In the summer of 1983, a young boy in the last year of his teenage dropped out of his college to devote his entire time to the company he created when he was a freshman. The company did nothing out of the world in the years of its infancy; all it did was provide hard-drive upgrades to corporate customers. Very simple business strategy! But then something magical happened. Somehow, with nothing but this simple business strategy, this humble company generated sales worth 6 million dollars. Making the most off this new found capital, the company’s strategy went up a level and it started offering computers as ordered by the customers. This strategy provided more than 10 times the sales of last year, $70 million to be precise. If it was magic earlier, now was the time for a miracle. Just five years after adopting this strategy, the company’s revenue shot to $500 million and by the end of the first year of the new millennium, this company, with its most humble beginnings, was suddenly generating not one, not two, but 25 billion dollars in revenue. Which company is this? More importantly, what led to its dramatic rise? Well, if that young boy is to be believed, it was the innovations in the supply chain but more importantly, the distribution strategy.
What Distribution Strategy Looks like..?
Now, the first question in your mind must be what distribution strategy was it really? Before we get to that, let’s very briefly understand what distribution actually means. Distribution, as the word implies, is nothing but sharing something with a number of recipients. It is no different in marketing either. Sharing your product or service with your target recipients, or target customers. Makes sense? So, how do you reach them? Turns out, you can reach your target customers through multiple distribution channels. You can go the most common route of retail, or if you might decide to sell through Value Added Resellers. If they don’t make you confident enough then you can use dealers to promote and sell your product. And if you still don’t feel confident and sure, it’s time to go direct!(Marketing MO, 2014)
That’s right, no intermediary, nothing between you and the consumer. Sounds good when the customer pool is less but could it work for millions of customers? Turns out, it works and it works beyond the most hopeful expectations. Need a proof? Time to say hi to the company you just read about. Introducing, Dell!
So, back to the case, back to Dell and its meteoric rise.
The Dell’s Way
Goodbye Middlemen, Hello Customer: From the moment of its inception, Dell had started as a direct seller, that is, it delivered every single product to the customer by itself, no agent, no retailer, nobody! Before the advent of the internet, Dell used a mail-order system, that is, it sold its products through simply mail delivery. The buyer would quickly call Dell, place an order for upgrading his computer’s 56MB hard drive over the phone, Dell would pack a 128MB hard drive and courier it to the customer. Simple! In fact, even before the Internet was a thing, let alone popular, Dell had begun integrating online border status updates and technical support into their customer-facing operations. Then the Internet grew and Dell developed its own online sales platform. This new platform would generate sales of around $4 million… every day. This was the era of Information Technology where most major players were busy selling pre-assembled and pre-configured computers in the retail outlets. This was the era where Dell dared to do something different. Due to the costs Dell saved by entire removing the middlemen, Dell was able to offer superior PCs at some mouthwatering discounts. But cost saving by getting rid of the middlemen wasn’t it. Turns out, the greatest, and probably unplanned, benefit of this direct sales model was the sheer size of market data that the Internet sales generated. This helped Dell understand and forecast market demand much better and also, it helped Dell create some unrivaled segmentation strategies. This was perhaps one single jump that took Dell on top of the otherwise traditional PC sales mountain! This distribution strategy helped Dell enhance its new product development strategies and objectives and helped Dell become the giant we know today.
But the benefits did not stop there. Because Dell was selling directly to its customers, it obviously meant that Dell was in direct touch, or direct contact, of its very own customers. This helped Dell to collect customer feedback straight out of where it comes from and also, improve customer value, along with profit margins. All of this due to a unique, then-unfathomable distribution strategy.
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