CASE STUDY

Dell Direct and not so Direct

When Michael Dell started his Texas based computer business in 1984, he chose a distribution strategy that was radically different from that of other computer marketers. Instead of selling through wholesalers and retailers, the company dealt directly with customers. This kept costs lowand allowed Dell to cater to customers' needs by building each computer to order. Using a directchannel also minimised inventory costs and reduced the risk that parts and products would become obsolete even before customers placed their orders, a constant concern in high-tech industries.

As convenient as online shopping was for many U.S. computer buyers, it was less popular in many other countries. To gain market share domestically and internationally, Dell would have to follow consumers into stores, malls, and downtown shopping districts. The company beganselling a few models through Walmart's U.S. stores, Carphone Warehouse's U.K stores, Bic Camera's Japanese stores, and Gomes's Chinese stores. In addition, itopened Dell stores in Moscow, Budapest, and other world capitals.

As successful as Dell has been in revamping its indirect channels, selling directly to customers remains a top priority of Dell. Dell invites orders around the clock through Web pages tailored to the needs of each target market. It also maintains an online outlet store to sell discontinued and refurbished products. It mails millions of catalogues and direct-mail pieces every year. And its sales force calls on government officials and big businesses that buy in volume. Dell's websitenotes, with pride, that the 10 largest U.S. corporations and five largest U.S. commercial banks"run on Dell."

With market share and profit-margin challenges still facing the company, and global demand just picking up steam after a long, difficult recession, watch for Dell to make more channel adjustments in the coming years.

DISCUSSION QUESTIONS:

1. Is Dell using intensive, selective, or exclusive distribution for its market coverage? Why is this appropriate for Dell's products and target markets?
2. How does Dell's preference for direct channels affect its decisions about physicaldistribution?
3. What issues in channel conflict might arise from Dell's current distribution arrangements?