Dell – Direct Marketing
BRIEF SUMMARY The desire to unseat its closest rival Hewlett-Packard in market share war in Australia has driven Dell dramatic change in the service strategy. Dell was successful by selling machines directly to customers – mostly business – by phone or over the internet. However, some analysts believed that its new strategy of selling through retailer is an uphill struggle (Koenig, 2008). As Barry Jaruzelski, a partner at the consulting firm Booz & Company said: “Now that so much of the market is consumers, they have been forced into places that traditionally they didn’t want to go, which is retail” (Koenig, 2008).
Twice in this year has Dell stepped out of its direct business model. The first one is when Dell sealed with Officework and partnership with gizmo marked the second time. In the article named “Dell signs on gizmo to lend a helping hand,” Mitchell (2008) mentions about how the strategy of alliance with Gizmo, an Australian service oriented company, benefits both sides and their customers.
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Three main points can be drawn from the article: •The availability and guarantee quality of the current service offered by Dell, i. e. the vendor’s on-site, next business day warranty service. The different levels of support creating an integrated service which offer their customer best-in-class services. •The continuing evolution of Dell to expand the market share in Australia. In the perspective of service marketing, what concepts can be connected with this event? In term of satisfying consumer, which theory can be used to explain the better service for Dell from this combination? And in the light of the resource based view theory, can Dell “steal the crown from HP” by playing in the ground that is not its core competence?
The answers for those questions will be gradually opened during the discussion in the next two parts. CONCEPTS AND IMPLICATIONS In order to reach a deeper understand of reasons behind the article, this section will go a little further, analysing Dell’s strengths and weaknesses based on concepts of services marketing. The purpose of this is to look beyond the fact to answer for the question why Dell, a well-known company for direct sales and internet commerce, has been moving to retail model which is not its core competitive advantage in foreign market, i. . Australia. Therefore, two main theories supporting the argument will firstly be mentioned. They will then be used as a tool for discussion in the real case. Two marketing services concepts: Perceived risk: Perceived risk has long been identified as a significant factor in consumer decision making conducted by Guseman (1981) and Kaplan et al. (1974) (as cited in Bennett et al. , 2003), and it becomes more complicated for services on the web. Much marketing activity, in fact, is designed to reduce perceived consumer risk.
That is why it is crucial to mention about this concept. The extent of the perceived risk is generally determined by a combination of two factors expected consequences and the level of probability of such an outcome occurring (McColl-Kennedy, 2003). Penetrating the dark recesses of the customer’s mind is not an easy task (Kotler, Brown, Adam, Burton, Armstrong, 2007). This is because customer’s perceived risk is an amalgamation of all the possible types of risk with different level of importance.
Basically, they can be divided into seven categories comprising financial, functional, physical, psychological, sensory, social, and temporal risk – supposed by McColl-Kennedy (2003). In order to reduce the perceived level of risk, customers usually search for further information by obtaining from family, friends, experts, or from the Internet. Other options can be seek guarantees or warranties, rely on price as a surrogate for quality, evaluate the reputation and image of the company, use an initial trial to evaluate the service, consider tangible cues as guide to service quality.
As the result, company can impact on the probability of a consumer purchasing the service by facilitating these options, for example by introducing a guarantee or a trail offer, encouraging positive word of mouth, and using PR and advertising to enhance their reputation (McColl-Kennedy, 2003). Service distribution: The exceptional performance of Dell in recent years illustrates the power of the innovation business model called “direct model” and build-to-order where information technology has been vital to executing both elements of its business model (Kraemer, Dedrick, and Yamashiro, 1999).
However, as presented above Dell has been changing another direction when targeting into Australia. Why is that? Analysing pros and cons of direct or company-owned channel and electronic channels in services marketing perspective, therefore, is necessary for thoroughly understanding the problem. Direct or company-owned channels, on one hand, allow the company to completely control over the outlets as well as to own the customer relationship. One critical implication is that the owner can maintain consistency in service standards.
On the other hand, this model requires the company to bare all the risk alone. Moreover, large companies are rarely experts in local markets. Therefore, partnering or joint venturing is almost always preferred to company-owned channels in these situations (Zeithaml, Bitner, Gremler, 2006). Electronic channel are the only service distributors that do not require direct human interaction; thus, using these channels overcome some of the problems associated with service inseparability and allows a form of standardization not previously possible in most services.
This benefit is known as consistent delivery for standardized services. Moreover, electronic media offer more efficient means of delivery than does interpersonal distribution; in other words, using it reduces the cost and can interact with large number of consumers. E-commerce also offers companies with quick customer feedback. From the customers’ perspective, web-based business enables them to customise and feel more convenient. In contrast, electronic channels have many drawbacks.
They are price competition, inability to customize with highly standardized electronic services, lack of consistency because of customer involvement, changes in consumer behaviour, competition from widening geographies, and last but not least security concerns (Zeithaml, Bitner, Gremler, 2006). Implications for Dell: As mentioned above, limitation understanding in local market is one explanation for Dell, the big company using direct sales model to partner with Gizmo, the Australian top service firm in technical support.
However, there is more than one reason for Dell not to apply its innovation in the U. S to the new market and that is why this report will look closer to Dell’s strengths and weaknesses in term of services. Strengths: First, direct sales model enables Dell to completely control outlets and relationship with its customers. This means that Dell can maintain consistency in service provision as well as it can receive and respond to customers’ feedback faster than its rival thanks to the direct model.
Second, because Dell also distributes services through electronic channel, it absolutely gains a range of benefits from this type such as consistent delivery for standardized services, wide distribution or customer convenience. Among those, the most significant advantage compared to other peer companies using electronic channel is that Dell is the first practitioner of the build-to-order which encourages customer involvement and customizes its products. Although Compaq, GateWay and Micron have tried to implement built-to-order processes, Dell seems to overweigh them by the stronger available network (Kraemer, Dedrick, Yamashiro, 1999, p. 1). Besides benefits from the distribution channel, Dell leads the IT industry in term of post sale support providing customers with many choices to blend the channels as well as time frame of service delivery. Customers can choose the basic support – business hours telephone support and next business-day on-site support, silver, gold or platinum support which provides faster and more flexible in technical support. A numerous services not only reflect high level of customization but they also show the implication of service theory in its strategy in that by guarantee it reduces customer perceived risks i. . functional risk and temporal risk. For example, customer will be more confident when purchasing Dell laptops because they know that they have one year guarantee of technology support from the company with guarantee reasonable time of service through various ways (by phone, internet and on-site). Weaknesses: There are many weaknesses due to the channel distribution it chooses. In the limitation of this paper, four major weaknesses that somehow force Dell to match with retailer Officeworks and recently partner with Gizmo in Australia are pointed out.
Firstly, customer perceived of financial, functional, physical, psychological and sensory risks for buying on-line or phone still challenge Dell. One example is when a customer wants to purchase a laptop online. Even he can see it and chooses the suitable configuration thanks to the perfect IT system, he may be worried about the function – whether or not it works as well as promised, about temporal risk – how long the laptop is distributed or financial risk – whether he will lose his money if the firm delivers to the wrong address.