Building and Destroying a Brand

Laura Ries picks on Dell:

The Demise of Dell

The personal computer is one of the most important developments of the 20^th century. Its importance as a product, category and industry continue today.

Hindsight is always 20/20. But try to imagine going back in time.

Back in 1980 if I asked a multiple choice question about the emerging personal computer industry, what would your answer be?

What company is most likely to dominate the personal computer market?

(a) IBM, the company that invented the mainframe computer?

(b) Apple, the leading home computer?

(c) Sony, the leading electronics brand?

(d) Digital Equipment, the inventor of the minicomputer?

(e) Dell, a company started by a sophomore at the University of Texas?

Most people would probably answer IBM. With the rest answering Apple, Sony or Digital Equipment. I doubt anyone would have said Dell.

It isn’t logical, rational or reasonable to believe that a nerdy student from the University of Texas could take on some of the biggest companies and brands in the world and win.

But of course he did. He took them all on and won. Michael Dell built Dell Computer into the world’s largest computer company leaving IBM, Apple, Sony and Digital Equipment in the dust.

Marketing isn’t logical and marketing doesn’t follow the rules of common sense. Which is why the best way to understand marketing and to predict the future is by studying the past.

How did Dell come out of nowhere to dominate the computer market? It wasn’t an accident that Dell succeeded. They succeeded because unlike IBM, Apple, Sony, Digital Equipment or any of the other computer makers, Dell was totally focused.

Dell focused on one product: the personal computer.

Dell focused on one distribution system: direct.

Dell focused on one market: business.

And as a result, Dell became the largest selling brand of personal computers in the world and had the best stock-market performance of the 500 companies in the Standard & Poor’s Index in the decade of the 1990’s.

But success can go to your head. And a great stock performance can lead to intense pressure. And that (perhaps unreasonable) pressure to keep up the growth leads to expansion which can undermine a company and a brand. This is exactly what happened at Dell.

In 1997, Dell announced it would begin taking aim at consumers.

In 2003, it announced it would be diving into the consumer electronics marketing.

Also in 2003, it announced it would be selling computers in Sears and other large chains. In 2007, Dell announced it would be selling computers in Wal-Mart. In 2009 Dell announced it would start to sell smartphones.

All of this has diluted Dell’s focus and eroded the strength of Dell’s brand. No longer does Dell stand for “direct” in the mind. Dell is just another computer company. The expansion of the brand hasn’t helped it gain market share either, quite the opposite, Dell lost its PC leadership HP.

Today Hewlett-Packard is the world leader.

HP 19 %

Dell 15 %

Lenovo 7 %

Acer 7 %

Toshiba 4 %

In 2007, Michael Dell returned as CEO in an attempt to right the ship. And while his personality and presence has helped the company. Michael has not made the tough calls necessary to refocus the company and brand.

Why is Dell still relentlessly chasing consumers. Dell’s consumer division accounts for 20% percent of sales and it operates at a dismal profit margin of 2.4% (far lower than Dell’s other divisions.)

Why isn’t Dell making money on consumers? Because the brand doesn’t have power with consumers.

The low-cost, no-frills, personalized, direct model isn’t appealing to consumers. Consumers like cool, consumers don’t know enough to personalize their computers, consumers like to touch before they buy and consumers are turning to laptops which are harder to customize.

Consumers have distracted Dell. Dell spends so much time trying to make itself more appealing to consumers that they become less appealing to businesses. “Dude you’re getting a Dell!” was the kind of advertising that doesn’t win over company procurement departments.

The Wall Street Journal blames Dell’s demise on the “faltering” of its direct sales model. I think it is just the opposite. I blame Dell’s demise on its drifting away from its direct sales model. Dell should have stuck to its focus on selling direct to businesses.

The Dell brand will never work with consumers. Dell will never be cool. The more it tries, the worse the results. And when a brand isn’t cool, a company is forces to sell on price which is why Dell will never make any money selling to consumers.

Expansion is what got that got IBM, Sony, Motorola and many other companies into trouble. You can’t put your name on everything and sell to everyone.

That’s not the way to build a leader brand. Nor is it the way to make decent profits.

In the business world today there are dozens of Dells, all trying to expand their way to success when the only thing that really works is exactly the opposite.

Narrow your focus. Build your brand. Rake in the dough.

Enough said?

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