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How can Dell improve the value delivered to its customers
Free essay example:
Summary of the Assignment
The organization chosen for the purpose of this assignment is ‘Dell Computer Corporation. Dell with its Direct-to-Customer business model is unique in its own sense and because of this differentiation it was able to carve out a niche in the very competitive PC industry. The subsequent pages shall illustrate its direct business concept with its level of market orientation and a deep understanding of the marketing concept.
The customers selected are the end users with in the corporate segment. When dell entered the US PC market it sensed an issue/problem of dissatisfaction among customers in term of product and service delivery of PCs and related components. Dell successfully filled the gaps by going to the root cause of the issue/problem. The nature of the issue shall be analyzed with different models. The five performance objectives of quality, speed, dependability, flexibility and cost shall be judged in relation to their adding value to customers. In the end recommendations to improve the relationship with the end user as well with the corporate client shall be illustrated.
Table of Contents
Dell- Customer focused & Market Oriented 4
Customer Segmentation 8
Root Cause Analysis 9
Operations Performance Objectives
- Quality 12
- Speed 13
- Dependability 15
- Flexibility 16
- Cost 18
- Importance Performance Matrix 20
- Gap Analysis 21
- Value Chain 23
- Customer Delivered Value 24
Dell with its direct business Model has heralded an entirely unique concept of customer focus. By engaging all of its channel partners Dell has successfully integrated the idea of customer need identification and its fulfillment. Dell has carefully segmented its business around customers and not around the product. Its largest customer segment is the corporate segment and the end users who are working there. In the ensuing pages a root cause analysis has been done to identify the key customer issue and the reasons behind it. The corporate segment is the one which drives maximum revenues and Dell had decide early on to provide the best support in the industry. Later Dell’s delivery of superior customer value shall be judged by five operations performance objectives in focus. Then in retrospect tools such as Importance-Performance Matrix, Gap Model, and Value Chain analysis shall be considered to prove the customer centric direction adopted by Dell. In the end recommendations based on current understanding shall be proposed.
Dell- Customer Focused and Market Oriented
Dell is a perfect metaphor for a company which has embraced the concept of market orientation. The edifice of Dell was built on meeting customer needs by anticipating and satisfying them. Other organizations realized this late during their operational years, while Dell was born out of the idea of marketing concept and market orientation. Michael Dell started by realizing that there was a better way to sell computers. In the early 1980s when the computer business was in its early growth stages, he realized the inefficiencies in the computer distribution system. The traditional model was effective in distributing high volumes of PCs with multi configurations to a broad base of large customers. But some of the inherent weaknesses made it vulnerable to changing technological environment, increasing competition and rising demand levels which was closely linked to time based selling. This model was heavily relying on forecasting to run the production. With the fast changing market dynamics it was almost impossible to accurately forecast the demand due to shorter product cycles. Sometimes there was a shortage of high selling products which were then ultimately sold by the competition. At other times it was an oversupply of products which were later sold at a loss.
There was no direct relationship with the customer so nobody made any efforts to find out how he was being affected .Dell with its direct selling model accomplished this direct relationship and filled a gap which was left ignored by competitors like Apple, Compaq & IBM. Dell’s direct model surpassed the traditional one in the below ways-
- All the components were outsourced while the assembly was done at the Dell plants
- There were no retailers as the goods were shipped directly to customers from the factories
- The system took orders from the internet and the phone
- Component suppliers were located close to the assembly factory
Dell sold direct to the customers with its built-to-order (building a PC only when an order was received) concept. Thus it removed two links in the supply chain where inventory can clog. It helped Dell in three ways-
- Customer knowledge- it helped dell in understanding customer needs which helped dell to forecast demand and that helped in maintaining low inventory without any problems of ‘stock out’.
- Cost advantage- low inventory cost; low component cost and low warehousing cost
- Technology advantage- Dell was able to reduce the time to market of its PCs with newer technologies
On the technical and supply front all the manufacturers had the same base. The only differentiating factor was the structure of distribution.
The traditional distribution model and the Dell Direct model is as shown below-
Traditional Model Dell Direct Model Virtual Integration
‘Blurring the gap’
Computer has become the ultimate consumer product. In times of rapidly expanding technology the product replaces itself after every few years. So this makes marketing business very interesting. They recognized that efficiency and effectiveness on one hand and service on the other is very important in delivering superior customer value. Being so close to the customer establishes Dell a close partner wherein the responsibilities towards satisfying customer needs increases manifolds. The entire direct model is central to customer need identification and fulfillment. It is organized around serving the customer. Customer feels comfortable and at ease while transacting and interfacing with Dell. Direct selling gives Dell ready information about customer preferences and needs and provides immediate feedback on design and quality problems. Daily contact between customers and the sales force help the company keep a tab on the market pulse which helps in detecting shifts in market trends and getting prompt feedback on problems with the products. The problem is corrected in a matter of few days. Their product strategy is focused on providing products that customer want to buy rather than selling newer technologies that are interesting but does not add any value to real customer needs. Dell’s e-commerce platform is central and fundamental to its efforts in mapping and delivering superior customer value. It is one company which has embraced IT as a differentiator in servicing customer. It has tremendously helped customer in doing business with Dell on a day to day basis.
This level of customer interface made Dell to segment its business based in different customer groups. There are different account teams that cater to individual customer groups. Dell targets individual users of the products who are actually using the products with in those particular customer groups. For example at Boeing they have 30 Dell people on site to provide everything right from installation to software imaging. They cater to individual person’s job loading specific software to specific machine. The processes which Boeing has to do itself or through a reseller was done by Dell, thus Dell becoming an integral & trusted partner in their business.
Dell globally segments its customers into below groups-
- Large businesses / Corporate (Relationship group)
- Small & Medium Business
For the purpose of this assignment large business / corporate segment’s value shall be considered. The reason is Dell’s majority of the revenues are being generated out of this segment, besides, they have predictable purchasing pattern and low service costs. The CorporateEnd user which is the ultimate consumer of the products within the corporate segment is the one which is being considered here as a CUSTOMER. So to keep this end customer happy is seminal to Dell’s competitive advantage.
Root Cause Analysis (Why – Why analysis)
The customerissue as identified is ‘Dissatisfaction with Product & service delivery’. Having done the analysis it is clear as to why Dell chose Direct Business model. Dell identified significant gaps in the market when it comes to overall customer satisfaction and trust. By getting to the root of the problem Dell focused on building one to one relationships with the end customer. This customer centric core philosophy was instrumental in shaping the entire organizational structure wherein all the stakeholders right from customers to suppliers were involved in generating value.
Corporate segment is a very special & sophisticated segment given the complex scale of its operations, Human resources, revenue generation, global presence and mass buying. Trust is what matters to them. To run their businesses efficiently they need to have a seamless well running IT system, which can integrate their worldwide operations. For this they need computers and related equipments on a continuous basis. Now it is not a one time purchasing decision. It an ongoing process which if gone through the traditional model of going to the retailers or the distributor, placing orders and going through all the formal procedures which are time consuming and cost inducing, employ essential resources in processes which add little value. Time is an asset and costs need to be reduced in unnecessary activities wherever possible to improve margins and overall effectiveness of the firm. In times of credit crunch this lends lot of weight and extra value. And ultimately large businesses not in the PC business don’t want to be in it when it comes to literally deploying a whole array of people to manage the entire physical purchasing, deploying and maintaining process systems. What they look for is a company who can manage the entire process of requisition of PCs and managing them throughout their life period in a reliable and consistent manner. They look for convenience and the best support in the industry. This makes service input an integral part of their engagement with a PC supplier.
These are operations performance objectives (Slack et al, 2007) which are used to asses the satisfactory levels of value delivery to customers vis-à-vis organizational performance. Also they are the variables which large corporations and their individual users look into when engaging with vendors for PCs and related equipments.
- Quality 4. Flexibility
- Speed 5. Cost
The above issues are important in light of the total customer experience and forms the key drivers of value delivered to the end users in the corporate segment.
Operations Delivery = Quality + Speed + Dependability + Flexibility + Cost
The assumption here is that all the above attributes are relative. A customer’s perception of a product or service is always judged with that of the competitor’s offering.
- Quality – Quality is the most important aspect for any corporate customer. It binds together all other performance objectives. Quality is nothing but conformance to customer’s specifications on a consistent level. Dell suppliers have to go through a rigorous quality management procedure. Good suppliers help built good relationships with the customers. Only those suppliers who can align themselves with Dell’s strategy of customer focus can work with the company. As with customers, Dell is virtually linked to its suppliers too. One of the tools Dell uses to measure supplier’s performance is through a report card. In it the quality objectives are set clearly. Dell is always striving to achieve less than 1,000 defects per million.
Chart I - Slack et al, 2007
Quality is also linked to other customer delivered values and has a profound
impact on speed, cost and dependability of operations (Slack et al, 2007). Conformance to quality means very few mistakes will be made that result in reduced costs, increased dependability and speedy response to customer. Quality is one aspect where Dell customers are the most satisfied one. Each corporate customer has been assigned a team of dedicated Dell account managers who are always available at the beck and call to solve quality problems, if any.
- Speed– Speed to market is what has catapulted Dell to become one of the top three in the business. Speed means the time spent in fulfilling the needs of customers. It’s the time between customer order and delivery. The faster a customer receives a product the happier he will be and more benefits in terms of timely usage it shall receive. This system delivers immense value to Dell’s corporate customers. Its JIT (just-in-time) inventory system greatly emphasizes this important aspect in operational efficiency. Dell produces goods exactly when they are needed i.e. deliveries are made on request.
This entire transaction right from the customer to supplier is being done via the web. Instead of vertical integration it’s been termed as a ‘virtual integration’. Each big corporate customer is assigned separate account on the web called as ‘PremierDell.com’. With this facility the end users can easily order and track their respective purchases anytime. The intensive use of low cost and fast paces e-commerce business has put Dell closer to its customers like never before.
Dell’s suppliers are located close to its assembly plant in Texas, Tennessee, Ireland, Malaysia, China and Brazil. It is constantly sharing information with its suppliers. Technology has a great role to play in whole process. Majority of the components must be put in to a warehouse with in 15 minutes of Dell factories and 2 hours of inventory must be ensured by the suppliers in the plant at all times.
JIT also enables Dell to introduce newer technologies which are necessary for corporations to get in lesser time than its competitors. For example if Dell has 9 days of inventory related to a particular chip and its competitor which is following the traditional mode of supply chain has 80 days of inventory and Intel comes out with a new chip then Dell would be able to get to the market 71 days sooner. Thus customer gets the new product faster which ultimately helps him in improving his efficiencies. A company with loads of readymade computers in stock cannot accomplish this as it has to still sell the old stock. Dell is an epitome of speed to consumer.
Chart II - Slack et al, 2007
Direct relationship with the customers means reduction in inventories and faster response time. It helps in reduction of costs (Slack et al, 2007) at all levels thereby passing those costs as benefits to the end customer.
- Dependability – Direct to customer adds greater emphasis on timely deliveries. Dell with its e-commerce model and online sales management helps in accurate order receiving and processing. Then through automated system logistics companies are informed of the pending shipment. Simultaneously customer is also informed at the same time. Customer through PremierDell.com can easily track the movement of the material. Normally orders are shipped within seven days of receiving them. Direct distribution system is so designed that it gets information in real time from its suppliers about the status of the order and quality defects. If there is a supplier like SONY which is consistent in terms of quality then Dell asks its logistics companies to directly pick up the material from the Sony factory thus further decreasing time to customer.
Chart III - Slack et al, 2007
Thus having dependable operations set up ensure smooth flow of processes thereby reducing uncertainties and saving on costs (Slack et al, 2007).
- Flexibility – Flexibility means changing the operations in some or the other way. Flexibility is core to the business philosophy of Dell. By offering a wide range of products over the internet through PremierDell.com a corporate end user can configure the products of his choice with his range of specifications. It offers mass customization features to the end users. PremierDell.com is specially tailored for the end users within the corporate segment. It’s also a one to one customer relationship management tool forging loyalties with the company. It is a password protected web page that allows users to order, track and monitor their customized orders. End users can easily access the relevant information whenever they want it and wherever they want it without having to send faxes, compose emails or made phone calls. An end user can log in to his organization’s premier page and shop for notebooks, desktops, servers, storage devices and related components. He can view past purchases, contracted prices, pre approved computer accessories etc. for his own department and easily find contact information for Dell customer service representatives. Customers can standardize their PCs and related equipments and that customization with 3-4 combinations of components is displayed on the site which enables the end user to make quick purchasing decisions. It offers them a direct control over their environment. Dell has so developed the system that it can launch a Premier site within two days. Better communication, lower cost of purchase, no confusion & uncertainty, high confidence and better service are some of the customer values being met by Dell with PremierDell.com
Chart IV - Slack et al, 2007
Flexibility makes the response to the customer fast (Slack et al, 2007) because customization helps in delivering exactly the same PC which the customer has demanded. It also saves a lot of precious time of the corporate end user for whom time is an asset (saving time is saving money) and Premier pages have made their work easier thus increasing the dependability.
- Cost – Direct business model is a perfect metaphor for cost reduction. Reaching direct to customers by eliminating links pertaining to ‘distributor’ and ‘reseller/retailer’, which are key components of a traditional business model not only helps in increasing and sustaining supply chain efficiencies but also helps in reduction of costs which are ultimately passed on to consumers. Its direct contact with the customers helps in getting real time information which accelerates its forecasting capabilities way ahead of competitors. ‘PremierDell.com’ helps corporate customers in standardizing desktop configurations. Limiting the range of choices available helps a corporate customer to manage its ‘total cost of ownership’ (Peppers et al 2001). Eastman Chemical Co. used to deploy a vast variety of softwares programmes from licensed applications to in house programs. Each new PC needed several hours of attention from its IT people involving hundreds of dollars per PC. Dell through its ‘DellPlus’ service standardized all its PCs. It created a high speed network that loads software directly onto Eastman’s PCs while they are still on the assembly line. It saves a lot of costs for Eastman Chemicals.
In short Dell’s direct model supported by its high product quality, Just-in-time inventory practices for speedy customer reach and response, on time deliveries enhancing dependability of its operations and flexibility ensure cost savings not only for Dell but also for its corporate customer
Chart V - Slack et al, 2007
Having discussed the five operations performance objectives and linking the same to their significance in delivering superior customer value and generating loyalty, following are some of the key observations:
- Importance – Performance Matrix – Dell is performing at an optimum level when it comes to delivering customer value considering the five operations performance objectives. Dell’s direct business model has all what it takes to be truly world class.
The Importance – Performance Matrix (Slack et al, 2007)
- Gap Analysis –
The above gap model (Slack et al, 2007) displays four key gaps in customer expectations and organizational performance concerning product service and quality. Dell’s business model deals with all the gaps in a collective, cohesive and interlinking way. Dell has filled all the gaps which has helped it in generating customer loyalty thus creating value in the following ways-
- Gap 1- Due to direct contact with the customers Dell gets regular feedback on customer preferences, real time. Dell delivers only that quality which customer requires so there is no gap in customer’s own specification of quality and organization’s specification of quality. Dell only manufactures that which customer actually wants. By using Six Sigma Dell has significantly reduced quality gaps.
- Gap 2 & Gap 3 – Dell is always in touch with its supplier online. Just like PremierDell.com Dell has introduced ‘Value Chain’ for its supplier wherein a supplier can always be in touch with Dell. Dell works closely with suppliers to develop quality products. There is continuous monitoring on the quality standards. It’s a mutual sharing of information and knowledge which helps Dell to stick with the original concept of the product. This reduces the gap between product concept and the organization’s quality & service specifications. Continuous online sharing of quality information and strict guidelines to maintain quality-service standards helps reducing the gap between organization’s specification of quality and the quality of actual delivery.
- Gap 4 – Direct relationship with the customer enables Dell to directly communicate its offerings. Customers are encouraged to give their feedback. For corporate customers a distinct feedback system was incorporated called as ‘Platinum Council’ (Michele Dell, 1999). It is a one to one interaction with the large corporate customers especially the end users using Dell products. It’s been designed to encourage feedback on the latest offerings. Customers have first hand experience not only on Dell’s new products but also are able to share the performance of the products they are already using. There is no difference between actual product service / quality and communicated quality as there is universality in approach.
- Value Chain –
Dell has so designed its business model that it incorporates and interlinks all the primary and support activities in delivering customer value. It’s a customer centric organization and all the key components of the model; suppliers, customers and employees work in tandem to generate value at all levels and thus strive to deliver exactly what a customer really need. Therefore Value Chain (Kotler, 2000) at Dell encompasses all the activities that are generating a distinct competitive advantage to the company.
- Customer Delivered Value –
Customer’s delivered value (Kotler, 2000) has two components-
Total customer value = product value+ services value+ personnel value+ Image value
Total customer cost = Monetary cost+ time cost+ psychic costs+ energy costs
Customer delivered value (Profit to a customer) =
Total Customer Value - Total Customer Cost
By minimizing total customer costs Dell is creating more value to its customers as compared to its competitors.
It becomes clear that Dell is a pioneer in creating long lasting value to its customers which helps in generating loyalty. By using e-commerce as the medium Dell has successfully retained its corporate customers. In the preceding pages we have outlined the thinking that enables Dell to successfully orient its offerings to the market. By Root cause analysis the reasons for customer dissatisfaction were illustrated. Five performance objectives of the organization were evaluated in relation to Dell’s delivery of customer value. Their effectiveness were measured by using tools such as Importance – Performance matrix, Gap Analysis and Value Chain. And it was found that Dell is optimally performing at all levels. It has closed all the gaps in existence between itself and the customer. It is a true metaphor for ‘Value Chain’ depicting intra-organization coordination in delivering superior customer value.
Dell has mastered the below four Ps of Marketing Mix-
Product – Providing innovative customer solutions
Price - Keeping costs down at the customer end
Place – Making the entire purchasing and interaction more convenient via internet
Promotion – Continuous touch with the customer thus maintaining flawless
Dell is clear in its customer segmentation approach. It is targeting the end users in the corporate segment. By the introduction of PremierDell.com it has successfully establish one to one relationship with its end customer. It is a benchmark for initiating the significance and power of technology to reduce cost and increase convenience.
- PremierDell.com is already helping Dell to learn working styles of different end users. Within a corporate segment Dell can differentiate different types of influencers and decision makers. It should strive to understand the customer behavior more closely.
- Dell can also learn to deduce computing skills of different users. This would help Dell to further customize its offerings and increase the value added.
- Dell can also link its customer to its suppliers as it would help the suppliers gauge the requirement first hand and would further help in reducing inventories both at Dell and the supplier facilities. This would increase the response time to customers.
- Dell can provide assistance to its corporate clients to support their own customers in terms of business processes, IT and Interactivity. It would also help in increasing its customer base.
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