Dilly ‘Dell’ing Around

The good news: Austin-based Dell Computer
Corp (Dell) has reported a record shipment of two million PCs as sales worldwide. The
company has been galloping ahead and is currently #2 in the global market.

The bad news: Dell’s Indian subsidiary has
been tottering and so far failed to make an impact in the local market and is a distant
ninth.

A little success there, a little failure
here sums up Dell’s performance in the global and local market. Internationally, Dell’s
Direct Access Model (DAM), a direct marketing approach, has been the driving force behind
its juggernaut in the computer market. Thanks to DAM, Dell has been able to offer
low-priced made-to-order products in the market. The company has effectively leveraged its
direct marketing model to bypass the retail channel and share the retail margins with the
customers. This approach has helped it to penetrate difficult markets like USA and Europe
and gain marketshare at the cost of established players. Today, players like Compaq, IBM,
HP and others, earlier skeptical about DAM, have accepted the success of a direct
marketing approach and are rethinking their conventional retail channel selling approach.

So what’s wrong in the domestic market? How
can an ‘innovative’ world leader falter badly in the Indian market?

‘Time’ is the culprit, according to John
Legere, President, Dell, Asia-Pacific. Says he, “We made an entry in the Asia-Pacific
region only in 1993, yet according to an IDC Q2 1998 report, Dell ranks seventh in the
region and ninth in India. We are encouraged by our performance and our progress is in
line with our plans for India.” Given time, it will replicate its worldwide success
in the domestic market seems to be the underlying message.

An analysis of the company’s Indian
operations would suggest that ‘misutilization of time’ rather than time is the culprit for
the poor performance. It is a known fact that Dell was among the earliest MNC brands in
the country and tied up with an aggressive marketer-Pertech Computers. The company has
failed to build up on its early entry advantage and frittered away precious time without
gaining any marketshare. Though the company refuses to give figures on its marketshare in
the country, as per the DQ Top 20, the company does not figure in any of the top lists of
desktop, notebook or server vendors.

Moreover, it is ironical that even as Dell
is forcing other players to rethink on their conventional marketing strategies worldwide,
it has preferred the same conventional marketing strategies for the local market. In
India, it sells computers through the conventional approach-distributors, resellers and
retailer chain.

Here’s the first link behind the poor
performance of Dell in India. Unlike its international success, which is attributed to the
excellent supply chain logistics than any other factor, it has not been able to set up an
efficient ‘back-end’ strategy in place. Given this fact, the company cannot leverage its
marketing strategies of low pricing and customization. Forget low pricing, the company’s
products are priced higher than domestic manufacturers and the gray market operators. For
example, the entry-level PII computer is priced at around Rs78,000 and the Celeron model
for the same configuration is priced around Rs68,000. Compare this with high-end system
prices from Indian manufacturers, which range from Rs40,000 to Rs50,000. The company
cannot compete with these players in a country known for its value-for-money outlook.
Though price competitiveness relative to the domestic manufacturers is a common constraint
for all the MNC brands, these players, however, have had a better success rate than Dell,
thanks to higher visibility, better reseller network and better brand image. Remember the
recent high-decibel price war in the low-end PC segment? HCL, Compaq, Digital and HP were
all there and Dell was conspicuous by its absence. Ironically, Dell’s global marketing
plan has revolved around the price plank.

Poor marketing and a concomitant lack of
reach are the second weak link in the company’s strategy. Unlike other players, Dell so
far has preferred to be a component supplier rather than an active marketing company.
Rather than play hardball in the market, Dell has preferred others to sell its products.
First it was the unsuccessful marriage with Pertech Computers, and then came agreements
with distributors like DCM DataSystems (which broke off at the beginning of the year), VM
Enterprises and others. Not big names with a great market reach that could help Dell
cruise smoothly. Distributors, too, feel that the company has failed to display the
necessary marketing thrust compared to other MNCs. According to them, this raises doubt
whether the company is serious about the Indian market or not.

Direct marketing?
Where does this leave the company? The company cannot succeed by the conventional
marketing approach. Introducing DAM and pumping in investments to build efficient supply
chain logistics without volumes is a big risk for a late starter like Dell. To take the
gamble or not is the big question for the company. Moreover, assuming that Dell decides to
plunge headlong in the Indian market, it has to decide which market niche it plans to
attack: premium, value for money or low-priced segment. The first is dominated by MNCs and
high-end Indian companies, the second is occupied by low-end MNCs, Indian companies and
high-end gray operators and the last segment is being catered to by low-end Indian
companies and gray operators. Marketing theories suggest that any segment usually has a
leader or two and other players with low marketshare. The same is the case with the Indian
computer market. Compaq, IBM and HP occupy the premium segment, HCL and Zenith dominate
the second rung and other domestic and gray market players have a stranglehold on the last
rung. In such a scenario, where can Dell squeeze its product? Which segment Dell plans to
concentrate on will decide its whole marketing strategy.

The thinktanks at Austin have some serious
homework cut out for them regarding the Indian market. They have to realize that since the
company is a late entrant in the market, it would be foolhardy to attempt conventional
marketing theories. The company needs to focus on DAM and build up the necessary
infrastructure to facilitate the smooth functioning of the model. If innovation is to be
the name of the game, investment on infrastructure and increasing marketing thrust will
decide whether or not the company is serious about the Indian market. Also, serious
rethinking needs to be done on whether a simple question from the press to the Indian
operation’s CEO needs to be answered by him or directed to the Asia-Pacific office,
Singapore, and redirected to a Delhi-based communication agency. If a customer is to get a
similar ‘delayed’ response, then it’s Mayday time for the world’s #2 PC maker as far as
its local aspirations are concerned.

Leave a Reply

Your email address will not be published. Required fields are marked *