Serious Issue For Dell As Customization example essay topic

Table of contents Case comprehension p. 2 Situation analysis p. 2 Diagnosis p. 4 Alternative choices p. 5 Predicting outcome p. 5 Choice p. 7 Solution outline p. 8 Case comprehension Dell Computer Corporation was founded in 1984 by Michel Dell, as a result of a growing demand for his pre-formatted hard-disks and upgraded IBM-compatibles. Within a year, Dell introduces its first own-design computer system and in 1989, the company introduces its first laptop. The first laptop introduced did not live up to the Dell standards, and was therefore taken off the market again. Dell had to solve the problem of balancing the production of laptops, desktops and servers. On the laptop market, which Dell was committed to re-enter due to its growing customer base, there were a number of technological problems.

Dell had hired John Medica, lead developer of Apple computer's Powerbook line, and according to him, only one of the laptops being developed would be able to compete on the market. However, it would take some time before it was fully developed, so Dell had to reject their customer's demand for laptops. In doing so, Dell made the customers understand that it would not take forever. Dell's way to approach the fact that the company was not able to fulfil the customers wishes, was through honesty. The question was whether this strategy was an advantage for Dell or not.

The brand "Dell", which serves various consumer segments, is efficiently delivering attributes such as good quality computers along with operative support services. Dell takes position in direct communication with customers and delivers build-to-order computers. The value created by using the direct model to sell customized products and by providing on-site service ranked Dell between market leaders IMB, Compaq, HP. It represents good performance machines at a reasonable price as well as unique and distinctive "Direct Model", while targeting corporate, medium and small sized businesses and home office consumers.

The advantage of a strong brand, investment in R&D and direct communication with the customers could successfully lead the company into the laptop market. However, the laptop market differs from the desktop market in a number of ways. For Dell the main problem will be the manufacturing process. When producing laptops, most parts will be delivered by suppliers and Dell just ads the last parts. This limits the degree of customization possible and since one of Dell's most important distinguishing features is computer customization, the company risks not attracting customers. Dell needs to find a way of approaching their former and present customers as well as trying to gain new customers, making their offer interesting to both sides.

The new challenge the company faces is to decide whether or not to continue the with the direct business model for the laptop market, or if the Dell should follow its competitors and sell through the retail market. Situation analysis Due to a changing market environment and existing product life-circle there is a need for the company to revise its present business units and to think about further expansion. There is a shift in customer demand and therefore it is crucial for Dell to recognize in what ways best to satisfy the customers' needs. Dell is considering if re-entering the laptop market is profitable and advisable for the company and whether the distribution channel should be based on the direct model or the indirect model (the retail market). Dell has successfully restructured the management team and hired John Medica, from Apple. Medica's team is developing a new line of Dell laptops, and together with advanced and newly introduced technology this creates an expectation of large profits from the portable production.

The main issues related with entering the laptop market are: reduced degree of customization possible in laptops, competitors who are already established on the market, the customers that were once disappointed with Dell's low quality laptops and how to distribute the laptops. The reduced degree of customization indicates that production and assembly strategies may have to be changed from the one used for desktops in order to make the laptop manufacturing successful. As the demand for portable computers was growing Dell's competitors (IBM, Compaq, Apple) were already gaining a great share of the market. Dell also needs to consider how to convince former customers to buy the improved computers. Furthermore, it is crucial for the company to decide between implementing the direct distribution strategy or the retail channel.

All together these issues led to one main concern - how to make the entering into laptop market successful? The goal of entering the laptop market is to expand the company and to offer customers the high-quality customized computers they want at a competitive price, as quickly as possible and backed by great service. In order to reach these goals Dell needs to gain advantage in production cost and to select an effective distribution channel. The drawbacks that makes this situation difficult is the bad past experience and the need of new educated employees in service and manufacturing sectors, as well as the need for new suppliers. The distribution question is also essential, because many small office and home buyers prefer purchasing through the retail channel where they can see and touch the product, whereas Dell communicates with customers directly through the Internet. Before deciding between the alternatives, it is necessary to look into the internal and external situation of the company...

Strengths- Previous withdrawal from the laptop market was made in a decent way: Dell effectively communicated with its customers, shareholders and suppliers, and everyone was told about the problem and Dell's plan to correct it in a straightforward manner. Accordingly Dell didn't lose the trust of its stakeholders. - The company's previous failure of entering the laptop market should be seen as strength, because the large-scale loss has given Dell an experience and will make the company more careful and cautious when choosing production methods and penetration strategies, as well as more detailed in pursuing R&D. - Customer segmentation: by segmenting customers Dell can effectively serve individual needs, and take into consideration the difference between selling to large corporations and individual customers. - Reputation built on Dell's unique and distinctive distribution: by distributing directly, Dell can successfully communicate with customers and focus more on individual needs. The company's strategy to build the computers according to customer's specification results in low inventory costs. - The company's desire to experiment without being afraid of taking risks that could bring failure as well.

The IT industry is ever changing, and being innovative is a must if a company wishes to be successful... Weaknesses- The need to form market share in the laptop market from nothing. - Reentering the market causes further production costs (investments in new technology, new specialized employees, restructure assembly line and etc. ). - Lower degree of customization that is possible for laptops and this in turn limits Dell's ability to produce customized laptops which is its main feature of success... Opportunities- Company's expansion to new market.

- New potential customers and the need to redeem lost customers in terms of laptop production keeping in mind previous failure. - Possibility to take advantage in delivering products faster and providing service in competitively effective manner... Threats- Facing already well operating and widely spread competitors. - Other companies are adopting Dell's direct model - Dell is losing its uniqueness.

- The threat of rejection to buy Dell's portables, because some former customers are prejudging Dell as producing low-quality laptops. Diagnosis For an innovative company like Dell, the decision of entering the laptop market is rather simple, since it's the only way to expand and follow the development. The most interesting issue is therefore how to do it. On the strategic level it should be decided whether or not to use the direct model or the retail business, and on the tactical level, the marketing managers have to decide in what ways to do either of the alternatives. On the operational level, the technicians should design the laptop, marketers should decide at what segment to market the laptop and production should decide how to produce at a reasonable price. Alternative choices Predicting outcome The direct model The direct model can be defined as a zero-level channel.

This means that the manufacturer, Dell, is selling their products directly to the final customers without any intermediaries. The direct model makes it easier for the company to create a reliable relationship with their customers through a direct-order-marketing. In general, customers think technology is complex and therefore buying a computer can seem difficult. The direct model provides customers exactly what they want in their computer systems through easy custom configuration and ordering and therefore offers less complexity. The distinguishing features of the direct model are faster dist, lower costs compared to the indirect model and, as mentioned, a direct relationship with the customers. The advantages of the direct model are, firstly, lower cost since all resellers and intermediaries are eliminated, which makes the distribution line shorter and thereby the need for inventory reduced.

Secondly, the customers' needs are better satisfied, since the products are customized and the manufacturing process is build-to-order. The customers can through this model order computers modified after personal wishes. The disadvantage of this model is that the customers do not have the possibility to "feel" the product. Neither do they have the possibility of taking a look at the product and base their buying decision on this. If entering the laptop market with the Direct Model we think Dell should focus on three tactical issues: the corporate market, customization and production. The corporate market serves three different kinds of customers: large corporate's (e.g. Kodak), small and medium sized (e.g. private business with around 150 employees), and those of individuals posting their request online.

Each of these segments should be approached in their own distinct way, so the customization and individuality which Dell stands for, can be met to the widest extent possible. This takes us to the second issue; the alternative solutions in customization. First of all what is customization? It is the ability of a company to produce individually differentiated goods, whether ordered in person, on the phone or online, combined with marketing customization. A company is called customized once it can have a dialogue with individual customers and respond by customizing its products, services, and messages on a one-to-one basis. If Dell decides to focus on customization they need to start targeting and choosing the group of customers they want, segment them based on their similar needs and find out the benefits sought by the customer in solving a particular consumption problem. - need based segmentation The next step is to determine for each need-based segment which demographic, lifestyle and usage behavior that makes them actionable - segment identification Third point is, using the predetermined segment attractiveness criteria, for example market growth, competitive intensity and market access, in order to determine the overall attractiveness of each segment. - segment attractiveness From segment profitability - segment profitability we arrive at finding a strategy for each segment, which should be based on that segment's unique customer needs and characteristics. - segment positioning The second last task for Dell is then to test the attractiveness of each segment's positioning strategy.

Constructing so called "segment storyboards" can do this- segment "acid test " Finally expand and segment positioning strategy to include all aspects of the marketing mix: product, price, promotion and place- marketing-mix strategy In the end though it is important to have skilled people who can introduce the companies new approach and idea in and understandable manner and also be flexible enough to adapt to vast changes, especially in the IT branch. Therefore too, development and research should have a high standing taking this line of entering the laptop market. Following a new idea requires as well, that your suppliers pull along or if not so, the company can find these necessary innovative suppliers. Else, no production, no possibility for. As the last point we want to mention the assembly line.

Unlike with desktops or servers, the process of building and producing a laptop is far more prefixed and needs to follow certain guidelines, which ought not to be adjusted or changed. A very clear explanation that this does not affect neither Dells quality nor their variety of offers in the laptop market is affected in a negative way. But not comparable to the previous mentioned markets. So the need to communicate in a very clear, understandable way to their current and too future customers is more than a prerequisite but than a necessity if wanting to succeed. The indirect model The indirect distribution model contains one or more intermediaries between manufacturer and end-user. If Dell decides to focus on the indirect model as a one-level-channel with retailers as their intermediary, this arises questions such as what types of retailers Dell wants to use and in relation to that, what price level would appropriate.

Dell can choose to sell their products in specialty stores, supermarkets or discount stores. If they decide to limit their product availability to specialty stores, they can set a higher price level. Accordingly, if they want to sell their laptops in discount stores, the price level must be much lower. This will normally create higher volumes and lower margins. If retailing through supermarkets, Dell can expect relatively high volumes, low margins and low prices. Visible advantages of using the indirect model are: Above all, Dell will be able to sell laptops at higher prices, since the price-level in the retail market is above the level in the direct distribution market.

Furthermore, the use of retailers will enable Dell to reach a very large number of potential customers, since Dell will be represented in thousands of stores all over the US. Finally, the customers will be able to see and feel the product before buying it. This is an advantage within the laptop market, since people are not as familiar with laptops as with desktops, which have been on the market for a considerable longer period of time. There are however, also a number of disadvantages connected with indirect distribution: First of all, producing for stock will require a much higher investment capital, since Dell needs to pay its suppliers with its own money. This money is first gained when the consumer decides to buy the laptop in the store which, according to Dell managers' estimates, will take about 6 months. Secondly, it is almost impossible to customize the laptops when selling through retailers.

Dell will have to produce a number of standard products, which should be attractive to as many customers as possible. This is a serious issue for Dell, as customization is one of the company's main provider's of success. It should also be considered what kind of service Dell expects from the retailer. Keeping in mind that Dell's brand holds strong value in offering effective service, it is doubtful if the company would be able to retain it high standards, when selling through retailers. Specifically, the service that discount stores offer, normally range from non-existent to very poor, and that is not compatible with the well-known Dell standards. Choice The decision of which of the two alternatives to chose should be made on a general strategic level, but with the market and customer values in mind.

Dell should use the direct model when entering the laptop market. The model has been highly successful for the company so far, and the company should therefore use the experience and superiority that it already has within this channel. The cost of implementing the direct model compared with the selling through retail will be almost none. Dell has already got the know-how of how to make it work best, which ensures a rather low risk level, and in either way, the company should invest in R&D and finding new suppliers. Dell must differentiate itself from competitors through its customization and easy-access. In this way, Dell should be able to win a rather large market share, as on the desktop market.

Dell has a high customer satisfaction, and keeping to the well-known "recipe" will ensure that this does not change. Solution outline As the technology market is getting more and more developed, all leading IT-manufacturers has almost the same access to different laptop technology. This could put limit Dell in taking over the leading position. However, Dell should enter the laptop market as a market-challenger. Dell needs to find the place in the laptop product-life-cycle where it the technology enables customization, but before the competitors are able to reach a degree of customization in their mass-produced laptops.

Dell can only do this by investing in R&D and thereby using the latest technology. Furthermore Dell must focus on issues they can in fact control such as cost reduction, distribution efficiency and service instead of focusing on the Dell's major advantage in cost reduction is the low inventory costs, and they should strive to accomplish as good a corporation with new suppliers as with the existing ones. They should also try to cut the transportation costs by choosing local and nearby suppliers. Dell should make sure, that once a customer has made a buy, the information is passed on in order to assure quick distribution. Last but not least, it is important for Dell to hire skilled sales representatives, who can communicate to potential buyers that Dell has designed a new product that fully lives up to the strict standards as the existing products. The interaction between the representatives and the customers should be gathered as data, which can be used not just to determine the present situation, but also for future research and further development..