WHAT DOES NO. 1 DO FOR AN ENCORE?
Business Week 11/2/98
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Dell Computer has ridden the direct sales of PCs into the
stratosphere. Here's how it plans to stay there
Dell Computer Corp. defies gravity. Whether you measure its growth in sales,
profits, market share, or stock price, the company is simply weightless. Last
year, sales climbed from $7.7 billion to $12.3 billion. Profits rose from $518
million to $944 million. And then there's Dell stock, which has split six times in
the past six years and continues to soar, up 120% this year, to $53. To top it
off, Dell is now the largest merchant on the Internet, selling $6 million worth of
gear daily. And all of this after three previous years of similar pyrotechnics.
That's why Dell ranks No. 1 on the BUSINESS WEEK Info Tech 100 list of top
performers.
So what does the company do for an encore? Ask CEO Michael S. Dell, and
he'll tell you with his typical straight face: more of the same. Well, sure, that's
what you'd expect him to say. Except Dell--whose direct-manufacturing model
shook up the industry by redefining customer service as the speedy delivery
of custom-built PCs--now wants to get even more up close and personal with
buyers. ''Our industry has generally neglected the customer. I want to take
the customer experience to a whole new level,'' Dell says.
That's not just marketing mumbo jumbo. For Dell, it's a new battle cry. The
33-year-old CEO sees customer service as the ''next battleground for market
share.'' And nowhere will that be more true, say analysts, than in the
consumer and home-office PC markets, which Dell is just beginning to target.
''The consumer and home-office markets are going to be where the growth is,
and that's where I want us to go next to keep growing,'' Dell declares.
The message isn't lost on the troops at Dell's suburban Austin, Tex.,
headquarters. Pinned to a wall amid a sea of cluttered cubicles is a
photograph of Dell. Someone has drawn a hat on him, the kind worn by Uncle
Sam. A slogan scrawled below reads: ''Michael wants YOU to OWN your
relationship with the customer.'' Just in case there's any doubt, Dell has tied
bonuses and profit-sharing to service improvements of at least 15% this year.
Success will be measured by shipping deadlines, fixing machines on the first
try, and getting repair people to customers within 24 hours.
Dell's new customer-service plan: Use the Internet to automate and customize
service, in much the same way that Dell streamlined and customized PC
production. The do-it-the-customer's-way mantra has created for Dell the
tightest--and most envied--relationship with buyers in the PC business. By
using communications links over speedy private networks and the vast
Internet, Dell plans not only to provide personalized Web pages for
non-corporate customers but also to answer knotty service questions with the
lightning speed that only the Net can deliver. ''All our customers have
individual files with us online,'' says Scott Eckert, director of Dell Online. ''Why
not expand those files for a new kind of direct-service model, one that will
enable conversations with customers about service, industry trends, and new
products--or even, say, weather and news someday?''
Weather and news from your PC company? It couldn't hurt. Research results
from PC users show consumers are not yet satisfied with the industry's track
record on service. In the November issue of San Francisco-based PC World
magazine, a reader survey found that Dell and Micron Electronics Inc. were
the only two manufacturers (out of 17) that ranked ''good'' for ''reasonably
reliable systems and serviceable support.'' None of the companies, though,
earned an ''outstanding'' rating on its work, home, or notebook PCs.
Dell scored high mostly for having a very low rate of out-of-box quality
problems. But its ranking was dragged down by complaints of long waits on
the phone and a relatively high percentage of unresolved problems.
''Creating a new direct-service model is extremely important,'' says Dell
strategist Kevin Rollins. ''The first company to crack this--or who can do
quality and service demonstrably better--will have a new, sustainable
advantage over everyone else.'' Today, only a third of Dell's customer-service
force is dedicated to handling queries online.
So far, Dell has been better than most rivals at customer hand-holding, online
and off. Last fall, Dell delivered eight customized PowerEdge servers to
NASDAQ in New York in 36 hours so the exchange could handle higher
trading volume during the first whiffs of the Asian crisis. ''We didn't have to
pay extra,'' says John Delta, director of NASDAQ's interactive services.
''Originally, Dell got in with us on price, but that's not the issue now. Their
customer support and service is what's driving our relationship.''
That's what Dell wants to keep hearing, from a whole new crowd of less
tech-savvy buyers--the small-business owners and the work-at-home crowd.
''The Net allows us to take personalizaton to the next level,'' says Dell.
Starting this fall, the company will expand its online forums with Dell
executives, called ''Breakfast with Dell,'' beyond big corporate buyers to small
businesses. The live chats will cover topics ranging from the Year 2000
problem to trends in the server market. Further down the road, there will be a
way for customers to ask hundreds of service questions, all of which, says
Dell's senior Web manager Manish Mehta, will be answered automatically
from Dell's online knowledge bank with the help of artificial-intelligence
software.
''CUDDLY TOUCHES.'' And coming in the next few months: more warm and
fuzzy Web-service features, including ''My Dell'' Web pages--customized
pages for small-business and home-office consumers. Such additions will
enable these users to trade service tips, answer queries, and get weather,
business information, and technical support papers over the Web. Also in the
works is the ''virtual account executive.'' Interested in a notebook but can't fly
to Austin for a demonstration? ''That's fine,'' says Rollins. ''Go to our Web
site, and get a full-motion video of someone explaining it.''
To Dell, the benefits of dispensing more service over the Net are twofold: ''It
can be a great relief valve for disgruntled customers,'' says Mehta--and a
relief for shareholders, too. Doug Chandler, a customer-service analyst at
International Data Corp., estimates that phone calls to give service and
support can cost PC companies $25 apiece. Dell's online service operation,
he says, saves a bundle--thousands of calls per week and potentially millions
of dollars. If that's extended to include a greater percentage of Dell's
customers, it could save millions more.
Can Dell pull it off? The direct-service approach works well with corporate
buyers--the bulk of Dell's business. Consumers and small businesses,
though, expect far more hand-holding, and are more inclined to hunt for
bargains. They're also often enamored of the marketing ploys and gee-whiz
gizmos that make corporate-account managers cringe. ''For all its success,
Dell has had little experience with these cuddly touches,'' says Kevin Knox,
senior analyst at Gartner Group.
And even if Dell persuades the masses it's tip-top in customer service, there
are other challenges facing the company. At a Sept. 25 meeting for analysts,
there were questions about price. While Dell's machines are still cheaper than
comparable ones from Compaq and IBM, Dell hasn't been lowering prices as
fast. ''Normally, Dell had a $100 to $200 price advantage because of its direct
model, but that advantage is nearly gone,'' says James Poyner, a PC analyst
at CIBC Oppenheimer. ''Isn't price supposed to be Dell's advantage?''
Not necessarily. Now that customer service is the new battleground, price may
not be the main event. Says Dell: ''IBM and Compaq are assuming that price
is the problem. The problem is that the dealer channel they're using has
fundamentally failed customers.''
And what about continuing efforts by rivals to mimic Dell's direct model?
Copycats such as Gateway and Micron still don't have the heft and market
clout of Dell. As for rivals such as Compaq who use middlemen, Dell wins on
cost. ''Anyone who tries to go direct now will find it very difficult--like trying to
jump over the Grand Canyon,'' says Dell. And now, with his efforts to get even
more personal with customers over the Web, Dell's hoping that gap just got a
lot wider.
By Marcia Stepanek in Round Rock, Tex.
Copyright 1998, by The McGraw-Hill Companies Inc. All rights reserved.
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