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Topic: Student Questions

Dell's Marketing Weakness?

Posted by Anonymous on 10/12/2004 at 12:53 AM ET 125 Points
Hi all,

I'm not actually a student. But, I've been asked by a colleague studying marketing for some thoughts on what are Dell's major marketing weaknesses.

Frankly, I'm stumped. I'm sure there are better minds than mine that can find an angle - hence I've come to KHE.

The business and marketing models seems so good. Lots of companies have tried copying them - GM's had some success with the biz model. But, Gateway has obviously been far less successful in doing so.

Here are a grab bag of my thoughts on why they're so good - based on reading about them and having been around IT&T for longer than I'll readily admit.

Dell:
- builds to customer requirements
- has a rock-solid supply chain
- gets instant feedback from customers about needs and wants via integrated info systems (purchasing patterns online and service partnerships)
- has leveraged its position with PCs to get market share with servers, storage etc (major profit source now)
- doesn't sell the best or latest technology, but waits until it's a market desire (ie forget the early adopters)
- no indirect channels, only phone and internet (also now small mall stands in US these days)
- doesn't innovate, so only spends about 10% of R&D that HP et al do
- provides zero interest terms to private and business customers
- fast phone service, also quick onsite service using biz partners
- has commodified computers better than anyone else
- pulls out of markets/product lines it doesn't profit from (eg: China mostly left to Lenovo nee Legend and WebTV)
- has enormous credibility (generally) with business and individual customers
- is only second to Apple in most recent ACSI (American Consumer Satisfaction Index), at 79%. So, is top rated Wintel company.
- recently moved pricing up from bottom-end of the market ($299 destktops and $699 laptops), to successfully improve its profits in that sector.

- I'm not American and am in Shanghai these days, so haven't seen the 'Dude...' tv spots, which I gather are now gone. But, it's clearly been very successful. I'm also not sure what it's been replaced by though.

- perhaps their expansion plans into malls and selling other products like plasma TVs mightn't work out, but they'll just cut these areas if that's the case.

That's all I've got. So, it's over to you for your thoughts on where you think the potential marketing weaknesses are.

I look forward to reading your responses, and will pass them on.

Cheers
David


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RESPONSES

  • Posted by Peter (henna gaijin) on 10/12/2004 at 1:21 AM Member
    You hit some of their potential weaknesses are.

    Specifically:
    - not being an early adopter of technologies (ceding the high margin, early adopter market to others).
    - attempting to go into areas outside of their standard market, like TVs. Not clear if this will work out.
    - not as strong at retail stores
    - not as strong in all international markets as they are in the US
  • Posted by Carl Crawford on 10/12/2004 at 1:29 AM Accepted
    hi david;

    Dell doesnt offer stock to the public;

    This is taken from: https://mmoore.ba.ttu.edu/Fin3321-Fall-04/Valuation_Projects/Dell.pdf

    Dell‘s weakness includes limited R&D, its reliance on Microsoft and Intel and its relatively week service business

    R&D: Dell‘s traditional business model is based on a risk-averse approach to the marketing new products. Dell does not invest significantly in R&D and relies on supplier to provide lowest possible price and to tell Dell of developments in product roadmap.

    Dell‘s model can be a weakness if it becomes —locked out“ from an important part of the market.

    Reliance on Microsoft and Intel: Majority of PCs is based on platform created by Microsoft and Intel. New processors and OS do not boost the market demand and hence they rely on vendors to promote new technologies. Dell must look into forming strategic alliances with rivals Linux and AMD, in order to mitigate some of the market power its current suppliers have.


    Carl Crawford
  • Posted by Peter (henna gaijin) on 10/12/2004 at 1:01 PM Accepted
    Weakness equals risk. I was showing areas that they are not as strong as they could be/competitors are. But this doesn't mean they necessarily should be there - they can choose not to go into these areas and still be hugely successful. Or these are areas where they are attempting to overcome.

    This is the line that HP runs, but HP's shrinking in terms of profitability and market share. Dell's a pure volume player, so doesn't want this segment. They are growing. I'm not as certain that it's a weakness as such. Maybe I'm missing something. Why do you think so?

    Dell is leaving a lot of potential profit on the table by not being an early adopter (but also avoiding a lot of risk). HP has probably made billions in profit on printers and ink. Now Dell is coming in, and they will make some money, but it will take them a long time at their lower margins before they match the profits HP has already made.

    I agree with you but, like with WebTV, if it tanks they'll just cut and run.

    Cut losses, but not remove losses. Trying something is a risk, and comes with costs if it fails.

    For sure. But, is this really a weakness? Their business model is one that purposefully precludes tyre kickers, the overheads of shopfront channels or channel partners (they tried the latter in the early 90s and dropped it).

    Put this one with the one above, and there is a big risk to them. TVs and consumer electronics are still primarily bought at retail, so they need to change the way the sales are done for these products.

    I've got no data other on this, but I do know at the peak here in China they used to have about 5% of the PC market. Hell, I'm sitting in front of a Dell config right now and Lenovo (Legend) is, literally, across the road. I guess that this could be a weakness in terms of future international expansion if their model doesn't work for them in non-US markets. Lenovo has taken their model and run with it, and are the King Kong of the market here - and expanding overseas.

    5% on PC market in China is much lower than their share in the US. This is a weakness. Yes, it is also a potential area for growth for them, but currently a weakness. And continuing with China, there are added risks as companies in China know how to keep prices low, there is Government push there to use Linux instead of Windows (and as Carl said, they are tied to Microsoft) which could reduce their sales.
  • Posted by SRyan ;] on 10/12/2004 at 3:19 PM Member
    David, you already mentioned that Dell has "commodified computers better than anyone else."

    You're right, but I think the fact that they're in a commodity business is in itself a marketing weakness. There's no opportunity for premium pricing.

    Shelley
  • Posted on 10/13/2004 at 2:03 PM Member
    Marketing mainly to the collage age group is also a weakness – as the biggest age group is the baby boomers. The kids are not as loyal, and will follow fads and innovation quicker than older people.

    daryl
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