Final Dell Team Post

Here you can find the final Dell team Post.

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Subscribed Blog Reference #2: World’s most expensive cities

A post on CNN refers to an article that lists the world’s most expensive cities. Tokyo is the number one on the list, followed by Osaka (#2) and London on the third place. New York does not even appear on the top 10 list, but is the most expensive city in North America, followed by Los Angeles. This survey was conducted to help multinational companies and governments determine how much to pay their employees. The survey includes 144 cities across the world, and measures costs including housing, food, clothing, transportation and entertainment (there is a link on the site where you can see the complete list). So if your company is shipping you off to Tokyo and you're negotiating compensation, you should be aware that a luxury two-bedroom apartment unfurnished might cost you $4,595 a month and that one cup of coffee costs over $4.

For me it is interesting to see that Zurich and Milan are number 7 and 11 on the list, since I am moving back to Europe in September, and there is a chance that I might end up living in one of these cities. I have to keep this in mind when negotiating my next salary.

Subscribed Blog Reference #1: The appeal of ambiguos colors and flavors

Anyone would like to try “Millennium orange” jellybeans or want to buy a “moody blue” sweater? According to this article Florida Red or Moody Blue: Study Looks at Appeal of Off-beat Product Names marketers can attract their customers attention and win sales by using ambiguous or surprising descriptions for new flavors and colors. For example, experiments have shown that people choose ambiguous color (less common, less informative) such as moody blue or Florida red over simple ones like light blue or dark red. The reason behind this is simply because these names attract the attention of people, who try to understand it and try to figure out why it was provided. Of course, this might not work for e-marketing where people have to rely more on written descriptions because they can not see or touch the product. There might also be a point where the consumers become frustrated with meaningless names, which could lead to negative response. So marketers should be careful in not overdoing the ambiguous names.

In the textbook (Kotler and Armstrong, page 178/179) marketers research consumer buying behavior in great detail to answer the questions what consumers buy, how they buy it, where they buy it, how much they buy and why they buy it. The article mentioned here is a very nice example of why people buy products with ambiguous colors and flavors.

Topic (Place) Post #3: Free lessons by professional striptease artists for customers

I found this very interesting article Reinventing the store that talks about department stores facing competition from warehouses, discounters (such as Wal-Mart) and even Supermarkets (who nowadays carry more than just food) and how the owners of the department stores are desperately searching for ways to attract more customers.

These trends are not only visible here in the US but also in other countries. For example, in Japan, some stores are renting out sales floors as offices. Or in China, where personal wealth is rapidly rising, the authorities in Shanghai in 2003 merged some of the city's big retailers, including the illustrious Shanghai No. 1 Department Store, because of increasing competition.

In this article two models of success for department stores are discussed:
1. Strong Retail Brand approach
In this approach the focus on in-house brands is strong and managers take an active role in choosing inventory. Such stores are more interested in promoting themselves as a brand than any individual brand within it. This approach results in very high operating costs, but these stores can command high prices, assuming that their in-house brands are fashionable and popular. An example is Sears with the strong in-house labels Craftsman tools and Kenwood white goods. Sears is hoping that a male shopper who visits the tools will not only leave with a new wrench, but also with Oxford cotton shirt as well. Or Wal-Mart who is selling a line of Levy Jeans, which are made exclusively by Levi for Wal-Mart and is branded as Levi Strauss Signature

2. Showcase approach
These stores not only sells other people's brands, but often gets the vendors of those brands to take responsibility for stock, staff and even selling-space, handing over a percentage of their sales to the department-store owner in return for their concession. For a store-owner, this can mean lower gross margins overall. But the compensation is low operating costs. There is however a limit to the showcase model. Retail experts have doubts about how many stores it can support.

The trick for a showcase model is to attract customers. Department stores have to become an attraction, a place where interesting things are always happening. These stores are aware that a large number of people only visit a department store when there is a sale going on. Many stores have increased their sales but their cost structures make it unlikely that such a strategy will succeed. Other department stores chose more drastic measures to get shoppers into their stores. For example, Selfridges (department store in London) organized the Body Craze exhibit, in which 600 naked people rode up and down its escalators in full view of everyone. Or Galeries Lafayette's flagship in Paris who offered free lessons by professional striptease artists to promote the opening of its vast new lingerie department and to attract customers. These examples show that department stores are fighting hard to hold/recapture their share of customers. And that some department stores are willing to do whatever it takes to get customers into their stores.

Topic (place) Post #2: Vertical Conflict

Vertical Conflict (conflicts between different levels of the same channel) is very common. For example, H&R Block franchisees complained when the parent company began using the Internet to deal directly with customers (Kotler and Armstrong, page 404). Another example is Sony (article Channel Conflict: Is Sony Going Too Far? In 2000 Sony required from their retailers that they sell Sony Music Labels that include Hyperlinks to Columbiahouse.com – which Sony partially owns - and Sony’s own Music store on the web (direct.sel.sony.com). Retailers were so angry about this action that it resulted in an antitrust lawsuit against Sony by the NARM. Stan Goman (Executive Vice President of Tower Records and Chairman of NARM's Board of Directors on the NARM web site) stated “I'm angry that after all the effort Tower puts into helping Sony artists, these links are being used to drive sales at Sony stores instead of at our stores". Shortly after that Sony launched a new website Sonystyle.com on which it is offering many of its electronic consumer products that it traditionally was selling through its expansive list of retailers.

According to the author of this article (Allen Weiss) “channel conflict occurs when one party perceives they’re putting more into the relationship than the other; in other words, not being rewarded for a good effort”. He called this situation “asymmetric dependence” which is created by Sony. According to him there are several reasons why companies create channel conflict. For example, many companies want to imitate their competitor’s success without looking at their own situation. A good example of this is Compaq’s who, just like Dell, tried to switch to the direct business model. What Compaq overlooked was that Dell never had a dealer network like Compaq and did not have to worry about going online. However, channel conflict is not inevitable, companies can avoid this; for example, by selling distinctly different products through the net than trough the retail outlets. Important is that companies must work together with their channels to resolve the resulting channel conflicts and to create a superior value-delivery network.

Team Post #1 (Dell and Place): Direct Marketing

Dell is one of the most successful businesses among those established within the last twenty years. The main reason behind this tremendous success is the “Direct Marketing” approach that Dell applies (one-on-one direct relationships with its customers, suppliers and business partners). Dell’s direct marketing approach delivers great customer value through a combination of product customization, low prices and fast delivery.

Dell customers can buy the machine they want by designing their own computer over the telephone or through the web. Dell can even pre-configure each computer to precise requirements. Through DellWare, customers can select a vast array of products from Dell's many corporate allies. The goal of DellWare is to save the customer the time and expense of dealing with multiple vendors, relieve the burden of matching software to system requirements, eliminate worries that products from multiple sources will not work together, and spare the headaches of installation, debugging, returns, and support calls - in short all the things people don't like about buying computers.

By eliminating resellers, retailers and other costly intermediaries, direct selling results in more efficient selling and lower costs which translates into lower prices for customers (on average Dell costs are 12% lower than those of its leading competitor). And the build to-order approach greatly reduces the costs and risks associated with carrying large volumes of both parts and finished goods. Dell carries just 5 days of inventory (whereas competitors might carry 40 days or even more), and in this way minimizes the rapid depreciation and inventory write-off costs. Because Dell doesn’t order parts until an order is booked, it can take advantage of ever-falling component costs. It also means that the latest relevant technologies are introduced in its product lines much more quickly than through indirect distribution channels.

Once Dell receives an order it rapidly builds to customer’s specifications and quickly and efficiently delivers the new computers to their homes or offices by a number of custom delivery services, using select carriers, to best meet customers' work environment and staffing constraints. By selling direct, manufacturing to order, and tapping credit cards and electronic payment, Dell is able to convert the average sale in cash in less than 24 hours, which reduces its working capital requirements by operating on negative cash conversion cycle - receiving payment from its customers before it pays its suppliers for components.

Initially, Dell's direct marketing approach relied on telephone and mail-order sales. But with the internet, sales and profits have increased (the company generates about one third of its total business over the internet). The internet is a perfect extension of Dell’s direct-marketing model. Its use does not only create competitive advantages, but also introduces an unprecedented type of strategic information management. With the emergence of the Internet, Dell Computer can extend the reach and scope of the direct sales model at a relatively low marginal cost. E-marketing results in lower costs and improved efficiencies for channel and logistics functions such as order-processing, inventory handling, delivery, and trade promotion (communicating electronically often costs less than communicating on paper through the mail). The company was ideally positioned to take advantage of the Internet because of its distinctive supply chain. Unlike its major rivals, Dell did not face any channel conflict with resellers or distributors by going online. Moreover, with a build-to-order manufacturing process already in place, customers could easily configure their own products online, just like they were already doing over the telephone.

Dell works closely with its suppliers to arrange just-in-time delivery of parts. Although Dell has outsourced most of its components, pre-assembly, and logistics, it has continued to develop its core competency in final assembly and its superior ability to manage the overall supply chain. Dell has formed strategic alliances with its partners (Microsoft, Intel). It utilizes the Dell Direct Effect Alliance program. This program is a Web-based approach to manage alliances between Dell and enterprise-level independent software vendors (ISVs). It allows alliance members to effectively maintain their own company and product information on the Dell Web site and ensure that their information is completely up to date (for example when alliance members update their catalog information an e-mail is sent to the Direct Effect program administrator indicating that a change has been made to the company's catalog entry on the development database). The online application process also ensures that Dell includes companies in the alliance program that support Dell's business goals.

Dell’s has also partnered with a variety of e-business application providers to pretest and validate B2B software solutions that integrate with Dell server hardware and fit within a modular, scalable computing infrastructure. With established partnerships with a variety of B2B application providers, as well as a leading-edge role in leveraging B2B technology, Dell is in an optimal position to provide comprehensive B2B solutions. Dell also has specific business units tailored to meet the needs of federal as well as state and local government buyers. Dell offers its customers tailor-made WebPages that include special pricing, online purchasing, and service and support for each city, state and federal government entity. Dell has also created tailored Premium Pages for repeat-buyer corporate customers giving them access to product design, order status, and product support and service information. These customers save time by linking quickly to these specialized pages tailored specifically to their requirements.

Currently Dell is concentrating on moving greater volumes of sales, services and support to the Internet. It is also focusing on becoming the market leader in some of the most attractive IT segments in the world's major developing economies such as China, India and Indonesia, which might not be easy because of the many Logistics challenges in these countries (see postage below).

Topic (Place) Post #1: Marketing Logistics

In today’s global marketplace, companies should not only focus on how to sell a product but also on finding effective ways to get the right product to the right customer in the right place at the right time (i.e. finding the best ways to store, handle, and move products and services so that they are available to customers). Marketing Logistics – also called physical distribution – focuses on planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customers’ requirements at a profit (Kotler and Armstrong, page 419). Companies today are placing greater emphasis on logistics for several reasons. Companies gain powerful competitive advantage by using improved logistics to give customers better services or lower prices. Additionally, improved logistics can yield tremendous cost savings to both the company and its customers (about 15% of an average product’s price is accounted for by the shipping and transport alone).

The article China Is Trying to Cope with its Logistics Challenges but Gaps Persist talks about the logistic challenges that global organizations are sometimes dealing with when doing business in and with China and emphasizes the importance of Marketing Logistics on customer’s satisfaction and company’s costs. China’s economy is growing rapidly and has a big impact on the international economy. However this fast growth outstrips the growth of its logistic capabilities. The economy is growing so fast that it is straining the capacity of its roads, railways and ports. The highway network has only been partly built out; China's highways are less than a third the length of the United States, though the two countries are nearly the same size. Some regions have good roads; others have substandard ones, which hamper transportation of goods to some areas. Despite a large railroad network, the country is still not able to meet the transportation needs, mainly because the trains are more geared to carrying people than freight. Ports are clogged because so much traffic is flowing through them.

Another challenge is the higher costs. A decade ago, few trucking companies were capable of doing multiple deliveries from a single load. Having grown up in a communist command economy, many were accustomed to taking full loads to where bureaucrats ordered them to, not where customers wanted the goods. Shippers would pack their trucks haphazardly and secure their freight with a mess of ropes and tarps that could be untangled only at the final destination. As a result, foreign multinationals operating in China were forced to carry higher levels of inventory than comparable firms in the U.S. and Western Europe. While that tied up cash, it also meant lots of obsolete inventory and wasted money.

Atop that, the logistics industry is fragmented, with more than 2 million trucking companies in a country with between 5 million and 6 million trucks, which results in higher administrative costs of dealing with scads of small shippers (Western multinationals can expect about 20% of the costs of their Chinese operations to be logistics-related, compared with an average of about 10% in the West). Transporting goods a long way usually means switching logistic providers, but because of the lack of integration there is a lot of paperwork. Also, different provinces have different regulations, for example some provinces have regulations on how to label your product if it's imported, which also adds to the logistics costs.

A few Western multinationals have responded to China's logistics challenges by constructing their own logistics networks (for example Yum! Brands , which owns KFC, Pizza Hut and Taco Bell, among other restaurants. According to media reports, Yum! has built 18 distribution warehouses in China and owns its own fleet of trucks. This system ensures that Yum!'s more than 1,200 restaurants there get everything they need, from perishables to takeout containers, on time). However, for many companies, that sort of commitment hardly makes sense. They are therefore left to rely on outside logistics providers. These companies prefer to hire mid-sized, as opposed to large vendors to ensure that they get the best service. Picking the right vendor is critical. Companies who have to rely on an outside logistic vendor can choose between a Chinese company and an international one. “A Chinese partner will be cheaper and will have local knowledge and may have at least regional network coverage. But it can fall short in IT systems, standardized operations and relationships with key international shippers. Initially, a foreign multinational might want to split its business between a Chinese company and an international one and see which one performs better”, says Udo Jung, a vice president in Boston Consulting Group (Frankfurt, Germany, office).

Even though the capabilities of China’s logistic sector are much greater than they were in the past, and that chinese shippers are maturing, and big western firms such as UPS and DHL have begun to ramp up their activity, companies who are planning to do business in and with China should place much greater emphasis on logistics than they might in a developed country.

Interesting articles: A Reheated Economy