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The Analysis of Dell Direct Sales Model Essay

1.0. Introduction

In the newest magazine named “Fortune”, Dell is No.51 of 500 U.S companies and No.165 of global companies. Dell is No.5 of “The most popular company” computer industry. In 1999, Dell replaced Compaq became the second-largest PC vendor. In the situation of low-profit marketing, Dell maintained a successful expansion and exceed Compaq to become the largest PC vendor in the world. Dell has become the world’s leader of computer manufacturers. Among the industry’s major manufacturers Dell become number one of the world and the fastest growing computer companies. In U.S., Dell has become the first computer vendor of commercial department, government agencies, educational institutions and other customers marketing. In China, Dell’s market become strongly and stated as second bigger computer vendor than Lenovo.

Dell was founded in 1984 by Michael Dell. He was the longest CEO within the computer industry. His philosophy is simple: according to customer requirements to build computers and shipments to customers directly. Dell can understand the needs of customer effectively and clearly then respond the customers quickly. This direct sale model eliminates the middlemen which can reduce the unnecessary costs and time, and understand customer needs better. This makes Dell has a competitive price to customize and provides for every consumer of rich powerful configuration system. In 1984, the company’s registered capital is $ 1,000 which is the minimum amount required by law in Texas. But by June 2003, Dell’s market capitalization has reached $ 80 billion, the turnover has reached $31 billion.

2.0. Marketing Model

The essence of Dell’s direct sales model “on-demand”, to understand what is the customer needs clearly and then respond them quickly. Dell shipments to customers directly and because this model eliminates the middlemen so it can reduce the unnecessary costs and time to make Dell understand customer needs better. Dell provide customer with telephone booking one-to-one respective services to help users for Specific purposes, to choose the most suitable model and set up detailed files for users. Because the price is fully open so user can buy it through the website or free phone, the product manufacturing from factory so the quality can be guaranteed.

2.1. Direct sale model definition

What is the direct model? In other way is Dell model. In figure 1: 1.

Figure 1
But the general PC manufacturers are more use indirect model. In figure 2:

2. Figure 2
2.2. The main features of Dell direct sale model


The lack of overall planning of logistics management in normal environment, each organization of chain are only interested in their own resources (such as inventory), there is little communication and cooperation caused in this hand to rising inventories, on the other hand when the market demand appears they are unable to satisfied the customer needs. Because of that, the cost of business inventories is very high and the supplies’ mobility is poor. Even there has a risks of technology obsolescence, deterioration and damage. But Dell’s management system of supply chain is a supplier, manufacturer, service provider. They community with each other through the strategic cooperation and sharing the resources of overall stakeholders, spare parts inventory.

(b)Information validity

In Dell’s management system of supply chain, their relationship between each parties is a strategic partnership. With the interests of consistency, the parties to exchange their information without time and space constraints. Not only increasing the flow of information but also because of the internet information transfer mode has become more convenient. This improved the information sharing in each parties and to avoid distortion of information.

(c) Quick response

The prerequisite of Dell’s supply chain management is the flow of information, and its member companies can receive the information timely and to process them. By dear up the non-value processes and time to make the logistics system in supply chain to further reduce cost, in order to achieve its agility, refinement operation provides a basic guarantee.

(d) Seamless connection

Seamless connection is a prerequisite of the supply chain to obtain coordinated operation. If there is no seamless connection of logistics system, it will be over the timeline for delivery of the goods. The result is customer will not be satisfied with the unmet needs, thereby it will endangering the reputation of corporate. So Dell is strictly with logistics system to achieve the seamless connectivity.

(e)Customer Satisfaction

In Dell’s management system of supply chain, companies can quickly hold the customer’s existing, potential, general and specific needs or demand, so that companies can according to changes in market demand of supply activities. Companies can supplied to customers more quickly and more economically goods (or services) than their competitors which greatly improved the quality of service and customer satisfaction.

3.0. SWOT Analysis

Dell is the most important computer systems manufacturing and related services provider in the world. They committed to set up the information technology and Internet infrastructures for customers. In August 1998, Dell was introduce the straight line ordering mode to China. Dell (China) Company set up their offices in Beijing, Shanghai, Guangzhou, Chengdu, Nanjing, Hangzhou and Shenzhen, and they has strength to sales and expand the marketing to major cities (for example, Shenyang, Suzhou, Wuhan and Xi’an) and other 100 second-tier cities and urban areas.

3.1 strength

(a)With Dell to establish their brand in China, more and more personal customer trust the direct sales model. Since the investigation shows that customers more favorite in purchase process easily, fast and prices. Dell’s direct sales model not only can makes user understand the product more directly, but also can get a better price and to buy it more convenience. It also can makes the communication between vendors and customers more smoothly, so that the users’ needs can feedback to the manufacturers timely and improve the product. This new mode of production completely discarded the traditional form of sales “output from company, customers choose”, submitted the initiative to customer, in order to fully satisfy with the needs of customers. To narrow the distance between vendors and customers.

(b) Excellent supply chain management and to achieve zero inventory create value for customers eventually. The orders are real demand rather than forecast, it will not cause the risk estimates. In the time of zero inventory, the sell products reflect the cost in any time. If the selling products were two months ago there must has provision for loss, but Dell does not have any devaluation. Dell has a mature and advanced ERP business management software and excellent internal management. It include outstanding infrastructure, scientific standardization of workflow and modular product management, the internal management of information.

3.2. Weakness

For direct sales, some users disbelieve it at beginning, because they think to buy computers and other IT products to be seeing is more believable. Dell’s biggest rival in China is Lenovo, they has a powerful agent sales channel. But they also actively carried out direct sales to major clients and flexible use the strengths of the two modes. Compared to Lenovo, Dell has no price and share advantages on the market in China.

3.3. Opportunity

The first law of “direct method” has been introduced. Not only to regulate the market in order to promoting Dell’s status in develop their direct sales, but also helps Dell to create a broader range of “virtual integration” business platform. With China join into WTO, Dell will create more opportunities in Chinese market. Dell has a loyal and huge professional global direct sales systems, Dell is no longer satisfied with just selling PC products, thereby they producing more own-brand sales of IT products.

3.4. Threat

Dell’s direct sales model began to copy with their competitors. Dell is full play to the advantage of relying on direct sales model in the network worldwide and has begun to selling almost all the IT products including its own brand of printers, projectors, memory and hard disks, routers, high-end servers .etc. So that the original of such transfer selling products suppliers such as HP, Cisco, 3COM, etc. has stopped their reseller cooperation with Dell.

4.0. Problems of Dell direct sales model

Once carry the world before “Dell direct sales model”, now on the market they has suffered a strong questioning, Dell direct sales model gradually revealed many problems. Following the two major terms of internal and external factors to elaborate the problems of Dell direct sales model.

4.1. Internal factors

(a) Dell is a very aggressive company, under the pressure of investors it had to use the high-speed growth to fill in the desire of investors. Therefore all the company must use their outstanding achievement to do all the things. The highest target assessment makes every workers to fell the largest pressure, the stuff began to lose their sense of belonging and security. The information shows that from year of 1998 during Dell entered China more than 10 years now, there were 5 senior managers leaving from China’s president position. Dell was pay more attention to sales and profits of individual indicators, which was quite harmful to the staff of their comprehensive development.

(b) Either direct or through the middleman logistics costs are inevitable. When Dell completely use their own strength to pay for the logistics cost it will be very high. If they want to achieve as same stock as middleman in order to ensure its service quality and in conditions of enough supply, Dell will undertake much higher inventory costs than other PC manufacturers.

(c) For those who buy Dell computers and other products users, the most important is that they are looking forward to the services of multinational giants. However, Dell use telephone or network to provide customers with direct telephone service-based service model, it makes the after-sale service does not according to the users’ expectations of international business. Some customers are not used for telephone guide service and because Dell reduce costs makes the shortage of staff bring about the problem of poor communication, the service is not on time and so difficult to ensure the quality of service etc.. Especially in fresh marketing most consumers are very superficial knowledge of computers, they don’t know how to judge the particular problem correctly and they are not used for telephone enquiry to solve the problem by themselves. If they choose door service, the charges is much high and difficult to bear.

4.2. External factor

(a) Dell think that direct sales model is suitable for all countries, but in this stubborn idea they ​​lost forms for different national markets, the analysis of business culture. Dell simply believe that internationalization is unified model, standards, behavior, but they forget the importance of localization, such as Dell’s direct sales model in the U.S. market are more responsive, while in China, India and other emerging markets, has suffered a difficult. It can be said, stubborn internationalization makes Dell lost markets in different countries differentiated marketing. In facts, the advanced model also needs to be suitable for localized.

(b) In recent years, competition from Dell to learn a lot of things, but Dell did not progress. On the one hand, HP, Lenovo and other PC companies have combine the direct way and distribution way to use; On the other hand, HP, Lenovo and other competitors through the Dell direct sales model to imitate and adopt more flexible sales, the supply chain has been shortened to makes Dell’s advantages of stock become weakened. However, Dell obstinate adherence to the direct sales model, they cannot be made adjustment more flexible.

(c) As an international multinational IT companies, Dell has a good image in developed countries. However, in emerging countries Dell’s brand image is giving a feeling of indifference. Dell are rarely to join the social public relations activities and social welfare activities. His form of advertising is quite simple, they always appeared with high-tech multinationals image and lack of communication with the public and advertising their image. This behavior makes people think that Dell is just one who is more care about their product sales and profit enterprise, it is difficult to build up Dell’s intimacy and goodwill. In fact, Dell has a superiority of U.S. multinationals to enter emerging markets, but they forget the respect the different national cultures and access the country’s social respect is much more importance.

5.0. Recommendation

(a) Existing talent are good at Dell direct sales model, but for the newly established distribution channels does not necessarily to have a full grasp. Except complementary a large number distribution channels talents of the sale, Dell need training for direct sales person to understand the concept of multi-channel marketing. For new entrants to the distribution channels sales staff, in addition to allowed them to play the expertise in established distribution channels, they also need to fit Dell’s quickly establish an effective distribution channel. (b) Dell should change their image of far away from public to exchange the plain, homely image to face to consumer and public, to improve their service system model of operation and quality of service to win the trust and goodwill from consumer. Dell should though the feedback of users, change the internal processes to improve the effective of service and on timely.

To increase the model of service stuff, the initiative of door service. According to the complaints of uses should give positive feedback and solve the problem to improve the user’s satisfaction. (c) For multinational companies, the important of its overseas expansion strategy is to achieve localization, Dell direct model wants to achieve localization, they should depending on the different characteristics of the regional market to make adaptive adjustments of its direct sales model so that can adapt to their regional markets better. But no matter how successful of Dell’s direct model, face to the developing markets, Dell needs on the basis of the direct model to enhance other sales channels.

On the one hand, for the industry large customers, Dell need to adhere to give full play to its advantages in this negative, nurture and strengthen customer trust in the brand and loyalty; on the other hand, for small and medium enterprises and individual consumers, Dell can choose some large distributors, the use distribution channels quickly occupied the market, so they can save a part of the establishment fees of direct channels in public relations. Dell in emerging countries has been the lack of a positive and effective public relations and promotional strategies. So they should carried out various forms of public relations and promotions in many emerging countries, increasing with potential users and the public channels of communication and opportunities to disseminate. Dell as an international IT company, use their positive image through participation in social activities back country of operation in order to obtain the support of people of the country where it operates .

6.0. Reference
Hartline, Ferrell. (2011).Marketing Management Strategies. International Edition. 5th Edition. South Western Cengage Learning: Canada Fugate, B.S and Mentzer, J.T. (2004). Dell’s Supply Chain DNA. Supply Chain Management Review. Vol.8, PP.20-24 Piatt, J.E.(2003). Application of the Dell direct model to the AC inverter market. Eighteenth Annual IEEE Applied Power Electronics Conference and Exposition, 2003. APEC ’03. Vol.1 Richardson, K. (2008). Dell Still in Need Of Cost Control. Wall Street Journal Eastern Edition. Vol.125, PP.C1-C1 Serwer, A., Lustgarten, A. and Mero, J. (2005). The Education of Michael Dell. (cover story). Fortune. Vol.151, PP. 72-82 Hoffman, W. (2008). Redirecting Dell. Traffic World. Vol.272, PP.15 Moore, R., Reeves, B., Kapuscinski, R., Zhang, R.Q. and Charbonneau, P. (2004). Inventory Decisions in Dell’s Supply Chain. PP.191-205 Edwards, C. (2009). Dell’s do-over. BusinessWeek. PP.37-40

Liu, J.J. and Yao, D.Q. (2003). Channel redistribution with direct selling. PP. 646-658 Brien, L. (2005). Execution Without Excuses. Harvard Business Review.Vol.83, PP.102-111

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