Marketing: Custom Edition for Texas A&M University 17th Edition by William Pride,Ferrell

Exercise 5

Dell Direct and Not-So-Direct
When Michael Dell started his Texas-based computer business in 1984, he chose a distribution strategy that was radically different from that of other computer marketers. Instead of selling through wholesalers and retailers, the company dealt directly with customers. This kept costs low and allowed Dell to cater to customers' needs by building each computer to order. Using a direct channel also minimized inventory costs and reduced the risk that parts and products would become obsolete even before customers placed their orders, a constant concern in high-tech industries.
By 1997, Dell's website alone was responsible for $1 million a day in sales. Relying on the strength of its online sales, catalogs, and phone orders, Dell expanded beyond the United States and added new products for four target markets: consumers, large corporations, small businesses, and government agencies. Meanwhile, Apple, Hewlett-Packard, and other competitors were reaching out to many of the same segments with a combination of direct and indirect channels. Apple Stores, for example, proved to be major customer magnets and gave a significant boost to sales of Macintosh computers and other Apple electronics. Hewlett-Packard forged strong ties with value-added resellers (VARs), intermediaries that assemble systems of computers, servers, and other products customized to meet the special needs of business buyers.
Although Dell tested retail distribution on a number of occasions, it never let the experiments go on too long. In the 1990s, it tried selling PCs through a few big U.S. retail chains but soon discontinued the arrangement because the profit margins were lower than in the direct channel. Later, it opened a series of retail kiosks in major U.S. markets to display products and answer customers' questions. Unlike stores, however, the kiosks didn't actually sell anything: customers could only place orders for future delivery. Dell ultimately closed the kiosks down.
By 2007, with competitors coming on strong, Dell was ready to rethink its channel strategy. As convenient as online shopping was for many U.S. computer buyers, it was much less popular in many other countries. To gain market share domestically and internationally, Dell would have to follow consumers into stores, malls, and downtown shopping districts. The company began selling a few models through Walmart's U.S. stores, Carphone Warehouse's U.K. stores, Bic Camera's Japanese stores, and Gome's Chinese stores. In addition, it opened Dell stores in Moscow, Budapest, and other world capitals.
Soon, sales through retailers had gained enough momentum that Dell sought out other retail deals. Today, Dell sells through more than 50,000 retailers worldwide. Customers who browse the Dell website can easily find a local retail location if they want to take a product home right away. In another channel change, Dell has begun working with VAR partners that serve small- and medium-sized businesses, and it has lined up wholesalers for Europe, Latin America, and elsewhere.
As successful as Dell has been in revamping its indirect channels, selling directly to customers remains a top priority. Dell invites orders around the clock through webpages tailored to the needs of each target market. It also maintains an online outlet store to sell discontinued and refurbished products. It mails millions of catalogs and direct-mail pieces every year. And its sales force calls on government officials and big businesses that buy in volume.
Moreover, the company is a pioneer in stimulating exchanges with customers through social media, such as Facebook and Twitter. In less than three years, it generated $6.5 million in revenue from sales transactions that originated on Twitter. That may be a tiny sliver of Dell's $62 billion in annual revenue, but it demonstrates the company's flexibility in adapting to shifts in customer behavior and environmental forces, such as technological advances. The company also maintains a Social Media Listening Command Center to monitor conversations about the brand and its goods and services. With market-share and profit-margin challenges still facing the company, and global demand just picking up steam after a long, difficult recession, watch for Dell to make more channel adjustments in the coming years.
Is Dell using intensive, selective, or exclusive distribution for its market coverage? Why is this appropriate for Dell's products and target markets?