One of the 4P’s of marketing mix stands for Place ie., distribution and logistics. A place is all about “how a business gets its products or services to its customers”. Distribution of products matters for a business of any size- it is the crucial part of the marketing mix. The objective of distribution is clear; It is “To make products available in the right place at the right time in the right quantities”. So how any business does reach its customers? Either through distribution channels or direct sales strategy like in the case of Dell Inc. Dell has an impressive supply chain management system, where it directly sells its customised products to customers by eliminating the middlemen. Dell followed “PUSH-PULL” strategy to deliver its products to the customers. PUSH in terms of pre-manufacturing the 70-80% of the products using fixed bill of materials and PULL in terms of customers dictating the rest 30-20% of the product through semi-fixed bill of materials. By pre-manufacturing most of the assembly, Dell has control on the PUSH portion of the assembly, making itself ready for the market. PULL Strategy is all about order fulfilment strategy ie., how do you get the customers to pull the product in terms of their demand. To do that Dell has followed the customization procedure which equates to 20-30% of what customer wants, by providing the options for customization. Dell pushes its products to the customers by combining the customization options which are related to semi-fixed bill of materials.
However, the nature of the market for computers are Dynamic, it keeps on changing with time. With the rise of the internet over the last two decades, the standard laptops have taken over the personal computers which are coming with almost all the features leaving lesser scope for the customization. This has led to drastic fall in sales and profits of Dell. PC’s have low market share with low growth rates.
When Dell first came into existence, consumers valued customization, and the surplus stock quickly lost value, making assembly-to-order and centralized storage more profitable than selling pre-configured PCs in retail stores. But with the changing customer behaviour who are willing to choose from a smaller number of off-the-shelf PCs, customization has lost its importance. And also the prices of PC have plummeted, customer’s desire for new verities quickly turns the inventory of standardized models and is less of a factor in profitability. These shifts have congregated to diminish radically the value of the direct sales channel built around centralized inventory storage and PC customizability. So it is no surprise that Dell’s profits and market share have flagged. As a result, Dell has to consider the retail channel to survive in the market.
Dell Makes a Decision
In 2007, Dell has undertaken a hybrid business model, which combines direct and retail sales channels to serve both broad segments of the computer market: those seeking standard models and those placing a premium on customization. Using this approach, Dell would continue selling direct but also offer a selection of pre-configured computer models through retail stores.
In a New York Times article on May 25, 2007, the manufacturer announced that it would begin offering two PC models through Wal-Mart Stores, starting in June. In a subsequent New York Times article, Dell announced that it would sell Inspiron notebook computers through Wal-Mart’s Sam’s Club outlets. And most recently the company announced that its computers would be available in major Chinese cities through fifty Gome Electrical Appliances stores, China’s largest electronics retailer, starting in early October 2007.
Last year Dell opened a mall-based store in Dallas where customers could see and use computers or other products, but ultimately had to order these online through the store rather than taking them home with them.
I think the dynamic nature of the marketplace requires the company to be flexible in terms of distribution channel in order to survive in the market. Do let me know your thoughts.
- Iacobucci, D (2014) Marketing Management (MM), 4th Edition, South-Western, Cenage Learning, Mason, Chapter 10, Channels of Distribution and Logistics
- Oppewal, H, Tojib, DR, Louvieris, P (2013) Experimental analysis of consumer channel-mix use, Journal of Business Research, 66 (11), 2226-2233.
- Sunil Chopra, 2009, ‘A New channel strategy for Dell: The PC industry’s increasing maturity pushed Dell to shift its longstanding direct sales model,’ Kellogg Insight, weblog post, 9 October 2007, <http://insight.kellogg.northwestern.edu/article/a_new_channel_strategy_for_dell>