How Dell Sells (Part Two): Direct Relationship Marketing

Joel Kocher (pronounced ko-er) joined Dell Computers in 1987 as vice president of alternate distribution channels. In his previous job at Tandy he was in charge of a chain of 125 computer stores that employed over 700 people. Seven months after joining Dell, which employs 4,200 people, Kocher was put in charge of the U.S. sales force. Last year he was promoted to President, Dell USA. Here is the Dell Computer story in Kocher’s own words:

Change

Michael Dell created a company based on the assumption that if you could eliminate unnecessary steps in the marketing process, you could provide customers with a much better system for satisfying their computer needs. We felt that if we combined direct response with a highly skilled and highly efficient sales force, we could serve our customers better and grow our business to higher levels. We called the new system direct relationship marketing.

Differences

At most companies, when customers call in to order products they speak to people who are trained to do nothing more than take orders. We set out to change that paradigm. I kept telling our salespeople to learn from the role model of a highly trained, highly skilled stock broker who is able to handle very complex transactions on the phone. Over time we transformed our sales force from order takers to computing specialists capable of offering customized solutions to our customers’ computing needs.

Training

Typically we hire college graduates who spend five weeks in training before they ever talk to a customer. Four weeks are spent on product and industry knowledge and one week on selling skills. We have about 500 salespeople.

We are committed to ongoing improvement in our operation. For example, our salespeople spend an average of six and a half hours per day on the phone with their customers. That’s very efficient compared to other companies in the industry. Many of our telemarketing salespeople produce between three and four million dollars in sales per year. We have automated many of the time consuming steps involved in telemarketing sales.

For instance, to prepare a proposal for a customer at many companies salespeople take notes during a phone call, then sit down and write a draft and have the sales manager look it over. Then the proposal gets typed and reviewed again. If everything goes well it may be mailed the next day and the customer gets it the following week. At Dell salespeople call up a special screen while they are talking to the customer and, with a few key strokes, prepare the proposal while the customer is still on the line. In many cases the salesperson will fax the proposal before the phone call is over. They may say, I’d like you to go to your fax machine after we’re through because I’ve just faxed you the configuration of the system and the prices we’ve talked about. I’ll call you in three days to follow up. That’s a highly efficient and productive way of doing business.

It is important to move information quickly to help the customer make an informed decision before the window of opportunity closes.

The Sales Engine

Our market has taken on characteristics of the commodity market. Our strategy has been to build an efficient distribution engine where we create a distribution and selling capability that can deliver a higher value to the customer.

Let’s say you read about Dell in a computer magazine and you call to talk to one of our salespeople. First we qualify as to whether you are a government account, a Fortune 1,000 account or a small to medium sized business account. We have organized our sales force into account groups in order to help them serve their particular customers better. Once you talk to your salesperson, we’ll ask you about your specific needs and many times we take your order on the first call, ship the product in three days and you’ll receive everything within five days of your call.

If you prefer to receive a proposal or literature, we’ll fax you the proposal or send the literature by mail. That’s all an automated process. After about five or six days we’ll follow up, take your order and assign your account to our support people. We work in teams and share all customer data, so that if your salesperson is not available, another salesperson will help you with your questions and concerns. Over time you are able to develop a personal relationship with your representative. Our goal is to develop a long-term, personal relationship with the customer.

Service

Any customer who has a problem can call in on our support line. You can call your rep, but to save you time you are given a dedicated number. The technician will ask you for the serial number on the back of your machine and, within seconds, he or she will know exactly when you purchased the machine and how it was configured without having to ask you. The technician can tell you that you bought a 486 machine with a 200 megabyte hard drive, 8 megabytes of memory, a fax modem, DOS 5.O, Windows 3.1 loaded, an SVGA monitor and an Epson printer. After a few quick diagnostic questions, the technician may determine that your modem needs to be replaced. He will tell you, I will send you a new fax modem via Federal Express. It will be there tomorrow morning and a technician will be there on site tomorrow to replace your fax modem for you. We guarantee this overnight service for 98.9 percent of the United States.

A few years ago we had a 62 percent error rate with internal purchase orders. Within one year from the time we began to focus on it, we reduced it to two percent.

To improve service to customers, every Friday morning at 7:30 we conduct a meeting where about 200 people from every department from the executive suite to the line workers focus on our ability to deliver on promises we have made to our customers. We look at our performance data such as the time it took to answer the telephone, the number of deliveries to our customers, and the number of customer complaints. We go over the key data that give us feedback on the efficiency of our operation. The fact that all departments are represented allows us to quickly cut across any barriers and implement new ideas and procedures virtually overnight.

In traditional companies, managers manage and employees execute. In our company employees manage and managers assume the role of mentors and facilitators.

Recruiting

We share with the business school of the University of Texas in Austin what attributes we want in a new recruit. We hire a large number of people from there. Our turnover rate is less than four percent. When I started this telemarketing program, some people predicted that telemarketers would leave after a year and a half.

I think our turnover rate is so low because, first, we make them part of the business and they are an integral part of the value chain. Second, we spend a lot of time in career planning and we have a very comprehensive performance planning and appraisal system. We recognize and reward good performance, and we take our high performers to Acapulco and Hawaii. Our people know that we are interested in them and that we care about them as people. The third thing is that we’re successful and everyone wants to be part of a success story.

Growth

We have created a business architecture that is very scaleable and yet highly centralized. All our processes are driven by a highly centralized information system that everybody shares. We are able to bring people on board and train them faster because we have better information tools to work with. Also, we have a high degree of control over the customer experience because, from manufacturing to distribution, we own the entire process. Most of our competitors don’t know who their customers are, they can’t keep track of who owns what, they are not part of the immediate feedback loop. Because their customers are dealers, when things go wrong it takes them months to become aware of the problem. In contrast, our customers are the people who use the product.

If we have a component problem, we’ll know it within a few days and we can take immediate action. We are able to adjust and improve our business every Friday during the customer advocacy meeting. How many billion dollar companies can do that?

Customization

We have built our manufacturing logic around a philosophy of single unit manufacturing. We produce hundreds of thousands of computers a year, one at a time. The manufacturing logic is tied into the sales department. Once the sale is made, manufacturing will begin the process of building your system according to your specifications and pre-load all the software packages that you want on your machine. We can load over 300 different software programs to fit your computing needs, install networking software by putting in the network cards and arranging for a subcontractor to install your cables. This information goes directly to the manufacturing facility so you get a custom-built computer system.

Ongoing Success

We make it very clear to our people that the prerequisites for promotion in our company are leadership and professionalism. In a high-growth company like ours there is a tremendous gravitational pull for people to succeed. We have more promotions in a six-month period than most companies offer in six years. When people take leadership and succeed, they get promoted.

The second part is professionalism. About two years ago we developed a program called “Certified to Sell.” Our commitment is to be the most knowledgeable salesforce in the industry. When a new product comes out, we offer training classes and our salespeople have to take an exam. It’s a fairly difficult process. Salespeople who do not pass the test cannot sell the product. You can’t win in this highly competitive business unless you continually raise the standards.

About three years ago, I challenged our sales force to begin selling large computer deals over the telephone. We first created a sight seller, a table top presentation which we sent, along with other materials, overnight to the prospect. We would make a telephone appointment the next day to go over the capabilities presentation. We asked the prospect to bring all decision makers into one room for the presentation and then we would walk the customer through the presentation page by page while the decision makers listened over the speaker phone. It took only a few practice runs, but today it’s just as natural as making a face-to-face sales call. In fact, it’s not unusual for us to close a multi-million dollar deal on the phone without ever seeing the customer.

The Pace Of Change

Our people believe that if we can’t outchange our competition, we’re going to lose. Look at IBM. They didn’t change. They have been very rigid for years and that’s the reason why they have had so many difficulties. They’ve not been flexible. We’ve been able to create a corporate environment where change is viewed as good. We are not burdened with institutionalized thinking.

We know that what was good enough yesterday is not good enough today. We don’t spend a lot of time patting each other on the back. We don’t have company planes. We don’t fly first class. We’re a big company that still runs like a very small company. Our senior management is out front each day telling everyone that we’ve got to do this better. We’re going to take over the world. Total world domination is the goal. We want to be the best and the biggest.

The Real Michael Dell

Michael is relentless in his pursuit of the competitive edge. He motivates me through constantly challenging and stretching the limits of what is possible.

He has an unlimited capacity for generating new ideas. As someone who works for him you have to be able to pick out the one golden nugget, because if you tried to follow up on every idea he comes up with, you’d fail. Everyone in the company just talks about him as if he were superhuman. He has accomplished tremendous things.

His three greatest strengths are, first, his ability to cut to the heart of the issues faster than anyone else. I like sports and I call this ability “feel for the ball.” Second, his vision. He can look into the future and see the new paradigms on the horizon earlier than the rest of us. Third is that he is very bottom-line oriented and he does not try to do or run everything. He is very willing to delegate. He tells us, “Go make it happen,” and I often go for weeks at a time without seeing him.