Relationship buyers offered Dell its "highest gross margins," (185). Transaction buyers consisted of the small-to-mid-sized businesses and individual home users who placed small and irregular PC orders. Transaction buyers called a different telephone number to order from Dell and rather than have a personalized sales representative team, they would speak with an inside representative who would encourage the buyer to investigate more advanced systems (185).
As Dell grew, the need to refine customer categories grew. To tailor to the specific needs of each market segment, Dell divided its relationship buyers into further categories such as specific governmental sectors or "global enterprise accounts," (185). Dell developed sophisticated means of direct sales, such as its Premier Pages for select relationship accounts: corporations could log onto a special website that would enable them to view their entire transaction and order history and discover when they might need to update their systems.
Regardless of the specifics, Dell demonstrated a savvy knowledge of consumer needs and of customer service. Their ability to foresee, work with, and meet the needs of the large and small consumer alike propelled Dell into the forefront of the industry. Between 1994 and 1998, the revenue of the corporation rose from $3.5 billion to $18.2 billion, and its stock price rose an astounding 5,600%.
Its competitors have had to rise to the occasion and learn from Dell's lessons. Dell's long-term success depends on the following key features: direct to consumer sales; low inventory needs; shifting away from assembly-line production; rapid order processing; and responsive customer service. Dell's competitors such as IBM, HP/Compaq, and Gateway would do well to follow the Dell example.
For instance, Dell secures lower overhead costs than its competitors do by reducing inventory needs. Suppliers apply to a strict "just-in-time" parts delivery. Without excess parts on hand, Dell does not need to spend money on larger warehouse spaces. Moreover, "just-in-time" parts delivery ensures that inventory surpluses are rare, and that parts are state-of -- the art. Because PC technology changes so rapidly, state-of-the-art parts are essential.
In addition to reducing inventory space requirements, Dell has largely eased away from the assembly-line tradition, especially in newer plants and plants in developed nations. Rather than use the assembly-line, PCs are put together by small teams, usually of about five people. Small team manufacturing "cells" help create more reliable PCs with fewer tech problems in the long run. When tech problems do arise, each custom-made PC is tagged with a bar code for identification purposes. Dell has developed a reputation for offering solid customer support, which is essential in the PC industry.
Software is installed in a separate stage of the manufacturing process, and Dell offers specialized services for companies that require the installation of proprietary software. Companies like HP/Compaq would do well to hone the manufacturing process and shift away from the assembly-line. Customized "cell" production makes for a more stable system that is also tailored to the needs of the user.
Also, when an order is placed, a list of parts is compiled and sent to the manufacturing plant located closest to the consumer. Localizing manufacturing also helps reduce shipping costs and ensure rapid delivery to the end-user. Like Dell, computer companies like Gateway, IBM, and HP/Compaq also have manufacturing plants throughout the world. However, Dell has devised a sophisticated means of reducing costs by taking advantage of electronic order processing in conjunction with personalized service.
Dell has enjoyed supremacy because they created and implemented a unique business plan and have stuck to it, except for a brief and unsuccessful foray into the world of retail sales. Gateway failed to reach Dell's heights of success partly because they did not cater as much to the high-profile big ticket accounts that Dell catered to. IBM and HP/Compaq also offer direct-to-consumer sales, but Dell's reputation is so strong and brand recognition so great, that Dell still corners the market of direct-to-consumer PC sales. Dell's competitors would do best to continue combining traditional retail with direct-to-consumer sales. Rather than try to imitate Dell's model, companies with well-established names like IBM, HP/Compaq and Gateway should continue to thrive in their sectors while at the same time coveting more corporate accounts, creating more custom-made computers, easing away from the assembly line, and in general offering the personalized PC purchasing experience that Dell has…