Dell - Marketing Principles for Business - Case Study Example

Marketing Principles for Business: Dell Marketing principles for business Introduction Dell is one of the leading personal computer manufacturing companies in the world. Having entered into the PC business not earlier than 25 years ago, the company is highly distinguished from most of the rest by its strategies that not only reduce the production cost but also allow the customers to enjoy low priced PC at their specifications. This direct channel marketing policy was an innovation of the founder of Dell, Michael Dell, which saw him think of the business. Back in the late 80s when he was still a student at Texas University, Dell was able to establish a PC selling business through mail orders. This provided a cheaper option to many customers. As the company grew from a sale company to a manufacturing business, this same strategy of providing services at low cost with good quality still remained a chief focus of the company. Currently, the company is known for building specified personal computers, servers and also storage devices that are so customized to allow the customers to choose their preferred device. Dell has for a long time embraced sales and enquiries through the internet, this is considered faster and more convenient for many computer users (Ferrell & Hartline, 2011. p 54). The marketing and operations strategies used by Dell has always put it ahead of the rest in the business. Providing low-cost PCs and other devices while maintaining quality and innovation allows more customers to enjoy convenient quality at affordable prices. It also allows clients to order customized computers at relatively low extra cost. The strategies have maintained the competitive position of Dell for a long time. Until recently, the competition in these strategies was not steep. However, Dell is currently faced by a challenge of increases competition especially in the markets it considers its core segments, the PC market. Many rival companies have adopted similar strategies with even far-reaching coverage. This threatens to replace Dell in the leadership position. This paper is a case study that aims at exploring the marketing and operations strategies of Dell that keeps its competitive advantage. The case study will also look into ways in which the competition can be sustained and improved by Dell by employing various marketing functions. Operational strategies of Dell Michael Dell was only 19 years when he started the idea of using mail order to sell PCs. This appeared to be a cost cutting operation that enabled many people, especially fellow students to own computers at low cost. This operation strategy has been maintained as one of the most important for the company. With one centralized customer-supply base in every region where Dell’s presence is felt, the company can provide low-cost high-quality computers while cutting the cost of distribution and supply chain (Viardot, 2004. pp 23-31). The in-house assembly of PCs, more like what happens in the motor vehicle industry allows the company to save cost by importing devices and parts in bulk and assembling them at a centralized position close to the customers. The customization is also dine during assembly. The customers’ specifications are put in consideration during the assembly to produce the exact kind of product ordered. To keep abreast with the technology, Dell uses 2-hours stock of component supply. This means that when a major component distributor such as Intel has a new component in the market, it is more likely first to be used by Dell. Dell, therefore, reduces the cost associated with reduced sales of old systems. Similarly, when a distributor lowers the cost of a component, the company will not lose while selling the old stock at a lower price than the production price. In Dell, PCs are assembled as customers are waiting. The orders received direct the assembly. This implies that there is no cost of storage of complete commodities since no PCs are made for stock. The assembly work at Dell uses clips as opposed to screws. This makes the work faster and easier for the workers who are then able to meet the orders received with the required specifications and also with proper consideration of details. The workers are then assessed against their detailed targets of profits, cost and quality of work quarterly (Dell & Fredman, 2006. p.67). Marketing strategies An appropriate strategy in marketing is key to reach the potential client for any business. There are different types of customers in the market and therefore a single strategy cannot be used successfully. To effectively reach out to the customer, marketing strategy should enable the company to perform three most crucial duties. Firstly, the strategy should enable the company demonstrates value. Giving test drives and a chance to explore the company convince customers over time of the value of the company. Secondly, the strategy should help the company to build networks of awareness and trust among the prospective customers. This way, new customers are obtained while still maintaining the loyalty of the first customer. Thirdly, the company should stay in touch with the real world in which the customers live (Ferrell & Hartline, 2011. p 54). This helps in the efforts to be innovative and hence supply commodities that are to cover the felt needs of the customers. Dell uses the STP formula for strategic marketing. This formula recommends market segmentation, targeting and positioning as the basis of the strategy. The company, through this strategy, can identify the parts of the market where it can serve most effectively and profitably and then use its resources to target this market and position itself. Dell, being a computer building company identified the hardware market and positioned itself to provide quality PCs at a lower cost of production and distribution. It is from this position that the company has grown, introducing more of the computer hardware as technology grows (Viardot, 2004. pp 23-31). Further, from this established position, Dell can partner with software companies to ensure that its products are immediately equipped with the latest software for customers satisfaction. Along with product segmentation, Dell also uses customer segmentation to make marketing more effective. The segmentation is based on the geographical location and hence the specific needs as well as the type of customer. Dell identifies two categories of customers, the relationship customers, who represent the large corporations, governments and educational institutions. This category of customers provide the company with the larger portion of the sales and are considered part of the company with special treatment. Fixed subsidized costs and even services such as free shipping. This helps to retain the major profit earners and attract more. The second category of customers is the transactional customers who are more price-sensitive and seeking customized low cost and reliable products. These are mostly individual customers who are in need of personal computers. The prices in this segment do not vary greatly (Jones, & Silverstein 2009 p. 241). Dell uses the latest technology in its devices to attract these customers through online advertisement. The accessibility of the Dell products online and the ability to pay for commodities through credit cards is an advancement of the original idea of low-cost mail orders which brought the company to relevance. The transactional customers can access products online, and order customized PCs and pay for them online before they are delivered. This makes the transaction easy and convenience for many. By producing for order, Dell does not only ensure that there is no residual stock but also ensures that new technologies are incorporated into their products immediately they are available. The implication of this is that customers can access the new and latest products online from Dell before most of the competitors can have access to the technology. This gives Dell an upper hand in the market (Jones, & Silverstein 2009 p. 234). The marketing principle at Dell is based on a specific focus of the four Ps marketing mix. The four components of this mix are product, place, price and promotion. Dell provides a wide range of product choices. The various computer systems, servers, workstations and desktops, as well as storage devices, allows the company to attract a wide range of customers who can purchase various products at the same point. The addition of computer hardware peripherals in the production chain has lately boosted the sales (Dell & Fredman, 2006. p.67). In terms of place, Dell has a wide distribution channel which gives the company an advantage of reaching a wide range of customers and positioning itself. The prices of Dell products and services is considerably lower than most company. Since the low price does not compromise quality, the competitiveness of the company is ensured since most people will go for low priced quality products. To reach out to a larger market, Dell uses technology to advertise and promote its products. This is a sure way to reach out to the prospective customers and establish relationships with institutions (Ferrell & Hartline, 2011. p 54). Pricing strategies and objectives Dell realizes that price can influence the decision of customers. The flexibility of the pricing system has allowed Dell to claim its place in the competitive personal computers market over the years. Since the main aim of the company is to provide low price and value for money to the customers while still maintaining their profit, pricing flexibility has been a strategy that the company has benefited from. The customer segment determines the strategies that the company is dealing with. For the relational customers, their prices are subsidized for bulk purchase and discounts given depending on the value of the purchase. For transactional customers, the prices of single commodities depend on the specifications and location of the customers who also dictate their specified needs. Allocating production sites in various places around the world allows Dell to be close to the customers. This increases their physical presence and also ensure that there is reduced cost of production and supply (Viardot, 2004. pp 23-31). All these allows the company to cut cost of production and hence use low prices as incentives to attract customers. Competitive advantage and its sustainability Competitiveness of any company is always at risk. The strategies that a company uses to remain relevant in the market are always exposed to the rivals who are capable of using the little flaws within the originators strategies to beat them in the market. Dell was the innovators and originators of low priced PCs which were delivered easily and more efficiently, previously many of their rival companies tried to compete with Dell but failed due to weaknesses in their strategies. However, with emergent of new companies in the field, which are producing PCs at even lower cost has resulted to stiffness in the competition, threatening to replace Dell at the top of the market (Jones, & Silverstein 2009 p. 239). Most of the Dell products are finished by a third party partner, whose location is usually near the main production facility so as it seems like the same facility. This increases the production cost and threatens long-term success. It is also a weakness that rival companies are using to beat Dell in the market. Most of the Dell competitors are currently opening full production facilities in many areas such as Asia where production costs relatively low. This enables them to produce their PCS and other devices at a reduced cost and make the available to the customers easily and faster. Compaq’s presence in China in the last few years is an indication of this. Other emerging companies such as Lenovo are being established in these regions to stiffen the competition. Being a local company in China. Lenovo is taking over the computer market in the country and the region displacing Dell. This has been evidenced the Lenovo acquiring the ThinkPad name and manufacturing rights from IBM. This makes Lenovo a worthy competitor especially due to its location, in china, a low-wage country allowing it to produce computers at low production costs and therefore sell them at lower prices (Ferrell & Hartline, 2011. p 54). Maintaining its competitive advantage will require Dell to get back to the drawing board. From this position, several steps can be made. First, the overdependence on third-party finishers and suppliers should be reduced to ensure that the production cost is significantly reduced. Secondly, the company should seek to expand its coverage in other parts of the world where the computer market has not been fully explored such as Africa and Australia. This will help the company obtain a new level customers to identify with. In these areas, the production cost is low, and the market is not exploited. Further, the company should seek to expand the indirect sales channels such as the use of retail stores to reach the customers, expanding its virtual and online market and increasing the production of devices such as notebooks that are currently at a greater demand (Dell & Fredman, 2006. p.79). With the current trend in the global production environment, it is also likely that attempts to ‘go green’ and provide products that are environmental friendly and energy conserving will enhance the competitiveness of the company. All these activities require a great deal of innovation and application of market research. Although the activities will require funds and resources, it is highly likely that the return from such strategies will be realized soon enough to allow the company return to its position in the market and retain its customers. Using these strategies while still reinforcing the original founding idea will help in making the company more relevant to the customers and ensure it retains its position in the computer market. Replicating the efforts of others innovatively can also help to keep the distance between Dell and its competitors. References Dell, M., & Fredman, C. (2006). Direct from Dell: strategies that revolutionized an industry. http://www.contentreserve.com/TitleInfo.asp?ID={45A9D0C4-CA9B-45D5-B672-393CE594FBDF}&Format=410. Ferrell, O. C., & Hartline, M. D. (2011). Marketing strategy. Australia, South-Western Cengage Learning. Jones, S. K., & Silverstein, B. (2009). Business-to-business Internet marketing: seven proven strategies for increasing profits through Internet direct marketing. Gulf Breeze, FL, Maximum Press Viardot, E. (2004). Successful Marketing Strategies for High-Tech Firms. Norwood, Artech House. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=227677. Read More