MARKETING SPOTLIGHT
"We have a tremendously clear business model," says Michael Dell. "There's no confusion about what
the value proposition is, what the company offers, and why it's great for customers." Dell is now the
number-one computer systems company.
Dell is extremely responsive. Buyers go on Dell's Web site and design their own computers. They give
their payment authorization, which means that Dell receives the money in advance and can use the
funds to pay for the supplies needed to build the computer. Because its computers are built-to-order,
Dell carries an industry-leading four days of inventory. It takes delivery of components just minutes
before they are needed. At its Austin, Texas, factories, a Dell System can in some cases be built, have
the software installed, be tested, and be packed in eight hours. Dell's costs are lower, allowing it to price
its computers lower than competitors' prices if it wishes.
Yet speed is only one part of the Dell equation. Service is the other. In fact, it was through veering away
from its successful business model that Dell discovered the importance of customer service. In 1993,
the company began trying to sell to retailers, mainly because everyone else was. Customers were
disgruntled because of poor retail service. Dell ultimately abandoned the retail channel.
Most important, Michael Dell decided that "there would be more things we'd have to do besides build a
PC." He knew his company had two kinds of customers, corporate and consumer. Whereas the
consumer would buy mainly because of price, the corporate buyer needed a carefully developed
relationship. Like most successful companies, Dell put the most resources into building relationships
with its most profitable customers.
Corporate customers make up about 80 percent of Dell's business, and the company manages its
corporate accounts with a top-notch sales team. Dell also installs custom software and keeps track of
business customers' inventory for them. Through the use of Premier Dell.com, customized customer
Web pages at the Dell site, the company has created a 24-hour order-entry system. Big customers can
click on the site to see all kinds of information about their preferences and needs. The site can be
accessed worldwide by any company subsidiary; and employees, not just purchasing agents, can use the
Premier Dell.com to purchase computers according to an automated policy. "It's the ultimate network,"
Michael Dell says, "and a fabulous way for us to interact with our customers."
The normal practice of companies is to "build-to-stock." This is a guessing game that companies often
lose by building too much or too little. In the auto industry, cars will sit unsold in dealers' lots for 60
days, tying up working capital. Why have auto and other companies not moved from the inefficient
"build-to-stock" model of production to Dell's "build-to-order" model? Auto manufacturers have invited
Michael Dell to speak to them on several occasions. The consensus seems to be that Dell works with 50
main suppliers to put together a $1,000 PC, but a car manufacturer may have to work with 900 suppliers
to put together a $20,000 car. In addition to the technical challenge, the auto industry faces dealer and
legislative hurdles.
Discussion Questions
1. What have been the key success factors for Dell?
2. Where is Dell vulnerable? What should it watch out for?
3. What recommendations would you make to senior marketing executives going forward? What should
they be sure to do with its marketing?
Sources: Michele Marchetti, "Dell Computer," Sales & Marketing Management (October 1997): 50-53;
Evan Ramstad, "Dell Fights PC Wars by Emphasizing Customer Service— Focus Wins Big Clients and
Gives IBM and Compaq a Run for Their Money," Wall Street Journal, August 15, 1997, p. B4; Saroja
Girishankar, "Dell's Site Has Business in Crosshairs," Internetweek, April 13,1998, p. 1; "The
Intemetweek Interview—Michael Dell, Chairman and CEO, Dell Computer," Internetweek, April
13,1998, p. 8; Dale Buss, "Custom Cars Stuck in Gridlock," The Industry Standard, October 23, 2000,
pp. 90-97; "A Revolution of One," The Economist, April 14, 2001; Betsy Morris, "Can Michael Dell
Escape the Box?" Fortune, October 16, 2000; Gary McWilliams, "Dell Computer Has a Midlife Crisis,"
Wall Street Journal, August 31,2000; "Dell Increases Its Market Share as PC Sales Slow," New York
Times, January 22,2001; Leah Beth Ward, "Dell Sales Overtake Compaq," Dallas Morning News,
January 24, 2000
