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Because of this, in less than two decades, Dell became the number-one retailer of personal computers. Michael Dell still remains wary of having extra parts building up in a warehouse that should handle items built and ready to ship ("A Revolution of One," 2001). That inventory obsession continues to reduce Dell's inventory while increasing the profit on cost of goods sold.
Dell's concept of direct marketing is a critical key to success. Most computer companies sell their products to retailers, who sell them on to customers. This indirect distribution process obviously adds cost since there is profit needed for the manufactured, shipping costs, store sales and inventory costs, and associate taxes. Dell's model eliminates this through direct selling. Furthermore, this approach brings a number of other critical business advantages. By dealing directly with its customers, Dell is able to more accurately judge consumer trends and react quicker to market changes, style issues, memory needs -- and a true snapshot of demographic market research. This also ensures greater customer satisfaction and experience. Dell also collects the views and needs of thousands of consumers, whether they purchase or not, and gains a greater (and deeper) understanding of individual consumer requirements.
Figure 1 -- Overview of Dell Financial Performance, 2009-2011
In essence, each computer is built to order with the features each individual wants -- a true customized experience. This is highly personalized, one individual may want more features for gaming, the other graphics, and the other internet speed -- Dell ensures that each product is built so that the end user "feels" better about their Dell experience. For Dell, the model is on a just-in-time (JIT), build-to-order (BTO) basis. Therefore, if a new technology emerges it can be included in the product immediately, simply by adding that option to the order screen. In addition, changes in chip pricing can be more accurately reflected and increase margins for Dell. The JIT/BTO approach also means that Dell does not have to keep stocks of components or ready-made computers, increasing inventory costs, lack of price elasticity, and waste. Dell has chosen to pass these savings on to the consumer, which in tandem with the customized experience increases both volume and customer loyalty. In the Dell Direct Model, the customer is the beginning and end of the process. As a result, Dell can deliver high quality computers to satisfied customers at the best possible prices. Furthermore, Dell can do this all over the world. Thus, for Dell, the five basic tenets to their paradigm are:
Find the Most Efficient Path to the Customer
Provide a Single Point of Accountability
Build to Order (eliminate large inventory)
Be the Low-Cost-Leader (while still retaining quality)
Be the Industry Standard and Adapt to Changing Technology
Conclusions and Paradigm Shifting -- We have established that the Dell model has been successful because it allows for fiscal dollars to be used in other ways than inventory. Dell has not been stuck with brick and mortar in the United States and EU, but we have seen some erosion in Dell's profits over the last few years. Now, analysts are asking Dell to consider shifting its paradigm by offering certain product lines through Sam's Club and Wall-Mart, and placing its products in large retailers in China and other Asian countries. And, it a complete industry surprise, the increasing maturity of the Dell model necessitates moving into more brick and mortar stores in Russia, Eastern Europe, and the developing world (Chopra, 2007). Globalism and the combination of decreasing prices for desktops and increasing needs within the developing world will, in fact, continue to change Dell's paradigm if they are to survive.
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