A Case Study on the Changes

in Marketing Strategies of
DELL
Marketing Management
24-01-2010
A Case Study on the Changes in
Marketing Strategies of DELL

Contents
Contents.................................................................................................................................................2

INTRODUCTION

Since its foundation in 1984, Dell Corporation had been the fastest
growing entity in the computer industry in the world. It is considered a
pioneer and has set benchmarks in direct marketing strategy. The
computer industry is a very unique industry as rapid innovations and
super fast product life cycles forces the companies to keep up with
continuous innovation and varying trends. Such rapid adoption of new
technology also means that unsold old stock would be of no use and had
to be discarded or sold at heavy discounts. It is one of the most difficult
industries to maintain a competitive edge over the competitors, which Dell
had innovatively tackled and came up with strategies such as ‘Just-in
time’ inventories and outsourcing of parts to avoid out-dated inventories.
From the beginning Dell has been focused on customer service by
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understanding the customer’s needs and providing the most effective

computing power to meet those needs. Even until this day Dell has held
on to this viewpoint and they have gone from a dorm room based
business to a multibillion dollar giant of the industry. The Dell Company
maintained their competitive edge by using their easy to use
customization interface along with maintaining relatively low costs by
shipping directly from the supplier to the customer.

To analyse DELL’s initial marketing strategy which led to its establishment

as the market leader in the PC market, it is necessary to understand Dell’s
initial marketing mix.

1. THE RISE OF DELL

Marketing Mix can be defined as strategic blend of controllable attributes

of a marketing campaign that any company can utilize to alter perception
of the consumers favourably to its own product or service offerings to
achieve its organizational objectives. In short, it is a model of crafting
marketing strategies to suit a company’s objectives. The four attributes of
the Marketing mix model, commonly referred to as the 4 P’s can be
described as:

• Product

• Price

• Place

• Promotion

Product

The product decision involves deciding what goods or services should be

offered to a group of customers. Some examples can be product decisions
about Brand name, functionality, styling, quality, safety, packaging,
repairs and support, warranty, accessories and services.

Dell provided customers with an option of customizing the PC according to

their own requirements conveniently on internet or telephone lines. The
product lines were few since Dell did not invest immensely into R&D for
new products and technology. They developed improved packing methods
that use the least amount of packaging material possible, while still protecting
product shipments. The product’s quality was entry level rather than premium.

Price

This key element represents what a company would receive on a unit

basis for the product or services being marketed. Pricing decisions can be
about pricing strategy, suggested retail price, volume discounts,
wholesale pricing, cash and early payment discounts, seasonal pricing,
bundling, price flexibility and price discrimination.
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Dell’s pricing strategy decisions were normally about achieving advantage

for the organisation over competition from others. For example, Dell felt
that the margins earned by many competitors were too high and that
made them vulnerable to a strategy of lower prices and tighter margins.
Armed with a cost-effectiveness advantage, Dell aims at drastically
reducing profit margins for their competitors in any new market that it
ventures into, thus damaging their profitability and in turn securing more
market share. It is an established trend used by consumer electronics
manufacturers who often target a gross profit margin of 30% but in Dell’s
case, they stuck to a range of 18-19%. Dell also uses standardization
strategies to eliminate the market edge of their competitors who invest in
proprietary technology. Dell prices were lowest due to the Dell’s cost
structure which was the lowest in the industry as a result of eliminating
distributors, very little R&D and keeping overheads to a level of less than
10% of sales. They directly transferred the savings to the customers and
hence exploited the low pricing strategy.

Place
Place is about delivering products to the customers. Some examples of
distributions decisions are selection of distribution channels, market,
specific channel members, inventory management, warehousing,
distribution centres, order processing, transportation of goods and reverse
logistics.

Dell’s knowledge of internet selling was fundamental to its success.

Internet became the major sales channel and they became one of the first
companies to exploit internet as part of its marketing strategy. They had
extensive experience in direct marketing which they continued on
internet. Dell used the approach of “Just-in-time” inventory management
system which enabled them to order components and assemble them only
once the orders were received from the customers. This ultimately
decreased operating costs as well as eliminated any outdated inventories.
But it meant that the benefits of showcasing computers in stores had to
be sacrificed. Order processing times were reduced as a result of virtual
integration of the supply chain which further reduced coordination and
communication costs.

Promotion

This element is regarding communicating information about the product

with the goal of generating a positive customer response. Marketing
communication decisions usually include promotional strategy (push, pull,
etc.), advertising, personal selling, sales force, sales promotions, public
relations, publicity and marketing communications budget.

Dell revolutionized the concept of Direct Marketing in the computer

industry to become the market leader in the past. It used the simple but
highly effective strategy of providing standardized computer products to
their customers directly through the medium of internet e-commerce or
telephones which enabled them to eliminate any cost of research
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activities on their products as well as drive out profit sharing with retailers
and distributors. The Direct marketing approach also helped them achieve
competitive edge over their competitors by – firstly, it helped them reduce
inventory costs by providing them the flexibility of developing products as
and when orders were received and secondly, it created a high performing
marketing process that could easily adapt to the real-time results based
on incoming orders. Dell has a huge market share among the corporate
customer segment as compared to only one-fifth of share in the consumer
segment in the US market.

At the pinnacle of their success, DELL was positioned as the market leader
in the PC market ahead of the main rivals like Hewlett Packard and IBM.
The phenomenal growth was a result of an effective marketing mix. An
effective marketing mix was achieved as they had a well blended mix of
the four elements (Product, Price, Promotion and Place), had successfully
created a competitive edge like low cost model, and matched the
customer needs and corporate resources as well. It had major successes
in business and educational market segments apart from the consumer
segments. Dell’s share price was the top performing big company stock of
the 1990’s as it rose from 23 cents in 1990 to $68 in 1998!

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2. THE FALL

With time needs and buying behaviour undergoes various changes; to

match the new requirements accordingly the marketing mix should be
changed. Dell did not adapt to the changing environment which is evident
from the downward slide of its market share which started in August 2005
and dropped to the second position in PC business by late 2006 usurped
by Hewlett-Packard.

There has been a shift from the traditional approach to marketing by

increased focus on customer-centric strategies which could increase sales.
The difference in approach could be stated as being the shift from how
marketing used to be seen from a business perspective towards people or
customers’ perspectives as conceptualized by the “4 Cs” approach. It can
be defined as:

Customer Value (Against Product)

It is the amount of benefit that a customer will get from a service or
product relative to its cost. The current trend in the industry demonstrates
that companies would no longer be able to sustain their business with
offering what they want but instead should make an effort to understand
what the customers want and build products accordingly.

As time progressed consumers considered computers as a commodity

rather than a luxury and were looking at features which reflected this
changed outlook. Dell’s failure at understanding the desires of its
consumers, poor customer service and suspect product quality led to the
drop in market share as consumers preferred the more innovative
computers from Hewlett-Packard, IBM and Acer.

Hewlett-Packard specifically catered to growing needs of large enterprises

by offering IT solutions and managing systems in addition to the sales of
computers that Dell lacked in.

Cost (Against Price)

To maximise customer value, a shift in focus can be seen from price

charged by a company for a product or service to cost paid by customers
Companies need to offer more value addition to their products without
increasing cost to sustain an competitive edge in the market.

As other companies started providing better, reliable and different

products as well as better customer service at cheaper costs, customers
started to prefer these products over the ones offered by Dell.

Convenience (Against Place)

Instead of looking for an optimum place or medium to sell the product,

companies need to provide the easiest and convenient way for a customer
to purchase goods. While buying a product, consumer would prefer the
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most convenient mode which suits his needs and choice.

Dell revolutionized computer direct marketing by dealing with the

customers directly whereas its competitors sold through stores and
resellers. But as the market grew on an international scope direct
marketing became ineffective and resulted in Dell’s failure to capitalise on
means used by its competitors.

Communication (Against Promotion)

Nowadays a buyer would prefer a two-way communication with the seller

rather than believe everything being told on face value. Customer
engagement has become the key approach to build a meaningful
relationship.

Lawsuits involving faulty products and fraudulent accounting tarnished

Dell’s reputation to a great extent that led to a shift in customer’s loyalty
to other competing brands.

Dell’s inability to cope with the changing market environment due to the
above mentioned factors toppled its share price and market leader
position by losing market share to Hewlett-Packard and other competitors.

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3. THE PARADIGM SHIFT

With the apparent failure of their long-standing strategy of “maximizing

profits from existing resources and capabilities”, Dell understood that the
need of the hour is to bring in a revolutionary change in its approach.

Their very first step towards a change in strategy was to revamp the
Management to bring in Michael Dell back as the CEO and the
appointment of their new Head of Advertisement division, Mark Jarvis.
Mark has promised to usher in radical changes in the company’s vision to
improve its standing in the market and re-capture its position as the
market-leader in the industry in the next two years. Case in point: On 12th
July 2007, Dell launches an advertisement campaign which is more
colourful and vibrant than any it has used in the past The new
advertisements showcased the newly launched Inspiron series of
computers, which were vivid in the use of colours to provide a bold look
and feel and impart youthfulness to the product. They also came up with a
new tagline which said “Yours Is Here” to create a product which would be
desirable among the customers.

The Inspiron brand aligns to the view of Michael Dell who professes the
need to phase out “dull grey/black boxes” and innovate with products that
build “brand lust”. Similarly, the company has shifted its focus on
producing premium-priced products such as the Studio and Adamo brands
while reducing production of utilitarian computers. The other challenge for
Jarvis was to usher in competitive marketing edge for Dell’s SME based
product offerings. In this regards, Dell developed the new advertisements
for its Vostro series of computers and services which highlighted the fact
they were designed specially to cater to small businesses. The Dell
website proclaimed prominently that the Vostro brand was entirely
created for the SME segment. Dell has also entered into collaborations
with resellers who design and setup IT systems for SMEs to extend their
sale in this segment.

Also, the Company has recognized the possibility of growth outside the US
market and has expanded its scope to the International market such as
the EMEA region and the APAC region. Dell has a huge market share in
China and predicts notable growth in the Indian market at approximately
25% annually, in the next few years for which it plans to adopt strategies
such as –

• Building new factory to be operational early next year,

• Building out sales capabilities & building brand,

• Expanding Product & Services portfolio

Dell has also added value to its distribution strategy by entering into deals
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with large retailers such as Wal-Mart to sell its products on a global scale,
while keeping the direct marketing strategy alive.

Finally, the new focus of Dell has shifted to providing service oriented
marketing by using the cloud computing approach which allows the
customers to access resources such as software applications and data
storage services through the internet which are remotely hosted by Dell
on their behalf. To this point, Dell acquired a company called EqualLogic in
2008 by paying $1.4 billion and also has struck a partnership with data
storage giants, EMC which is providing the cloud-computing services to
Dell’s corporate customers.

4. RECOMMENDATIONS

The various strategic initiatives undertaken by Dell, while being efficient

and innovative, there still remains the scope for further value additions to
their existing strategies. After critical analysis on the scope of
improvement, the following recommendations maybe adapted to improve
their profitability and business:

• Focus on developing proprietary technology instead of outright

outsourcing of its components and software.

• Innovate in the services aspect of their products with new ideas on

customer support strategies to improve customer satisfaction and
loyalty.

• Change in outlook and strategy with respect to its outsourced value-

chain activities and e-business model. The cost effectiveness is a
short term advantage which would soon be insignificant as
competitors bring in their own strategies of cost efficiency and offer
them to the customers.

• Diversify into the IT services industry from being just a product

company offering hardware products. Dell has introduced an
integrated IT solution for SMEs and need to increase the scope of
their offerings.

• Introduce internet forums for customers provide feedback on their

products as well as offer ideas for improvement.

• Dell should diversify their offerings into new segments such as

smart phones, IPTV, E-wallets that would enable to cater to a wider
customer segment as well as drive up sales in their original products
by creating a larger customer base.

• Use of E-marketing strategies such as collaborating with Microsoft or

other popular social networking sites to promote their brand image
and create brand desire.

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• Improve the purchasing experience of its customers by offering

complementary products such as Microsoft software or through
personalization of products to suit the customer’s needs. A good
way to achieve this is to offer products for various segments of
users as per their needs to achieve a whole new level of customer
satisfaction.

CONCLUSION
To summarize the case study, it can be said that Dell initiated and pioneered in
its direct marketing strategy in the computer industry which led to their rise as
the market leader but down the line they overlooked the changes in customer’s
perception and consolidate on their initial success, which led to their de-
establishment as leaders. Subsequently, they have realized the error in their
marketing strategies and are trying to making amends towards a more
successful future. The same is illustrated by the following graph which depicts
the rise of Dell as a market leader in PC industry from 1997 till 2005 and then
emergence of HP and ACER as the market leaders due to unsuccessful marketing
strategies of DELL.

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REFERENCES

• DELL, 2010. Customer Stories, [online] Available at: <

http://content.dell.com/uk/en/corp/about-dell.aspx?c=uk&l=en&s=corp>
[Accessed 18 January, 2011].

• Johnson G., Scholes K., Whittington R., 1988, Exploring Corporate

Strategy, 7th Edition(2005), Prentice Hall, Financial Times

• Jobber D, Principles and Practice of Marketing, 6th Edition (2009), The

McGraw-Hill Companies.

• Marketing 101 - 4 C's versus the 4 P's of Marketing [online] Available

at: <http://www.customfitfocus.com/marketing-1.htm> [Accessed
17 January 2010].

• How to Define Marketing Mix: The “4 Cs” Customer Perspective

[online] Available at: <http://www.sales-and-marketing-for-
you.com/define-marketing-mix.html> [Accessed 17 January 2010].

• Suit over Faulty Computers Highlights Dell’s Decline [online]

Available at:
<http://www.nytimes.com/2010/06/29/technology/29dell.html?
pagewanted=1&_r=3> [Accessed 17 January 2010].

• Dell Settles S.E.C. Accounting Suit for $100 Million [online] Available
at: <http://dealbook.nytimes.com/2010/07/22/dell-settles-s-e-c-
accounting-suit-for-100-million/> [Accessed 17 January 2010].

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