Description
The PPT explaining on Del's Distribution Network.
Distribution Network
Case: DELL – New Horizons
History
• In 1984, Michael Dell founded the company as PC's Limited with capital of $1000 • In 1985, the company produced the first computer of its own design — the "Turbo PC", sold for US$795 • Changed its name to "Dell Computer Corporation" in 1988.
Introduction
• “Marketing channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption” Philip Kotler
Basic Channels Of Distribution
Manufacturers/products
Agents/brokers
Wholesalers/distributors
Retailers Retailers
Consumers and organizational end users
Functions of a Distribution Channel
Information
• Provide a link between production and Promotion Developing and spreading communications about offers consumption. Organisations that form any Contact Finding and communicating with prospective buyers particular distribution channel perform many Matching Adjusting the offer to fit a buyer's needs, including grading, assembling key functions and packaging
Negotiation Physical distribution Financing Reaching agreement on price and other terms of the offer Transporting and storing goods Acquiring and using funds to cover the costs of the distribution channel Assuming some commercial risks by operating the channel (e.g. holding stock)
Gathering and distributing market research and intelligence important for marketing planning
Risk taking
CHANNEL DESIGN DECISIONS
Channel design is a strategic marketing tool Four decisions can help a firm design a distribution channel:
? The role of distribution in achieving objectives ? What type of channel is needed? with or without intermediaries? ? What level of intensity of distribution is required? ? Which specific intermediaries to use? which will be best suited to achieve objectives?
Distribution Scope
• Exclusive Distribution
– Limiting the distribution to only one intermediary in the territory
• Intensive distribution
– Distribute from as many outlets as possible to provide location convenience
• Selective distribution
– Appoint several but not all retailers
The Dell wave of entry
Three pillars of product launch
• Sales Channel
calls from consumer through TollFree no. ? Dell`s sales Representatives on behalf of large accounts
1. SALES ? Inbound CHANNEL
2. DELIVERY CHANNEL (HOME DELIVERY, INSTALLATION)
Delivery Channel:
3. SERVICE CHANNEL ? Dell Direct Model
Service Channel
? Online Service Support ? Telephonic
CHANNEL LEVELS
Channel level is an intermediary which brings product and its title closer to buyer Zero Level/One Level/ Two Level /Three level
Producer Personal Selling Telemarketing Toll free phone # Catalogue order Fax order Mail order E Commerce
Buyer
Competitors Overview
• Technology leader : Unique operating system , User friendly GUI • Attracted many first time users : simple point and click menu system • Declining of market share: non licensing of its technology and absence of open system architecture
Apple
IBM
• Used its huge sales force to sell PCs to corporate customers and retail channels • Reach in small and medium enterprises • Open system architecture: Created opportunities for the new manufacturers such as Dell and Compaq
Compaq
• Lacked sales infrastructure • Recruited retailers for individual customers and value added resellers for large corporate accounts
Dell Direct Model-”Easy to describe but difficult to operate”
Component manufacturer
Components
Dell Computer Corp.
Order
Final Customer
Product
Distributor
• Orders come from two major streams ? Calls from Consumer and small business customers through a print ad or catalog ? Orders placed by Dell “inside sales representative” on behalf of large accounts: • The second method helped Dell to sell richer configured systems and higher ARU in spite of the lowest gross margins and prices • Based on Low cost, direct customer relationship, virtual integration, high velocity and Just in time manufacturing,
Dell buys the components through different distribution channels but did not use in his model
Dell Direct Model – “build-to-order””
Calls from consumers/Orders placed by large accounts Powered and Tested Boxed with other peripherals
Order broken down into parts
Software Loading
Spec sheet generated and an electronic bar code is given
Integration of DellPlus components
•Entire process from order to delivery took about 36 hours •Ability to work on JIT basis was facilitated by the location of suppliers
Dell Vs Compaq Direct Model
Successfully launched it’s Direct model in the year 1984 and the model is constantly improving High focus on Customer Segmentation, thus allowing Dell to gain if prices fall Close Relations with the suppliers, thus allowing minimum inventory holding time Failed two year attempt to create it’s own build to order model Dual focus on sales i.e. Direct and indirect, thus forming dual cost structure and risk of alienating from the channel High cost manufacturing structure, thus outsourcing consumer’s PC
Advantages of the Dell Model
Clear model and direct customer interaction Just in time and Proximity to suppliers Mass Customization Low Inventory Cost
• Avoids issues faced by most manufacturers such as dual cost, forecasting, etc. • Focus on computer literate customers and appropriate segmentation
• Focus
on tight relationship with few suppliers (200 in 1992 to 25 in
2000) • Operate on a just time basis: suppliers warehoused bulk of the components within 15 minutes from the factory • Achieve economies of scale through large production and individual customization • Decreases the risk of forecasting problems and avoids overstocking • Operates on 6 days of inventory as compared to 75-100 days in indirect model (2000 figures) • Dell chooses best in class providers such as Microsoft, Intel for each component and thus leverage their investment in R& D • Fortune and Trilogy survey ranked Dell first in managing customer relations • Various options for support: telephone/Online, technicians sent within 24-48 hours and lesser downturn time as compared to others • Entire purchase process from order receipt to product shipping takes only 36 hours • Offers a the platform in effective coordination both internally (tighten the relationship with suppliers) and externally (customers orders) • Approximately 50% of the sales is through online (2000)
Virtual Integration and low R & D cost
Excellent Customer Support High Velocity Perfect Web Adaptability
SWOT Analysis-Dell
A
Strength
Weakness
Clear focus and direct customer interaction Low Inventory cost Virtual Integration Excellent customer support Just in time and proximity to suppliers Perfect Web adaptability High velocity Seen as a leader in the commoditization market
Low international market share as compared to US Certain segments are not covered with the Dell’s direct model No in house repair facilities Lack of retail outlets
SWOT
Slowdown in the economy Competition from the cheaper brands Indirect Competitors such as Apple Business executive as they have high bargaining power (buy in large volumes)
Increasing International presence Differentiation in price sensitive market Diversify into new products such as servers and storage Focus on other segments
Opportunity
Threat
IDENTIFYING MAJOR CHANNEL ALTERNATIVES Changing Channel Distribution Models in the Internet Age
• "channel power" – The use of electronic distribution channels • Presents companies with the option of reducing or eliminating the role of intermediaries and lets those providers transact directly with their customers
Advantages of the internet distribution
• Actual sales of products—e.g., Amazon.com. • Promotion/advertising: Customers can be quite effectively targeted
– For example, when a consumer searches for a specific term in a search engine, a “banner” or link to a firm selling products in that area can be displayed.
• Customer service: Information for electronic products, provide updated drivers and software patches • Open Source Forums: Ideastorm.com • Market research: Data can be collected relatively inexpensively on the Net.
Tapping market through Internet
• In 1995, well before the internet boom, Dell started developing online tech support and provided order status information • Designed an online retail store and built the ‘configurator’ • Offered customer specific sites called ‘Premier Pages’ – paperless purchase orders, pricing, real-time order tracking etc.
The Market Segmentation
• Created nine market segments which were organized into three divisions
? Relationship Business ? Small and Medium Businesses ? Consumer Business
Dell customer segments
dell customer segments
large customers
small customers(busine ss/consumer)
large companies
mid sized companies
Government
Education
small customers
global enterprises
large companies
mid sized companies
Federal
State/Local
Higher education
K-12
small business
consumer
Relationship
Transaction
Segmentation
Relationship Business • Represented 60 percent of Dell`s revenues in U.S • Depended on industry analysts, conferences and referrals from other large customers to make their decisions • Payment was through corporate purchase orders or lease agreements resulting in a longer payment cycle
Small and Medium Businesses
• Accounted for 30% of dell’s US revenue • Segmented potential customers into Preferred Accounts(PAD) and Business Systems Division(BSD) • Relationships with close to 25000 PAD customers and a million BSD customers • Excellent Customer Relationship Management
Consumer business • Accounted for 10% of Dell’s revenue in US • Consumers in this segment are instable and switch companies which offer lowest prices • Highlighted overall product performance, specifications, features, bundles for first time users. • Payment mainly cash or credit card based
Exploring New Opportunities: Products
Servers
• Market segmented into three level of servers
ENTRY LEVEL SERVERS
MID RANGE SERVERS
HIGH END SERVERS
Storage
• Building the
Alliance with EMC
Exploring New Opportunities: International Markets
Market Western Europe Asia Pacific Japan Latin America Position of Dell (2000) 3 7 8 5
Rest of the World
5
• 25% of the revenues outside the US market • Direct Model in countries like Japan and Australia • Distributer relationships in China and Thailand
Exploring New Opportunities: Services
• Service Optimization is the key • Example of Dell’s Service:
– Dell installs ‘commerce Server’ in one hour against seven hours taken for a competitor
• Dell focused on– Expanding technical consulting – Installation and break/fix services
Dell`s Retail Entry
• Dell's innovative direct- sales model with good sales growth had been successful until the mid-2000s when the company's profits and share prices began dropping considerably • On May 24, 2007, Dell disclosed its plans to sell PCs through WalMart and Sam's Club retail stores • In India, as part of the retail initiative, Dell tied up with Tata Croma in July 2008 and with select Staples stores • By the end of 2008, Dell planned to increase its presence to100 Indian cities by increasing its channel partners. • In October 2008, Dell announced the opening of the first Dell exclusive stores in India at New Delhi and Coimbatore • Dell also tied up with 600 systems integrators all over the country who could take orders on its behalf
New Marketing Strategy in India
• Dell is targeting the small and medium businesses (SMB) in smaller towns in India as its main driver for growth as the company believes this market sector is growing rapidly and is not exposed to global shocks making it a much more stable market • Dell India is focusing on simplification of the business processes as part of its new rollout plan • Tie up with Tally to offer accounting solutions online. • Dell has also increased its SMB team to 200 and expanded its presence to about 600 tier-II and tier-III cities
Dell Connect
• Simple online access tool that allows support associate to access the customer`s computer online and diagnose the problem under the customer`s supervision
Dell Partner Portal
• In late 2007 Dell Inc expanded its program to value-added resellers (VARs), giving it the official name of "Dell Partner Direct“ • It promised VARs who joined this program increased discounts on product and the ability to use the Dell name and logo in their marketing efforts.
Recommendations
• Dell could target first time PC buyers by educating them about the features of the PC
– Setting up kiosks in malls
• Phased entry into Tier I and Tier II markets • Explore other markets like Printers, IpPhones • It can tie up with solution providers to enhance their support facilities • It can tie up with retail chains to reach first time PC users giving them a hands on experience
Conclusions
• After the success of Dell’s Direct model and its internet and its internet application, many companies are following this approach but as seen , it is easy to describe but very difficult to operate. E.G. Compaq failure • Companies are indulging in dual cost, as of both direct and indirect model. Thus lacking success as compared to Dell •They can not have a clear focus because of lack of segmentation strategy
doc_363141741.pptx
The PPT explaining on Del's Distribution Network.
Distribution Network
Case: DELL – New Horizons
History
• In 1984, Michael Dell founded the company as PC's Limited with capital of $1000 • In 1985, the company produced the first computer of its own design — the "Turbo PC", sold for US$795 • Changed its name to "Dell Computer Corporation" in 1988.
Introduction
• “Marketing channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption” Philip Kotler
Basic Channels Of Distribution
Manufacturers/products
Agents/brokers
Wholesalers/distributors
Retailers Retailers
Consumers and organizational end users
Functions of a Distribution Channel
Information
• Provide a link between production and Promotion Developing and spreading communications about offers consumption. Organisations that form any Contact Finding and communicating with prospective buyers particular distribution channel perform many Matching Adjusting the offer to fit a buyer's needs, including grading, assembling key functions and packaging
Negotiation Physical distribution Financing Reaching agreement on price and other terms of the offer Transporting and storing goods Acquiring and using funds to cover the costs of the distribution channel Assuming some commercial risks by operating the channel (e.g. holding stock)
Gathering and distributing market research and intelligence important for marketing planning
Risk taking
CHANNEL DESIGN DECISIONS
Channel design is a strategic marketing tool Four decisions can help a firm design a distribution channel:
? The role of distribution in achieving objectives ? What type of channel is needed? with or without intermediaries? ? What level of intensity of distribution is required? ? Which specific intermediaries to use? which will be best suited to achieve objectives?
Distribution Scope
• Exclusive Distribution
– Limiting the distribution to only one intermediary in the territory
• Intensive distribution
– Distribute from as many outlets as possible to provide location convenience
• Selective distribution
– Appoint several but not all retailers
The Dell wave of entry
Three pillars of product launch
• Sales Channel
calls from consumer through TollFree no. ? Dell`s sales Representatives on behalf of large accounts
1. SALES ? Inbound CHANNEL
2. DELIVERY CHANNEL (HOME DELIVERY, INSTALLATION)
Delivery Channel:
3. SERVICE CHANNEL ? Dell Direct Model
Service Channel
? Online Service Support ? Telephonic
CHANNEL LEVELS
Channel level is an intermediary which brings product and its title closer to buyer Zero Level/One Level/ Two Level /Three level
Producer Personal Selling Telemarketing Toll free phone # Catalogue order Fax order Mail order E Commerce
Buyer
Competitors Overview
• Technology leader : Unique operating system , User friendly GUI • Attracted many first time users : simple point and click menu system • Declining of market share: non licensing of its technology and absence of open system architecture
Apple
IBM
• Used its huge sales force to sell PCs to corporate customers and retail channels • Reach in small and medium enterprises • Open system architecture: Created opportunities for the new manufacturers such as Dell and Compaq
Compaq
• Lacked sales infrastructure • Recruited retailers for individual customers and value added resellers for large corporate accounts
Dell Direct Model-”Easy to describe but difficult to operate”
Component manufacturer
Components
Dell Computer Corp.
Order
Final Customer
Product
Distributor
• Orders come from two major streams ? Calls from Consumer and small business customers through a print ad or catalog ? Orders placed by Dell “inside sales representative” on behalf of large accounts: • The second method helped Dell to sell richer configured systems and higher ARU in spite of the lowest gross margins and prices • Based on Low cost, direct customer relationship, virtual integration, high velocity and Just in time manufacturing,
Dell buys the components through different distribution channels but did not use in his model
Dell Direct Model – “build-to-order””
Calls from consumers/Orders placed by large accounts Powered and Tested Boxed with other peripherals
Order broken down into parts
Software Loading
Spec sheet generated and an electronic bar code is given
Integration of DellPlus components
•Entire process from order to delivery took about 36 hours •Ability to work on JIT basis was facilitated by the location of suppliers
Dell Vs Compaq Direct Model
Successfully launched it’s Direct model in the year 1984 and the model is constantly improving High focus on Customer Segmentation, thus allowing Dell to gain if prices fall Close Relations with the suppliers, thus allowing minimum inventory holding time Failed two year attempt to create it’s own build to order model Dual focus on sales i.e. Direct and indirect, thus forming dual cost structure and risk of alienating from the channel High cost manufacturing structure, thus outsourcing consumer’s PC
Advantages of the Dell Model
Clear model and direct customer interaction Just in time and Proximity to suppliers Mass Customization Low Inventory Cost
• Avoids issues faced by most manufacturers such as dual cost, forecasting, etc. • Focus on computer literate customers and appropriate segmentation
• Focus
on tight relationship with few suppliers (200 in 1992 to 25 in
2000) • Operate on a just time basis: suppliers warehoused bulk of the components within 15 minutes from the factory • Achieve economies of scale through large production and individual customization • Decreases the risk of forecasting problems and avoids overstocking • Operates on 6 days of inventory as compared to 75-100 days in indirect model (2000 figures) • Dell chooses best in class providers such as Microsoft, Intel for each component and thus leverage their investment in R& D • Fortune and Trilogy survey ranked Dell first in managing customer relations • Various options for support: telephone/Online, technicians sent within 24-48 hours and lesser downturn time as compared to others • Entire purchase process from order receipt to product shipping takes only 36 hours • Offers a the platform in effective coordination both internally (tighten the relationship with suppliers) and externally (customers orders) • Approximately 50% of the sales is through online (2000)
Virtual Integration and low R & D cost
Excellent Customer Support High Velocity Perfect Web Adaptability
SWOT Analysis-Dell
A
Strength
Weakness
Clear focus and direct customer interaction Low Inventory cost Virtual Integration Excellent customer support Just in time and proximity to suppliers Perfect Web adaptability High velocity Seen as a leader in the commoditization market
Low international market share as compared to US Certain segments are not covered with the Dell’s direct model No in house repair facilities Lack of retail outlets
SWOT
Slowdown in the economy Competition from the cheaper brands Indirect Competitors such as Apple Business executive as they have high bargaining power (buy in large volumes)
Increasing International presence Differentiation in price sensitive market Diversify into new products such as servers and storage Focus on other segments
Opportunity
Threat
IDENTIFYING MAJOR CHANNEL ALTERNATIVES Changing Channel Distribution Models in the Internet Age
• "channel power" – The use of electronic distribution channels • Presents companies with the option of reducing or eliminating the role of intermediaries and lets those providers transact directly with their customers
Advantages of the internet distribution
• Actual sales of products—e.g., Amazon.com. • Promotion/advertising: Customers can be quite effectively targeted
– For example, when a consumer searches for a specific term in a search engine, a “banner” or link to a firm selling products in that area can be displayed.
• Customer service: Information for electronic products, provide updated drivers and software patches • Open Source Forums: Ideastorm.com • Market research: Data can be collected relatively inexpensively on the Net.
Tapping market through Internet
• In 1995, well before the internet boom, Dell started developing online tech support and provided order status information • Designed an online retail store and built the ‘configurator’ • Offered customer specific sites called ‘Premier Pages’ – paperless purchase orders, pricing, real-time order tracking etc.
The Market Segmentation
• Created nine market segments which were organized into three divisions
? Relationship Business ? Small and Medium Businesses ? Consumer Business
Dell customer segments
dell customer segments
large customers
small customers(busine ss/consumer)
large companies
mid sized companies
Government
Education
small customers
global enterprises
large companies
mid sized companies
Federal
State/Local
Higher education
K-12
small business
consumer
Relationship
Transaction
Segmentation
Relationship Business • Represented 60 percent of Dell`s revenues in U.S • Depended on industry analysts, conferences and referrals from other large customers to make their decisions • Payment was through corporate purchase orders or lease agreements resulting in a longer payment cycle
Small and Medium Businesses
• Accounted for 30% of dell’s US revenue • Segmented potential customers into Preferred Accounts(PAD) and Business Systems Division(BSD) • Relationships with close to 25000 PAD customers and a million BSD customers • Excellent Customer Relationship Management
Consumer business • Accounted for 10% of Dell’s revenue in US • Consumers in this segment are instable and switch companies which offer lowest prices • Highlighted overall product performance, specifications, features, bundles for first time users. • Payment mainly cash or credit card based
Exploring New Opportunities: Products
Servers
• Market segmented into three level of servers
ENTRY LEVEL SERVERS
MID RANGE SERVERS
HIGH END SERVERS
Storage
• Building the
Alliance with EMC
Exploring New Opportunities: International Markets
Market Western Europe Asia Pacific Japan Latin America Position of Dell (2000) 3 7 8 5
Rest of the World
5
• 25% of the revenues outside the US market • Direct Model in countries like Japan and Australia • Distributer relationships in China and Thailand
Exploring New Opportunities: Services
• Service Optimization is the key • Example of Dell’s Service:
– Dell installs ‘commerce Server’ in one hour against seven hours taken for a competitor
• Dell focused on– Expanding technical consulting – Installation and break/fix services
Dell`s Retail Entry
• Dell's innovative direct- sales model with good sales growth had been successful until the mid-2000s when the company's profits and share prices began dropping considerably • On May 24, 2007, Dell disclosed its plans to sell PCs through WalMart and Sam's Club retail stores • In India, as part of the retail initiative, Dell tied up with Tata Croma in July 2008 and with select Staples stores • By the end of 2008, Dell planned to increase its presence to100 Indian cities by increasing its channel partners. • In October 2008, Dell announced the opening of the first Dell exclusive stores in India at New Delhi and Coimbatore • Dell also tied up with 600 systems integrators all over the country who could take orders on its behalf
New Marketing Strategy in India
• Dell is targeting the small and medium businesses (SMB) in smaller towns in India as its main driver for growth as the company believes this market sector is growing rapidly and is not exposed to global shocks making it a much more stable market • Dell India is focusing on simplification of the business processes as part of its new rollout plan • Tie up with Tally to offer accounting solutions online. • Dell has also increased its SMB team to 200 and expanded its presence to about 600 tier-II and tier-III cities
Dell Connect
• Simple online access tool that allows support associate to access the customer`s computer online and diagnose the problem under the customer`s supervision
Dell Partner Portal
• In late 2007 Dell Inc expanded its program to value-added resellers (VARs), giving it the official name of "Dell Partner Direct“ • It promised VARs who joined this program increased discounts on product and the ability to use the Dell name and logo in their marketing efforts.
Recommendations
• Dell could target first time PC buyers by educating them about the features of the PC
– Setting up kiosks in malls
• Phased entry into Tier I and Tier II markets • Explore other markets like Printers, IpPhones • It can tie up with solution providers to enhance their support facilities • It can tie up with retail chains to reach first time PC users giving them a hands on experience
Conclusions
• After the success of Dell’s Direct model and its internet and its internet application, many companies are following this approach but as seen , it is easy to describe but very difficult to operate. E.G. Compaq failure • Companies are indulging in dual cost, as of both direct and indirect model. Thus lacking success as compared to Dell •They can not have a clear focus because of lack of segmentation strategy
doc_363141741.pptx