John and thread,
As price differences narrow, looks like Dell's next focus is on customer service delivered over the Internet.
A must read cover story in the current Business Week...
WHAT DOES NO. 1 DO FOR AN ENCORE?
by Marcia Stepanek
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.
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