When Michael Dell founded Dell Computer in 1984 the company’s mission was to be “the most successful computer company in the world” (Diversity Facts, 2011). To achieve his goal of becoming the dominant supplier of affordable consumer grade PCs, Dell Computer adopted a Direct Selling business model, building each PC only after a customer places an order. Revolutionary at the time, this system allowed Dell to reduce inventory to Just in Time levels. The efficiencies gained through reduction of inventory necessary to operate had enabled Dell to sell computers for significantly less than the competition with a smaller margin. Dell’s focus was to acquire as many new customers as possible, which in turn allowed them to negotiate even lower prices from their component suppliers, and through economies of scale, reduce costs even further. This strategy was extremely successful, shown in Figure 1 Dell sales numbers and income rapidly increased through most of the 1990’s. Figure 1
At its peak Dell achieved daily sales in access of $57 million, with over 16 million customer interactions per week (Navigating the Company Timeline, 2011). Their customer acquisition strategy and direct sales model was a stellar achievement in the business world.
Putting the Customer First But as the computer age marched on, so did decreases in the cost of PC ownership. The Personal Computer became a commodity and new competition entered the market. While the market changed, Dell’s strategy did not. Remaining focused on beating the competitions price, Dell became their own worst enemy and the Dell brand was soon associated with low cost, low performing consumer PCs with poor customer service. Sales of Dell PC’s plummeted and with little diversification in their product portfolio, the company had nothing to fall back on when consumers defected to the competition. Drastic losses in Dell’s customer base and revenues are shown in Figure 2. Most notable is the change in revenues of $58 Million Dollars on March 13, 2000 to $18 Million Dollars on December 19 that same year. Figure 2
Dell was hemorrhaging customers and knew something needed to be done to change consumer perception and increase sales back to former levels. As part of the process to rehabilitate the Dell brand image, the company began the “Customer Experience Initiative” (Dell Computer Corporation, 1999). Through this initiative, “Michael Dell wanted to provide the best possible customer experience across all
points of contact” (Dell Computer Corporation, 1999). A major part of achieving Mr. Dell’s goal was the shift in how his company would measure the quality of their products. Traditionally the computer industry’s measurement of quality had been based on product failure rates, Dell‘s new measurement of quality would now include quantifiable metrics for the sales process and the quality of customer service. Managers now had to meet service goals and accomplish several objectives: 1) 2) 3) 4) Increase brand loyalty Increased repeat business Add value to the Dell buying experience Leverage customer information to expand product offerings
To facilitate managers in meeting the objectives, Dell started working with several relationship marketing providers in order to leverage the vast amounts of customer information they collect through their direct sales model. As we learned in our reading, there is reliable prediction model for customer value based around length of tenure in a contract/noncontract environment, which I’ve laid out in Figure 3. Figure 3
Segment 2 Profits increase over...