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Running Case with Real DataDell Direct

Dell Inc. is the world's number one direct-sale computervendor and competes with Hewlett-Packard in that segment.Dell offers network servers, workstations, storage systems,and Ethernet switches for enterprise customers, in addition toa full line of desktop and notebook PCs designed forconsumers. It also sells handheld computers and marketsthird-party software and peripherals. Dell's growing servicesunit provides systems integration, support, and training.

Michael Dell, the flamboyant founder and chairmanof Dell, started college at the University of Texas as a pre-med student but found time to establish a business sellingrandom-access memory (RAM) chips and disk drives forIBM PCs. Dell bought products at cost from IBM dealers,who were required at the time to order large monthly quotasofPCs from IBM. Dell then resold his stock through newspa-pers and computer magazines at 10 to 15 percent belowretail. By April 1984, Dell was grossing about $80,000 amonth--enough to persuade him to drop out of college. Soonhe started making and selling IBM clones under the brandname PC's Limited. Dell sold his machines directly to con-sumers, rather than through retail outlets as most other man-ufacturers did. By eliminating the retail markup, Dell couldsell PCs at about 40 percent of the price of an IBM.

Michael Dell renamed his company Dell Computerand added international sales offices in 1987. In 1988, thecompany started selling to larger customers, includinggovernment agencies. That year Dell Computer wentpublic. In 1996, Dell started selling PCs and notebookcomputers through its Web site. This channel of orderconfirmation and shipping and handling is still the bread-and-butter means of addressing Dell's consumer andenterprise customers' requirements. In 1997, Dell enteredthe market for workstations and strengthened its consumerbusiness by separating it from its small-business unit andlaunching a leasing program for consumers. In order todiversify its revenue sources, in 2001 Dell expanded itsstorage offerings when it agreed to resell systems fromEMC. To grow its services unit, Dell a'cquired Microsoftsoftware support specialist Plural in 2002.

Despite its success at grabbing PC market share, Dellcontinues to attack new markets. It bas put increasingemphasis on server computers and storage devices forenterprises. Furthering its push beyond PCs, Dell basintroduced a handheld computer, a line of Ethernetswitches, and consumer electronics such as digital musicplayers and LCD televisions. It originally partnered with

u.s. PC Shipment Estimates for Q3 2008

774

Dell

Hewlett-Packard

Apple

Acer

Toshiba

Others

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DeU-Financials-U.S. Dollars (in millions)

CASE 1 RUNNING CASE WITH REAL DATA 775

70,000 -,---------------

50,000

60,000+---------------

40,000

30,000

20,000

10,000

oFeb07 Feb06

Lexmark to develop a line of Dell-branded printers, and ithas formed additional partnerships to quickly grow itsprinting line. On the services front, Dell has mirrored itsstraightforward approach to hardware sales, embracing afixed-price model for offerings such as data migrationand storage systems implementation. Dell is currentlylooking to international revenue to supplant sales in thePC-saturated U.S. market. Sales inside the United Stateswere about 53 percent of consolidated net revenue infisca12008.

Dell has thrived as downward-spiraling prices andcommoditization washed over the PC industry, benefiting thecompany's customers and bashing its competitors. Instead ofbattling the tide by attempting to erect proprietary systems,as HP and IBM often did, Dell used its low-cost, direct-sales model to ride the wave. In 2008, Dell announcedPartnerDirect, a global program that brought their existingpartner initiatives under one umbrella. Dell intends to expandthe program globally. Continuing their strategy and efforts ofbetter meeting customers' needs and demands, they beganoffering select products in retail stores in several countries inthe Americas, Europe, and Asia during fiscal 2008. Theseactions represent the first steps in their retail strategy, whichwill allow them to extend their business model to reachcustomers that they have not been able to reach directly.

Of late, with all the brand equity Dell has built up, DellInc. is pushing into consumer products. Dell has recentlymade a move into manufacturing flat-screen TVs. WithTVs that use the newest technology, Dell is now diversify-ing even further. The latest battle in the PC business isn't incomputers but in printers. Dell is now waging war on HP'svaunted imaging and printing division, which produces

Net revenue Gross margin

Jan 05 Jan 04

some 70 percent of HP's operating profit. In the case ofprinters, the printer cartridges is where HP has the biggestmargins, and Dell seems to be focused on making inroadsinto this market, over which HP has had a strong hold.

With such an intense competition for market shareand customer patronage, Dell is conducting a survey ofrecent purchasers of Dell PCs and notebooks. Dell wantsto understand their consumers' primary usage of theircomputers for Internet and other usage. Based on that,Dell wants to understand the satisfaction that theirconsumers are deriving from Dell products. Dell wants toestimate their customers' probability of repeat buying ofDell products and the extent to which their currentcustomers will recommend Dell to their friends and.,family. Finally, Dell wants to understand if there is anycorrelation on any of these identified usage factors andthe underlying demographic aspects of the classificationof their customers.

QuestionsThe questions are given in the Dell Running Case containedin the chapters.

References1. www.gartner.comlitlpage.jsp?id=777613.accessedNovember IS,

200S.2. www.deU.comJdownloads/globallcorporate/seclproxyOS.pdf,

accessed November IS, 200S.

Note: This case was prepared for class discussion purposes only and docs not repre-sent the views ofDeU or their affiliates. The problem scenario is hypothetical and thename of the actual company has been disguised. However, the questionnaire and thedata provided arc real. Some Questions have been deleted. while the data for otherQuestions arc not provided because of proprietary reasons.

776 CASE 1 RUNNING CASE WITH REAL DATA

DELL COMPUTERSInternet Interview

Thank you for your interest in our study.

Burke is an independent marketing research firm that has been commissioned by DELL Computers to get the honest opinions of recentpurchasers of DELL personal computer systems. You will be asked to offer your views about DELL and describe your Internet usage.

This survey should only take a few minutes of your time. By completing this survey, you will be automatically entered into a drawingfor $100 gift certificates that can be used at a variety of major online retailers. If you don't complete the survey, you may qualify for thedrawing by writing to the address contained on the email inviting you to participate in this project.

Unless you give us your permission at the end of the survey to release your name to DELL along with your responses, your individualresponses will kept confidential.

INTERNET USAGEQ1. Approximately how many total hours per week do you spend online? This would be the total from all the locations you might use.

Less than 1hour 0-11 to 5 hours 0-2

6to 10 hours 0-311 to 20 hours 0-421to 40 hours 0-5

41 hours or more 0 -6

Q2A. Following is a list of things people can do online. Please indicate which of these you have ever done on the Internet. (Rotate responses.}

Don't Know = 0Ask First

Communicated with others via newsgroups orchat rooms - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Looked for a job - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Planned or booked trips - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Downloaded a picture or graphic - - - - - - - - - - - - - - - - - - - - - - -Downloaded sounds or audio clips - - - - - - - - - - - - - - - - - - - - - -Looked up information about a TV show or movie - - - - - - - - - - -Downloaded a video clip - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Yes No

0-1 0-20-1 0-20-1 0-20-1 0-20-1 0-20-1 0-20-1 0-2

.,

Q3. What other type of things do you use the Internet for? _

DELL SATISFACTION AND LOYALTYQ4. Overall, how satisfied are you with your DELL computer system?

Very satisfied 0-1Somewhat satisfied 0-2

Somewhat dissatisfied 0-3or Very dissatisfied 0-4

Q5. How likely would you be to recommend DELL to a friend or relative?

Definitely would recommend 0-1Probably would 0-2

Might or might not 0 -3Probably would not 0-4

or Definitely would not recommend 0-5

....1:'1

CASE 1 RUNNING CASE WITH REAL DATA 777

Q6. If you could make your computer purchase decision again, how likely would you be to choose DELL?

Definitely would 0-1Probably would 0-2

Might or might not 0 - 3Probably would not 0-4

or Definitely would not 0-5

Q7. Deleted (Open ended) _

COMPUTER MANUFACTURER IMPORTANCE/PERFORMANCE RATINGSQ8. The following set of statements refers to personal computer manufacturers. For each statement, please first indicate to what extent

you agree that DELL Computers meets that requirement.

To do this, please use a scale from 1 to 9, where a "1" means you do not agree at all with the statement, and a "9" means youagree completely. Of course, you may use any number between I and 9 that best describes how much you agree or disagreewith the statement. Don't Know = 0

A. How much do you agree that DELL Computers does (insert statement)?

(Rotate statements.)

AskFirst Rating

Make ordering a computer system easyLet customers order computer systems customizedto their specificationsDeliver its products quicklyPrice its products competitivelyFeature attractively designed computer system componentsHave computers that run programs quicklyHave high-quality computers with no technical problemsHave high-quality peripherals (e.g., monitor, keyboard,mouse, speakers, disk drives)"Bundle" its computers with appropriate software"Bundle" its computers with Internet accessAllow users to easily assemble componentsHave computer systems that users can readily upgradeOffer easily accessible technical support

.,

Q9A. If the price of the DELL computer system you purchased had been 5% higher, and all other personal computer prices had beenthe same, how likely would you have been to have purchased your DELL computer system?

Definitely would have purchased 0-1Probably would have purchased 0-2

Might or might not have purchased 0-3Probably would not have purchased 0-4

or Definitely would not have purchased 0-5

Q9B. If the price of the DELL computer system you purchased had been 10% higher, and all other personal computer prices had beenthe same, how likely would you have been to have purchased your DELL computer system?

Definitely would have purchasedProbably would have purchased

Might or might not have purchasedProbably would not have purchased

or Definitely would not have purchased

0-10-20-30-40-5

..

778 CASE 1 RUNNING CASE WITH REAL DATA

EARLY ADOPTOR AITRIBUTESQI0. Following is a series of statements that people may use to describe themselves. Please indicate how much you agree or disagree

that they describe you. To do this, please use a scale of 1 to 7 where a "1" means you disagree completely and a "7" means youagree completely. Of course, you may use any number between 1 and 7.

Don't Know = 0The first/next statement is (insert statement). What number from 1 to 7 best indicates how much you agree or disagree that thisstatement describes you?

AskFirst Rating

Market Maven Itemsr like introducing new brands and products to my friendsI like heJping people by providing them with information about many kindsof productsPeopJe ask me for information about products, places to shop, or salesMy friends think of me as a good source of information when it comes tonew products or sales

InnovativenessI like to take a chanceBuying a new product that has not yet been proven is usually a waste of timeand moneyIf people would quit wasting their time experimenting, we would get a lotmore accomplishedJ like to try new and different thingsI often try new brands before my friends and neighbors doJ like to experiment with new ways of doing things

Opinion LeadershipWhen it comes to computer-related products, my friends are very likely toask my opinionI am often used as a source of advice about computer-related products byfriends and [leigh barsI often tell my friends what I think about computer-related products

.,

DEMOGRAPHICSQll. These next questions are about you and your household and will just be used to divide our interviews into groups.

What was the last grade of school you completed?

Some High School or less 0-1High School Graduate 0-2

Some Collegeffechnical School 0-3College Graduate or higher 0-4

" .....

Q12. Which of the following best describes your age?

CASE 1 RUNNING CASE WITH REAL DATA 779

18 to 1920 to 2425 to 2930 to 3435 to 3940 to 4445 to 4950 to 5455 to 5960 to 6465 to 6970 to 7475 to 79

80 or olderQ13. Which of the following best describes your household's total yearly income before taxes?

Under $20,000$20,000-$29,999$30,000-$49,999$50,000-$74,999$75,000-$99,999$100,000 or overNoAnswer-O

Q14. Are you ... ?

Male 0-1Female 0-2

This completes all the questions.Thank you very much for your assistance with this interview!

0-10-20-30-40-50-60-70-80-90-100-110-120-130-14

0-10-20-30-40-5O-ti

.,