Dell, Inc. B2B Marketing - Derived Demand - Essay Example

? B2B Marketing - Derived Demand B2B Marketing - Derived Demand Executive Summary This report has been prepared to specifically meet three aims. The primary aim is to analyse how Dell estimates its derived demand and how this demand impacts the company’s production. The second purpose is to evaluate the company’s current market segmentation strategies and identify further business segmentation opportunities. The final goal is to scrutinise Dell’s marketing channels and design channel strategy for a new market segment. The major findings reflect that: An increase in the derived demand directly leads to a rise in Dell’s production and this concept assists the company to reduce its operating costs. The company adopts geographical market segmentation approach Dell uses social media as its major marketing channel to interact with its corporate customers. Introduction Dell, Inc. is a US-based multinational computer technology corporation which was found by Michael Dell in 1984. The company deals in sales of computers and supports computer related products and services including computer peripherals, computer software, and IT consulting services. Currently, Dell is one of the world’s largest technological corporations and provides employment to over 103,300 people worldwide. Business acquisition is the major expansion strategy of the company and this approach has assisted the company to significantly improve its customer base over the last decade. Currently, the company is the world’s third largest PC maker and it is ranked 41 in the Fortune 500 list. The company also sells other manufacturers’ electronic products including HDTVs, MP3 players, cameras, and printers. Market analysts opine that innovations in e-commerce and supply chain management can be considered to be core strengths of the company. As we discussed in the previous assignment, Dell is a business to business organisation that provides B2B transactions called PremierConnect to its customers. This facility assists the organisation to deliver improved shopping experience to customers. Hardware infrastructure, outsourcing services and ERP are the major components that Dell needs to be supplied to make the company’s PremierConnect services effective. We have already discussed how Dell’s B2B strategies assisted the organisation to add value to its value creation process and sustainability. The concept of derived demand is of vital importance in B2B marketing. This paper will specifically evaluate how Dell estimates derived demand, evaluates business segmentation opportunities, and develops a new channel strategy aligned to one new business segment. Drivers of derived demand Derived demand and Dell’s production In the words of Hutt and Speh, the term derived demand indicates the relationship between “demand for an industrial product and the demand for consumer products”. The authors add that “the demand for an industrial product is derived from the ultimate demand for consumer products” (Hutt and Speh, 2009, p.13). In simple words, an increase in the supply of a specific good or service in turn leads to a rise in the derived demand for production components or raw materials required for developing that product or service. Therefore, this situation would result in an increase in the price of associated components of production. Dell manufactures and distributes an array of computer related products to various retailers. Data indicates that Dell is a potential supplier to many fortune 100 companies (Business Affiliates). Hence, an increase in the supply of any of those companies would indirectly add value to the derived demand for Dell’s production components. Under such circumstances, Dell is forced to supply more production components to its retailers so as to enable them to meet increasing customer needs. Hence, this situation causes to increase Dell’s total production volume. It must be noted that the level of derived demand generated is heavily dependent on the retailer’s product quality, operational efficiency, and business strategies. While analysing the derived demand that determines Dell’s production, it seems that the derived demand is less price-elastic due to a number of reasons. In the view of Kumar and Sharma (1998), a product with derived demand represents only a part of the major commodity. Hence, price of a commodity with derived demand constitutes only a portion of the main commodity’s price. Therefore, an increase in the price of a Dell’s product with derived demand can have a negligible influence on the price of the main product (p.41). In addition, many of the Dell products with derived demand can be used for several purposes and therefore it is not possible to forecast their demand. Hence, price of many of the Dell products with derived demand remains stable regardless of autonomous demand fluctuations of the main commodity. This situation is helpful for Dell to keep the prices of its industrial products stable despite changes in the demand of concerned consumer products. In short, derived demand helps Dell to raise profits without much effort. Implication of the derived demand As Dell involves in B2B transactions, the concept of derived demand is of considerable importance in the company’s marketing operations, value creation activities, and sustainability. While dealing with B2B marketing, the concept of derived demand would be greatly beneficial for Dell to reduce its operating expenses and stabilise profitability. Since the derived demand is less price elastic, Dell can charge the same rate for industrial products despite the market position of its retailers. According to Dutt, Vasishtha, Sharma, and Vasishtha (2010, p. 9.24), the concept of derived demand has numerous implications for the marketing mix. To illustrate, this concept greatly assists the company to avoid promotion expenses because it does not directly sell to customers. Thus, the organisation can give more focus on the production process, which, in turn, may contribute to product quality. In addition, retailer marketers’ geographical locations cannot have any influence on the level of derived demand. While engaging in B2B market operations, Dell does not need to directly interact with ultimate customers and the situation helps the company to get rid of the challenging task of customer management. Since many of the Dell’s products with derived demand can be put to several uses, retailers’ market failures are less likely to affect the sustainability of the organisation. In the words of Dutt et al, “there are three implications for the pricing of business products in derived demand due to expanding overall demand, relative price insensitivity, and relative price sensitivity” (Dutt, wt al, 2010, p.2.95). Sometimes, the benefits of this concept may turn disadvantageous for Dell. To illustrate, since the company does not have a central role to play in its retailers’ sales promotion activities, it cannot easily improve revenues on its products with derived demand. Hence, if retailers fail to effectively market their products, this situation would adversely affect the derived demand for Dell products. The concept of derived demand may encourage Dell to turn its focus from customers to retailers because this concept allows them to generate profit without any customer interaction. Such a policy would probably prevent the firm from understanding actual customer interests. Segmentation used by Dell Bases of market segmentation While analyzing the B2B marketing strategies of Dell, it is precise that the company has developed its market segmentation strategy on the basis of geographical variances. Hutt and Speh (2009, p. 413), contend that under geographic market segmentation, it is possible to use country, state, city, density, or climate as a base. Since Dell is a multinational corporation, the approach used by the company to segment its business markets seems to be effective. Hopps states that while operating as B2B organisation, it is not possible to segment markets based on demographic peculiarities. Furthermore, computer and related products have nowadays become a necessity for people regardless of their age. Similarly, computer products do not have much influence on people’s behaviour and therefore, behavioural segmentation is also not recommendable for the organisation. It seems that the market segmentation approach adopted by Dell has numerous advantages. Weinstein (2004) says that it is a simple segmentation policy for dealing with B2B transactions because there is no need of extensive market research programmes or other complex procedures to divide markets under geographic segmentation strategy. This segmentation also assists the organisation to cut down marketing expenses to a great extent. To illustrate, while focusing on a distinctive geographical unit, the organisation may use same promotional materials and a common language. Unlike other cases, market segments would not change under geographical segmentation strategy. Therefore, Dell does not need to change its market units frequently once markets are segmented on the basis of geography. In the opinion of Botha, Strydom, and Brink (2005, pp.65-66), this situation aids the organisation to take advantages of money and time in addition to avoiding possible sales decline issues that may arise during market segment changes. Moreover, this approach greatly benefits Dell to monitor its target market segments continuously and thereby make timely policy changes. Dell’s B2B market segmentation policy makes it easy to deal with data analysis without advanced expertise. It is obvious that data collection and analysis would be an easy task when considering a geographical area as a whole. The major disadvantage of this approach is that this type of market segmentation covers a broader geographical area and therefore the Dell management often fails to pay adequate attention to every region of its business market segments. The broad area coverage also prevents the organisation from effectively responding to retailer needs. Dell’s current market segments United States, United Kingdom, China, and India are some of the major current business market segments of Dell (casestudyinc.com). The company has strong business roots in US and UK. Since both these countries are industrially and technologically developed, they promise long term benefits to the organisation. Even though the company faced severe market difficulties in the United States during the 2009 global financial crisis, currently the economy is recovering from the shock and this situation offers a prosperous future for the company. Similarly, the UK retailers have a special interest in Dell products because Dell has a very good reputation among UK people. McDonald (2008) points out that India and China are rapidly developing to be potential market segments for Dell’s B2B marketing activities. Market analysts indicate that China would become Dell’s most fertile market segment in the near future. In addition to these, Dell has many other potential market segments across the world. Market segment suggestion As we discussed earlier, Dell segments its business markets on the basis of geographical locations. Currently, it seems that the organisation considers a country as market segment and develops and implements specific business strategies for the segment. Today, the firm has spread its business around the globe, and therefore, it would be a difficult task for the organisation to identify unmet demands of its current market segments. To illustrate, India is an agglomeration of various cultures and therefore, a single business strategy may not be adequate to serve the needs of the whole Indian retailers. Hence, Dell has to divide a country into several market segments so that the company can effectively focus on individual retailer needs with regards to cultural features of his/her operational territory. Even though Dell has already expanded its business across the globe, it is strongly recommendable for the organisation to specifically focus on its Asian markets; especially India and China. Economists opine that emerging countries like India and China are likely to dominate the global economy in the near future. Furthermore, many of the Asian countries like China have undergone tremendous technological changes over the last few decades. As a result, those countries have an effective technological base and this situation would suit the Dell’s business type. Hence, the Dell has to be proactive here to take advantages of the future market situation. The company has to divide the Asian market into small geographical areas on the basis of operational convenience, rather than considering each country as separate market segment. Marketing channels Effectiveness of Dell’s marketing channels While analysing the design of the marketing channels used by the company, it seems that Dell considers social media as its major B2B marketing channel. The organisation manages Dell TechCenter- an online community- with intent to enhance loyalty among its B2B customers (Dell TechCenter). Through this online community, members can share their advices and raise queries to Dell engineers. This idea is greatly beneficial for the company because it is the best way to answer customer queries quickly and cost effectively. This community is open and provides members with extensive search options. However, the choice of posting of articles and comments is limited to registered members. The Dell’s official data (as cited in Gillin and Schwartzman) indicate that roughly 100 people visited the community on a single day in 2008 and the figure rose to 5,000 in 2010. Dell officials contend that the TechCenter indirectly assists the organisation to raise millions of dollars of sales each year. It is interesting to note that the TechCenter does not sell anything directly and the community member list is never used for promotional purpose. Hence, it is obvious that the operation of Dell’s TechCenter as an idea sharing community adds value to its customer loyalty and which in turn aids the company to gain trust of its corporate customers. Immense growth of social media tools such as communities, blogs and user-generated multimedia opened a range of new opportunities to Dell. Various financial reports indicate that Dell raises nearly 80% of its sales from corporate customers. Hence, the organisation has taken several initiatives to take advantage of these newly evolved marketing channels. Dell has been expanding its footprint to social media sites including Facebook, Twitter, and You Tube for the last few years. The company believes that this type of online marketing channels would be helpful to get wider customer coverage. As we mentioned earlier, social media-based B2B marketing channels greatly benefit the company to trim down its promotional expenses to a great extent. Furthermore, this strategy aids the company to respond to high volume of consumer needs within a short span of time. In short, Dell’s design of the marketing channels is very effective in achieving its long term business objective and thereby promoting sustainability. In task 2c, we have identified several unreached Asian market segments. It is necessary to design effective channel strategies for these market segments. According to a 24/7 Wall Street survey (as cited in Stockdale and McIntyre (2011), usage of social networking sites in Asian countries like India, Indonesia, and Philippines is dramatically increasing. Therefore, it is suggestible for Dell to continue its social media marketing operations in these regions. By practicing this approach, the company can effectively promote its product lines among corporate customers in these market segments. However, the social media marketing channel would not be useful in China because the Chinese government has banned such social networking sites in the country. Therefore, it is recommendable for the firm to adopt other common marketing channels like television and newspaper in China. Conclusion From the above discussion, it is clear that the concept of derived demand benefits Dell to increase its sales without much promotional efforts. However, this concept reduces the company’s control over end users. Similarly, Dell practices geographical segmentation strategy to divide its markets and the company considers a country as a market segment. This strategy raises some operational challenges to the firm, and therefore, it is recommendable for the company to divide its markets into smaller segments. Dell raises 80% of its B2B sales though social media market channels. Therefore, it is advisable for the company to continue its current market channel approach to enter unreached Asian market segments. References Business Affiliates. Net Work Information Technologies, Ltd. Retrieved from http://netinfo-tech.com/Affiliates.html Botha, J. Strydom, J & Brink, A. (2005). Introduction To Marketing. Cape Town, SA: Juta and Company Ltd. Business and management case studies. (2010). casestudyinc.com. Dell in India-Business and marketing strategy. Retrieved from http://www.casestudyinc.com/dell-india-strategy Dutt, R., Vasishtha, A. R., Sharma, J.n & Vasishtha, A. K. (2010). Linear Algebra. New Delhi: Krishna Prakashan Media (p) Ltd. Dell TechCenter, TechCenter Blogs, Dell. Retrieved from http://en.community.dell.com/techcenter/b/techcenter/default.aspx Gillin, P & Schwartzman, E. Social marketing to the business customer; Listen to your B2B market, generate major account leads, and build client relationships. Retrieved from http://gillin.com/blog/wp-content/uploads/2011/01/GillinCH1sample.pdf Hutt, M. D & Speh, T. W. (2009). Business Marketing Management: B2B. US: Cengage Learning. Hopps, J. Targe market, segmentation, and positioning. We help entrepreneurs. Retrieved from http://www.evancarmichael.com/Marketing/5604/Target-Market-Segmentation-and-Positioning.html Kumar, A & Sharma, R. (1998). Managerial Economics. New Delhi: Atlantic Publishers & Dist. McDonald, J. (2008). Dell’s new low-cost PCs target China, India. USA Today. Retrieved from http://www.usatoday.com/tech/products/2008-08-27-dell-cheaper-pcs_N.htm Stockdale, C & McIntyre, D. A. (2011). The ten nations where facebook rules the internet. 24/7 Wall Street survey. Insighful analysis and commentary for U.S & global equity investors. Retrieved from http://247wallst.com/2011/05/09/the-ten-nations-where-facebook-rules-the-internet/#ixzz1MLcQIloj Weinstein, A. (2004). B2B market segmenation: 5 key segmentation dimensions. Retrieved from http://artweinstein.com/uploads/WHITEPAPER-B2B-SEGMENTATION-v4.pdf Read More