defend its competitive advantage which comes from the good relationship with suppliers, the direct connection – customer-manufacturer and the adequate customer service system. Moreover, given the fact that Dell tries to maintain its strategy, it also tries to keep up to date with the innovations on the market in order not to loose market share. One respond from Dell to the attack of Apple launching the Ipad is the new tablet that Dell is going to present this year.
SWOT Analysis
Strengths
Dell has a very reliable support and service system which 24 hours available to customers. It has a very efficient inventory management system – just in time delivery. The direct model for selling proved to be very successful. Moreover, it uses latest technology in its products. It is as well known for the quality of the products provided even though at a low price. Another postivie thing is that due to the wide range of products the company offers, the website receives more than 25 million visits daily.
Weaknesses
The possible weakness of Dell might be the fact that it is too dependant on its suppliers, they are also not able to attract students from schools and colleges which are about 5 % of their total revenue. In 2006 the company’s financial performance was increased by the elimination of bonuses. Moreover, customization and direct model might be a problem for the home users that can not tailor their own computer but rather go to the retail store and buy it ready, due to the fact that they do not have the technological knowledge to configure the right computer.
Opportunnities
Through diversification Dell can introduce many new products in range and thus compete even better with other companies. As demand for laptops is growing Dell can reflect this need. Internet is also being available to more people and they have good command of that, so many people can take advantage of Dell’s website and order their own laptop or computer.
In order to be more available for everybody, Dell can start selling computer directly to retailers. There are global markets that need to be covered as well – India, Pakistan, Bangladesh etc.
Threats
As the competition is very high there is a great danger of loosing market share. Moreover, as Dell operates globally it is subject to changes, to fluctuations in the exchange rates of the different currencies. The problem with technology is that there are very rapid changes taking place which make the old products obsolete in a very short period of time. Also price differences are getting smaller among brands. Since Dell’s main competitive advantage comes from the direct model enabling it to sell at a low cost, Dell is now threatened by the other brands that are starting to sell products at a very low price as well.
Marketing Mix
Product Strategy
Dell provides a wide variety of both business clas and home/consumer class products and services. The company markets specific brand names to different market segments. Some examples of products for corporate customers are Dell Power Edge servers, Power Vaults, Dell EMC storage systems and Power Connect switches. Some products for professional customers were OptiPlex desktops, Dimension desktops etc.
We can say that Dell’s cash cow is the PC selling. The company is known for its ability to customize its products and services In order to satisfy a wide range of customers. Dell's unique approach to manufacturing separates the different processes so that Dell is not reliant on singular production or supplier's chain for equipment production. Though there is no segregation of the different products and services but nevertheless in separating the components enabled it to target the customers based on the regions in which the products are manufactured. By assigning each regionalized production center particular component for production not only has diversified the risk of concentration of labor and production costs but also depending on particular infrastructure.
Pricing Strategy
Price reasonability and the availability of support, after sales services and parts have alleviated Dell's position from others. When Dell decides to enter a particular market, it consistently uses the Direct Model approach, pricing their product below that of their competitors.
Because Dell products are so customizable, the price is largely dependent on the options and services added to the product. Businesses and individual consumers are able to tailor their products and services to meet their needs. The price increases as more options are added, but it gives the consumer the ability to customize the computer with the options that are most important to them and still get the computer within their price-range.
In addition, Dell is a direct supplier, meaning the consumers can order their computers directly from Dell instead of going through a retailer.
Finally, since Dell builds computers on a just-in-time, built-to-order basis, it does not have to keep a stock of components and ready-made computers. Keeping a stock of parts and pre-built computers costs money, which ultimately gets passed on to the customer; since Dell doesn’t do this, they are able to sell their computers at a lower price.
More tactical persuasion of site visitors is based on Price moves / optimised price position to market and the mix of product features. A wide range of different offers need to be managed. Tactical promotions which are driven by promotional “end dates” which are weekly or bi-weekly include varying:
- Free shipping
- Money off discounts
- Free upgrades (e.g. memory)
- Free accessories
- Finance offers
Placing Strategy
Various ways you can order through DELL are On-line, telephone, mail-order.
Until fairly recently, Dell computers were only available to be ordered on their website or by phone. While this gave Dell’s customers the ability to customize their order to meet their needs, it also kept some people from buying computers from Dell if they wanted to see and touch the computer before buying it, or if they weren’t willing to wait the extra time for Dell to build the computer and ship it to them.
In response to this, Dell recently began offering its products in several physical locations, such as Wal-Mart, Target, and Costco.
Dell has been able to affect the location strategy aspect of its marketing campaign. As Dell's products are always available at the nearest dealer’s customers develop trust for the "local Dell" thereby achieving the objective of gaining their trust in Dell products and services, and forming a large and diversified consumer base. Also management has formed some interesting opinions in order to get to know markets better. For example they define the markets in Europe in different ways : Dell UK – all about price, Dell Swtizerland – add value over price, Germany – all about high-end products in mix, Italy – design is importand, Denmark – cheap is good, Norway – added value is key, France – tailored for France.
Promotion Strategy
Dell uses two main ways to promote its business: direct mail and online. Direct mail is all the promotional material sent through the post office. It uses other digital marketing tools to promote its activities. The main digital media channels used by Dell.com in Europe are:
- Paid search through programmes such as Google AdWords is used to promote value through time limited offers related to the phrase searched upon. For example, a Google search for “cheapest Dell” displays an ad: Discount Dell Laptops www.dell.co.uk/laptop Save up to £300 on selected Dell Laptops from £329. Buy online now!
- Display advertising for example advertising on technology web sites is particularly important for the corporate market
- Affiliate marketing – used to protect the Dell brand by enabling affiliates to bid on terms such as “Dell laptops” and to target niche audiences such as owners of gaming machines.
- Email marketing – an e-newsletter is used to keep in touch with existing customers and deliver targeted offers when their hardware may be renewed.
- The company is using effectively social media sites as Facebook and Twitter to keep its customers up to date with what is happening with the company.
Moreover from the fact that customers are directly ordering the products they want, we can conclude that the company is using pull strategy, where customers are searching for the product. On the other hand, the advertisements they are using are catchy, both viral – being published in the internet and on TV as well. They are using famous people, famous songs to accompany the ad.
Conclusions
Based on the analysis above, we can conclude that Dell is a company that is example for successful marketing strategy, that succeeded through differentiation and cost leadership to attract a great number of corporate customers as well as home users and professionals. What is more, it Is a company that is continuosly innovating their products and thus responding adequately to the rapid growth o other computer companies. What Dell needs really to do is promote even more their products and continue being the leader through cost efficiency. They need to put serious attention on the competition, because they can easily loose market share.
Works Cited
Cloisters, . "Dell's Competitive Advantage." HubPages. N.p., n.d. Web. 10 Jan 2011. <http://hubpages.com/hub/Dells-Competitive-Advantage>.
Dell Company Profile. <http://content.dell.com/us/en/corp/about-dell.aspx>
Tapper Craig. An introduction to Business and Technology. Dec. 2005
The BCG matrix product portfolio method. 10 Jan 2011 <http://www.valuebased management.net /methods_bcgmatrix.html>
Workman, Daniel. "Dell Computer International Sales." Suite101. N.p., 22 Jub 2008. Web. 10 Jan 2011. <http://www.suite101.com/content/dell-computer-international-sales-a57959>.
