In an effort to reach out to customers by itself, dell developed its direct model, which is simple in concept but difficult to execute. (Kraemer et al, 2000). Unlike other pc dealers who pass through third parties to distribute their products, dell sells directly to customers.The direct model is presented in figure 1 below and for comparison purposes; the traditional pc industry model is presented in figure 2.
As we can see by using the direct model, dell sources inputs from suppliers, assembles the computers and sells directly to customers without passing through any sales agents.On the other hand other firms in the pc industry use the traditional model whereby inputs are sourced from suppliers, PCs are manufactured and stored up in inventory, they are then supplied to distributors who again redistribute them to resellers who finally sell them to the end-user. This Business model took Dell 15 years to develop and put into practice. (Kraemer et al, 2000).Dell builds its direct sales approach on two key items, which include direct customer relationship and targeting of products, and services to distinct customer segments. (Kraemer et al, 2000).
Although Dell sells through resellers, this is only to a limited extent and especially outside the United States. (Kraemer et al, 2000). Using its direct sales model, it makes all efforts to reach out through its customers either using its sales force or through marketing and advertising.(Kraemer et al, 2000).
According to Kraemer et al (2000), Dell does not support the gross margins of the pc channel, that is, by not using the services of the channel such as selling through distributors or other agents, whereby part of its sales revenue will be pad to them as sales commission.Direct Customer RelationshipsUnlike other PC dealers who must rely on secondary research to gain more knowledge concerning their customers, Dell’s direct approach reportedly provides it with 6% cost advantage and also provides it with more information concerning its customers. (Kraemer et al, 2000). It is therefore possible for dell to understand its customers’ trends and respond quickly with the design and introduction of new products, which suit their taste.
(Kraemer et al, 2000).Also, by using the direct customer relationship approach, it is easier and faster for Dell to do business with customers. (Kraemer et al, 2000). For example, Dell has established a strong relationship with Boeing whereby it has adapted its IT systems, user interfaces and procurement processes to Boeing’s, thereby making it easier for Workers at Boeing to purchase computers from Dell since it is possible for the two companies to use similar processes. (Kraemer et al, 2000).In effect it uses EDI for processing orders directly into its order management system since Boeing is required to operate like that instead of using the Internet and it has incorporated its product information into Boeing’s in-house procurement catalogue, which also adjusts to Boeing’s way of operating.
(Kraemer et al, 2000).This relationship with Boeing can be seen as a permanent market and thus a permanent source of revenue for Dell since Boeing will see no reason to purchase computers from any other manufacturer. From the foregoing one can see that Dell’s focus is on capturing and establishing long-term relationships with large customers who can buy its computers on a large scale, thereby increasing its market share.Dell only started targeting small new customers at low marginal costs after it has developed its brand name with the large customers. (Kraemer et al, 2000).
Although it sells directly to a greater extent, it also carries out some indirect sales through resellers but to a limited extent and also distributes non-Dell products. (Kraemer et al, 2000). For example, it is the second largest reseller of Hewlett-Packard Printers. (Kraemer et al, 2000).
