Dell Company's Marketing Channels and Logistics | Free Essay Example

Dell Company’s Marketing Channels and Logistics

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Executive Summary

Dell is one of the most successful computer systems manufacturing company in the world. This paper reports on the evaluation of the nexus that exists but the company’s marketing activities and logistical function. Over the years Dell has developed a direct marketing channel that is facilitated by globally dispersed manufacturing sites, fulfillment centers, an efficient transport system and an online ordering and support system. The system has however predisposed the company to various problems that include lack of proper pricing mechanisms and lack of ways to showcase products to customers before actual delivery. The company’s performance objectives include the provision of flexible, cost effective and prompt services. This will in turn help in developing dependability between the company and its customers.

The company has recently adopted the use of retail outlets in addition to its direct marketing. Dell has a dynamic organizational structure and has an opportunity to use the indirect marketing channel to counter the weaknesses associated with direct marketing. With the inclusion of direct marketing, products will move from the manufacturing sites to fulfillment centers then either to retail outlets or to consumers. The company will take advantage of the well established logistical framework that is facilitated by manufacturing sites that are located in major regions of the world. The company needs to optimize its marketing channels and logistics to further develop relationships with customers in new market segments and get value from them. All the recommendations should be implemented in a step by step process and evaluated against the company’s objectives.

Introduction

Marketing can be described as the activity undertaken by companies or organizations to create value for customers and develop strong relationships with their customers and in turn receive value from the customers (Cage 2010). Basically marketing is a technique employed to identify customers, satisfy them and retain them. Companies often utilize marketing channels to penetrate to their customers. Marketing channels may link producers directly to their customers or may go through middlemen. The distribution of goods is only successful when there are proper logistical processes that ensure proper planning, delivering, and controlling the flow of goods to the market as well as the various materials and information required to meet the demands of customers (Paliwoda 2009).

Dell is a very successful global PC supplier, coming in second after Hewlett-Packard. The company’s products range from complete computer systems to custom developed systems as well as hardware components such as monitors, hard-drives, printers, among others (Schooler 2012). The company has a very sophisticated marketing channel in which it sells products directly to customers.

3 Vs for Dell
Figure 1: 3 Vs for Dell

Statement and analysis of the marketing and logistical issues facing DellAs shown in the 3Vs figure above, Dell sales large numbers of computer systems and other components. The company produces a wide range of products that such hard drives, monitors, keyboards, etc (Hall 2010). Most of the company’s activities are not visible to the customer. However, the company’s products are very popular, making it one of the best PC manufacturers.

One of the major issues faced by Dell is the pricing of the computer systems. The problem arises due to the poorly managed logistics, particularly in regard to the flow of information regarding the products. Direct marketing has denied the company a chance to feel the benefits provided by wholesalers and retailers, particularly in the provision of product information. Furthermore, the online/call center ordering system makes it hard for the company to showcase its products to many would be customers who purchase their computer systems from retail outlets. Such a market segment might be composed of lower end consumers however their numerical advantage often makes it profitable for any company to produce goods that meet their needs.

Dell’s performance objectives

Dell’s performance objectives
Figure 2: Dell’s performance objectives

Quality

Dell’s computer systems are tailored to the needs of customers. Customers who are able to pay more will be get products that perform better. The company’s approach that seeks to develop customized products has partly compromised the quality of its products. The need to speed up customer’s requests comes at a cost as time is no sufficiently allocated to the pre-development testing or developmental testing stages (Lee 2006).

Speed

Over the years, Dell has sought to create a system that reduces the time taken between ordering and actual delivery of goods to its customers. The direct distribution channel has facilitated faster completion of customer’s requests. The use of an advanced online support system has ensured that the company is constantly in touch with its clients. Some logistical challenges are however limiting the company’s desire to provide fast and efficient services to its customers (Schooler 2012). There have been cases of pricing difficulties and lack of opportunities for customers to test their orders before the actual delivery

Flexibility

Dell endeavors to provide flexible services that would meet the requirements of its customers in the most effective way. The built-to-order system has enabled it to gain a competitive advantage against HP and Acer. The company is also in the process of including retail stores in its marketing channel. This will inevitably solve the challenges associated with the current direct marketing channel employed (Clayton 1997).

Dependability

It’s usually important for a company to win the trust of its clients. Customers need to know that a given firm will process their orders according to their specifications and deliver them by the agreed time. Dell is an established IT company that has built a global reputation by providing innovative and customized products to customers around the globe for over 20 years.

Cost

The company has not done much to attain the objective of providing quality and cost effective products to customers. Dell computers are generally more expensive when compared to those developed by other companies such as Acer and HP (Hall 2010). The higher prices have effectively locked out the larger lower market segment that consists of students, smaller businesses and young professionals. Unlike other companies, Dell has limited discount offers on its products because it controls a tight budget facilitated by its endeavor to produce quality products. SWOT Analysis

Strengths

Dell has a dynamic organizational structure that enables it to realize diversified targets. The company has initiated steps to ensure that various components are directly integrated in the manufacturing process and therefore it has greatly reduced middle channel costs (Schooler 2012). Components such as “OEMs, repair and support centers, component suppliers, third party hardware and software suppliers, system integrators and logistics have been incorporated into the manufacturing process” (Mahoney 1998, p. 44).

Weaknesses

The customers are not able to test the capabilities of the customized products they order as there are no samples, thus they have to wait until delivery. The company does not enjoy the distribution advantages provided wholesalers and retailers. For instance, wholesalers and retailers play a big role in the provision of appropriate information to potential customers. The company faces a logistical nightmare in the provision of product information to its customers. In addition, the prices of its computer systems are a bit higher and therefore not available to most consumers. The company does enjoy the benefits of mass production and mass transportation, which have been shown to lower costs considerably (Biziotopoutos 2008).

Opportunities

Dell has succeeded with its integrative business approach by providing products in the form requested by customers. The company has an opportunity to improve its pricing strategy so as to attract more customers. It also has an opportunity to develop retail marketing to ensure that customers get to see the goods they purchase. The company also needs to diversify its clientele base to include other organizations such as educational institutions.

Threats

The company still faces the ripple effects of global recession that led reduced spending by households. Customers still have a lower confidence in its products due to the lack of mechanisms to showcase them physically.

Marketing Channels and logistics frameworks: Models and theories

Marketing channels
Figure 3: Marketing channels

As noted earlier, the purpose of a marketing channel is to ensure that goods move from the producer to the final consumer. A distribution channel can be direct or indirect, in which case it will have middlemen. The term middleman therefore refers to any institution or individual in the channel which either purchases a title to the goods or negotiates and sells as an agent or broker (Josh 2005). There might be several wholesalers along the channel depending on the nature of the product. In some cases agents may also come in. Agents do not usually handle products, but play a significant role by negotiating with distributors on behalf of the company. The agent may facilitate direct sales of goods to wholesalers or retail outlets.

Middlemen play a significant role in the implementation of various marketing activities. Such activities include the implementation of pricing policies that are acceptable to the consumer, product promotion and provision of feedback and sales forecasting (Wallenburg et. al 2011). They also provide pre and after sale services and the necessary information regarding the usability of products (Cage 2010).

Analysis of structure, dynamics and key processes of marketing channels and logistics

Structure of marketing/supply channels and logistics

Dell’s marketing channel structure
Figure 4: Dell’s marketing channel structure

Dell has used this distribution model since its inception. The company receives supplies directly from other suppliers such Intel and Maxtor. These components are assembled at the manufacturing sites and then transferred to fulfillment centers. From here, they are sent directly to the customer or to retail distributors.

Dells concept of logistics and the components of logistics management
Figure 5: Dells concept of logistics and the components of logistics management

The figure above shows the entire logistical and marketing concept employed by the Dell. The company’s management purchases the different requirements needed to develop PC systems. Once the systems have been developed they are tested and transferred to fulfillment centers where they stored awaiting delivery to customers. The logistical activities undertaken by the company are important in ensuring customer satisfaction.

Dell’s direct marketing logistical structure
Figure 6: Dell’s direct marketing logistical structure

Dell has utilized the direct marketing channel for a long time. The above figure shows the specific processes involved.

Analysis of Dell’s marketing channels and logistical dynamics and the key processes

Dell’s distribution channel is composed of an effectively established manufacturing and assembling centers in every important geographical region; efficient communication channels; and a proactive transport system.

The company is moving in the right direction by venturing into retail marketing and it now has to adopt mechanisms of maintaining its differential advantage. Adoption of proper product diversification, promotional, and pricing strategies will be crucial if the company to catch up with other market leaders that have established retail outlets. The company must also be aware of the potential conflicts that might arise due to the use of the two incompatible marketing channels (direct and retail marketing). Fully established retail marketing will enable the company to tap into a large segment of consumers who are less concerned about the distinctions between different computers. Dell is however keen to forge ahead with its direct marketing strategy. For instance, the company recently announced that it will be investing $ 100 million dollars to upgrade its customer service (Hall 2010). The money will be used to increase the number of call center employees and to expand the company’s connect system to achieve increased efficiency for its online service (Hall 2010).

The online ordering service is particularly advantageous in the face of a shortened technological life cycle as it eliminates development of systems that might not be sold. In as much as the strategy eliminates the mass production of systems that might be phased out while still on the shelves of various retail outlets, it denies the company a chance to showcase its products to consumers. Dell has established production units in various locations around the world. By boosting its calling centers and improving its online connect service the company will have made a great logistical improvement to its direct marketing channel. The system already enjoys a good reputation as far as processing and delivery of orders is concerned. The recently allocated resources should be used to solve the identified direct marketing weaknesses, notably in regard to pricing and provision of information to potential customers.

The company also needs to forge ahead with its retail marketing initiative to tap into the large market of impulse and lower end buyers. The company should therefore enlist the services of transport companies to ensure that various range of computer systems are made available to stores at the right time.

Characteristics of the key marketing channel and logistics function, strengths and weaknesses

Characteristics of marketing channel and logistical function

Dell has a well established direct marketing channel. The channel is supported by the internet and well distributed manufacturing units that are located in North America, Europe, Asia and South America. Customers are able to make online purchases at dell.com and the PremierDell.com for enterprise customers (Schooler 2012). The company has more than 60,000 customized or affiliated websites to enable customers to make orders and track their purchases. Information regarding the various range of products and prices are communicated to potential customers.The various subsidiaries and fulfillment centers are able to meet the needs of customers who closest to them. Another website identified as Valuechain.com plays an important role in ensuring that required supplies are provided in the correct form at the required time. Logistical support is provided by well established fulfillment centers that receive orders and in turn transmit them to a nearby assembling plant. These centers are vital in the provision of online technical support to customers.

Cost Trade-offs in Dells Marketing/Logistics
Figure 7: Cost Trade-offs in Dells Marketing/Logistics

Strengths and weaknesses and solutions to challenges

Direct marketing can achieve most marketing objectives but fails on others. For instance, it does not provide proper mechanisms through which acceptable pricing policies can be implemented effectively. Additionally, a company ends up being burdened as it undertakes all the activities, from production to the final delivery of products to customers. Dell will only address such challenges by adopting the indirect marketing channel.

The company has already initiated retail marketing through various outlets such as Tesco. The use of middlemen in the distribution of products has several advantages. If dell successfully implements the retail marketing strategy, then the following responsibilities will be passed to retailers: Searching and attracting customers; persuading and influencing prospective buyers; implementation of buyer centered pricing policies; provision of feedback, marketing intelligence and sales forecasting at regional level; provision of pre and after sale services; provision of specific information regarding a product; and the bearing of risk associated with the transportation/hoarding of stock (Biziotopoustos 2008). The weakness of indirect marketing is that middlemen may only be interested in profits and only add to the delay in the flow of goods.

Role of marketing channels and logistics towards customer service, relationship management and value creation

Dell has practiced direct marketing for a long time and has been able to build trust in its customers, and in return has received value from them to become one of the most successful companies in the computer industry. The different marketing channels and logistics that are currently utilized by dell have the potential to develop relationships with customers in new market segments and ensure that the company receives value from them. The hidden practices that have ensured success include the development of well dispersed assembling and fulfillment centers across the globe; proactive internet customer service system; development of high quality computer systems for its customers; Quick and efficient ways of delivering finished computer systems to customers with a long warranty period; and a efficient after sale support through the internet, telephone calls and repairs.

The company has however lacked means to showcase its products to customers prior to delivery. A problem has also been encountered in developing pricing strategies that are consistent with the requirements of customers. This has, to some extent, jeopardized the development of relationships with valued customers (Dev & Don 2005). This challenge will however be solved as the company ventures into retail marketing. The retail marketing will provide an appropriate platform for the company to test new low price, highly quality customer service.

Implementation of the marketing channel and logistics by Dell

Dell has a vibrant direct marketing system and has already set up the basics for a retail marketing channel, all that is required is continuous improvement activities that are consistent with its marketing objectives. Proper implementation will be done through step by step delegation of tasks to the different concerned departments. The company should thereafter ensure that implemented steps are monitored and evaluated against the desired outcomes.

References

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Josh, R 2005, International Marketing, Oxford University Press, New York.

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