Dell Direct and Not-so-Direct

When the Texas-based Dell computer company started in 1984, its creator Michael Dell was interested in having a completely different distribution approach from his competitors. In order to keep costs low, minimize inventory costs and cater to customer needs, Dell sold directly to customers. By 1997, Dell’s distribution model was working extremely well for the company and brining in $1 million a day in sales. Based on the model and the success of direct distribution for consumers, Dell expanded its target audience to large companies, small businesses and government agencies. Dell’s competitors were interested in the same markets, but unlike Dell used both direct and indirect distribution methods.

In 1990s Dell tried the option of retail distribution. It tried selling Dell PCs through a number of large U.S. retail chains, but did not realize the profits it was expecting. The company also tried using branded kiosks to communicate with consumers in order to answer questions, resolve issues and place orders. Neither of the trials was very profitable for Dell, so very quickly after initial implementation both experiments didn’t last long. In 2007, Dell realized that consumers outside of US were not as interested in purchasing PCs from the internet. Dell ended up selling its products both through US and through international big chain stores. By 2010, these experiments showed enough profit to make Dell start entertaining other retailing opportunities.

In addition to beefing up its retailing strategy, Dell also is a pioneer in the use of social media for marketing and makes a significant profit from posts on Facebook and Twitter. In addition, Dell continues to use its tried direct distribution strategy at the very core of its business.

Key Marketing Issues
* Speed of innovation – The reality of the computer market today is that as soon as someone has a great idea, immediately someone else comes up with a greater idea. For a computer giant like Dell, staying on top of what’s latest and greatest and being able to make quick changes is key to staying in the game. Dell’s marketing organization needs to continuously work on new ways to market their products in this environment. One huge advantage that Dell has is its direct marketing strategy. Because of this strategy the company does not have a backlog of inventory or even parts and builds the product to order for its customers. The lack of inventory and parts backlog allows Dell to be more agile and roll with the punches in today’s computer sales environment. * Distribution time– Dell has been lagging behind its competitors HP, IBM, Acer and Lenovo in the speed of distribution to consumer.

Because of Dell’s ‘build-to-order’ approach and lack of distribution channels, it takes Dell longer to deliver the product to consumers. Competitors on the other hand use distribution partners and thus make distribution much faster. By direct-selling through its website, Dell’s consumers have to wait 5 to 7 days for their purchases, unlike 24 to 48 hours for HP, IBM, Acer and Lenovo purchases. * Technological expertise – Dell’s key business approach allows consumers to build computers to their own specifications. That works extremely well for technically savvy consumers, but what about those consumers who don’t know what it is that they need? In order to market to the average consumer, Dell needs to continue to make its website more user friendly and give more average user explanations to all of the features and options of Dell’s computers. If an average consumer can understand what their options are, they would be a lot more willing to build their own computers through Dell’s website.

Personal Case Analysis

Dell computers are a household name in both consumer and business markets. Dell has been very successful with its direct distribution approach and its reliable, reasonably priced products. Dell has performed some short-lived experiments with selling its products through distribution channels and has not been as successful as selling the products on its website. In order to keep up with its competition, though, Dell needs to continue to try to find the best approach to product delivery to its consumers. For example, it takes Dell 5 to 7 days to get a product built on its website to the consumer. At the same time, it takes 24 to 48 hours to get a product made by one of Dell’s competitors. If Dell can increase the speed of its product delivery, it can continue to successfully compete in today’s market.

Case Questions

1. Is Dell using intensive, selective or exclusive distribution for its market coverage?

Dell started out its business with an exclusive distribution of its computer products through their website only. By direct selling to consumers, Dell was and still is able to provide the customer exactly what they want without the additional cost of selling through distribution partners, holding unnecessary inventory and parts and being able to roll with the punches. At the same time, Dells competitors used distribution channels to help them sell their products and thus were able to attract a consumer base that prefers instant gratification and does not want to wait for Dell’s 5 to 7 day distribution time. In order to continue to compete, Dell has tried several distribution partner approaches. For example, in 2009 Dell made an agreement with Ingram Micro and Tech Data to sell some of its specific products. Overall, Dell now uses more of a selective distribution strategy than it did in the beginning.

2. How does Dell’s preference for direct channels affect its decisions about physical distribution?
Dell’s initial approach to distribution positioned the company well for profits. The company did not hold any unnecessary inventory and thus could make changes quickly to adapt to the changes in the market. Dell’s inventory costs were low and waste of unsold inventory was non-existent. Instead of on-demand build of products to consumer specifications, the physical distribution channels would require Dell to build products ahead of time and carry large amounts of inventory. In addition to not being able to provide a consumer with a product built specifically for them, Dell would potentially have inventory that would become outdated quickly and would not be profitable. Dell’s success with direct channels is so successful that Dell struggles with the physical distribution approach. The company has made several attempts to introduce Dell computers in physical distribution channels and has quickly pulled back its efforts.

3. What issues in channel conflict might arise from Dell’s current distribution arrangements?

As Dell uses more physical distribution partners to sell their products, the biggest conflict that might arise would be related to Dell continuing to sell products through their direct website. Some consumers are interested in dealing with the producer directly in order to save money by eliminating the middle man. This would put Dell in competition with its distribution partners and thus create conflict.

Conclusion

Dell continues to be very successful in the computer sales business and has even expanded to producing other related products. Dell’s custom built products attract many loyal consumers who like to get unique products. Dell is able to stay in the forefront of innovation by being agile. Not having to carry a lot of inventory and parts on hand, Dell is able to make changes to the technology much faster than its competition. In addition, Dell is able to keep its costs low and pass that on to the consumers. Dell’s product prices are relatively lower than the market due to the distribution strategy. By eliminating distribution partners, Dell is able to keep its prices low. Overall Dell is successful with its current marketing and distribution strategies, but may need to continue to entertain physical distribution opportunities in order to stay competitive in the technology market.

Works Cited

“Dell Marketing Strategies?“, http://www.entrepreneurslife.com/thoughts/entry/dell-marketing-strategies/

Jessica Davis, “Dell to Distribute PCs through Ingram Micro, Tech Data”, http://www.channelinsider.com/c/a/Dell/Dell-to-Distribute-PCs-through-Ingram-Micro-Tech-Data-558334/

Andrew Shedden, ‘”Channel Conflict – How to Reduce The Static”, http://broadfieldconsulting.com/channel-conflict-creates-lot-static/