500 The Marketing Book
strategies. Because customer needs and value
preferences differ, there is a requirement to
engineer flexibility into the organization’s CRM
and SCM processes.
To highlight this principle, the case of Dell
Computers is worth studying.
For a company that only began life in 1984,
Dell has achieved amazing success, to the point
where is it one of the most profitable companies
in the personal computer (PC) market. Its
success is not so much due to its products – they
embody the same technology as their com-
petitors – but rather the way in which they have
developed a supply chain to support an innova-
tive channel management and CRM strategy.
To quote Michael Dell, the founder:
Our net income grew faster than sales as we
continue to improve costs and to capture
economies of scale. They stem from a decade of
developing and implementing strategies
designed to maximize the inherent strengths of
the Dell direct business model. We believe our
business model will remain the engine of our
growth because it provides us with a number of
competitive advantages: First, we bypass computer dealers and avoid
related price mark-ups. This became a dramatic
advantage as competition in the indirect
channel drove up the cost of dealer incentives.
Second, we build each system to a specific
customer order, which eliminates inventories
of finished goods to resellers and enables us to
move new technologies and lower-cost
components into our product lines faster.
Third, our direct contacts with thousands of
customers every day enable us to tailor our
support offerings to target markets and to
control the consistency of customer service
around the world.
Fourth, we leverage our relationships with key
technology partners and with our customers
to incorporate the most relevant new
technologies into our products rapidly.
Finally, our low inventory and low fixed-asset
model gives us one of the highest returns on
invested capital in our industry.(Dell Annual Report, 1998)By following a strategy of direct distribution,
Dell is able to achieve a higher level of
customization than many of its competitors
whilst operating a low cost supply chain. The
results have been impressive. Within a rela-
tively short time, the company had overtaken
IBM to become the world’s number one manu-
facturer of PCs and the most profitable.
Dell has recognized that it can gain a
significant competitive advantage through its
exploitation of a non-traditional distribution
channel. Dell also has impressive CRM systems
that make great use of its direct customer
contact to research needs and to gain feedback.
Its pioneering use of the Internet has further
strengthened its ability to provide tailored
solutions to individual customers’ specific
needs through a sophisticated software-driven
SCM process.
In many respects, the way in which Dell
has combined a direct distribution strategy
with the technology of the Internet presents a
possible model for the future. The trend
towards direct distribution can only be accel-
erated by the widespread use of the Internet
and electronic commerce generally. The role of
the traditional intermediary in the distribution
channel is under threat. Unless such inter-
mediaries can find new ways to add value for
customers, then their future may be limited.
The challenge increasingly will be to seek
out new ways in which customer demand can
be captured and satisfied more cost-effectively.
At the same time, customers in every market
are seeking tailored solutions to their buying
needs, calling for radically different channel
strategies and operations capabilities. As we
enter the era of ‘mass customization’ (Pine,
1993), the focus on integrated CRM and SCM
strategies will inevitably increase.
Figure 19.9 highlights the fundamental
change that is taking place in the marketplace
as CRM and supply chain capabilities enable
radically different channel strategies to be
implemented and supported.
Being in the top left-hand quadrant of the
model shown in Figure 19.9 can bring many