Efficiency gains through Digitization and Automation

Transcription

1 Efficiency gains through Digitization and Automation Advertising Agency: AdPeople Advertiser: Dell Computer Corporation EMEA Media Agency: Difinity, London Prepared by: Hans Rosenvold & Morten Munk

2 0. Executive summary Through a simple and effective online strategy, Dell and AdPeople have been able to achieve much success in the UK PC market. By combining the creative platform with efficiency improvements in the production of online elements, results have been achieved which exceed Dell s own high expectations. As in most other European PC markets, the UK PC market is characterised by intense competition. This tough competition has led to pricing becoming an increasingly decisive factor in PC users final purchase decision. At the same time, the online market in the UK has grown significantly and is expected to expand further in coming years. Dell s business model based on direct sales to customers is built on always delivering the latest technology at attractive prices and it is, therefore, essential that Dell s reaction time on matching competitors prices is minimal. Consequently the strategy must focus on fully maximizing online media opportunities both in terms of production and customer communication. Dell s online strategy must fulfil 3 overall objectives: 1. To offer superior value by reducing costs. 2. To be faster by optimising time-to-market 3. To be better by always improving creativity With the implementation of AdPeople s marketing portal DellShare TM and the integration of the new creative platform, it has been possible to produce web banners for Dell s online activities up to 33 times faster than hitherto. At the same time production costs of online materials have been reduced by 32%. Moreover, the cooperation between Dell and AdPeople also contributed to the following results in the UK market: Dell sales in Q increased by 32.4% over the same quarter in 2004 Dell s market share in the UK increased from 21.5% to 25% over the same period 34% sales increase generated from s 43% sales increase via banners This case demonstrates how an agency through great insight into a client s business model and marketing strategy can optimize the value chain and make it more effective, thereby releasing resources for further use in exploiting the potential of the online media. AdPeople s efficiency achievements in production and handling of Dell s online activities have released means which can be reinvested to improve the underlying processes and the creative ideas. At the same time it would be possible for Dell to acquire a larger share-of-voice in the strongly expanding online media. 1

3 1. Background Dell was introduced in the UK in 1987 and this is now Dell s largest market in Europe, Middle East and Africa (EMEA). Since 2004, AdPeople have been responsible for all of Dell s online activities in EMEA. This case will focus on Dell and AdPeople s online marketing challenges in the UK market in Dell use both off- and online media for their direct response communication. Note: Dell s policy on business confidentiality is restrictive and hence any specific analysis data about Dell cannot be shown and is confined to other references or main conclusions. In cases where market data is shown in non-indexed format, such information comes either from generic or publicly available sources. 2

4 2. The Challenge The PC market in the UK is, as in the rest of Europe, characterised by intense competition. All PC manufacturers offer the latest technology and with the ease and speed of the internet, customers can easily compare products and therefore pricing is now a key factor in the market. Dell is challenged on two fronts - partly due to a PC market where the competition for market share is becoming increasingly tough and partly because of the enormous opportunities which the internet offers advertisers to influence customers in terms of speed, direct communication and in large volume. In their desire for continued success, Dell focuses on improving effectiveness and, of course, increasing sales of PCs. Dell require that investments in marketing projects must be covered within the first quarter. Linked to this, it is a Dell objective that sales figures increase by a minimum of 30% in each quarter. To achieve this, new Dell marketing projects must always aim to fulfil the following overall objectives: 1. To offer superior value by reducing costs 2. To be faster by optimising time-to-market 3. To be better by always improving creativity In 2005, Dell s main objective on online strategy was to improve the quality perception of their products by optimising processes as well as harmonizing the creative expression in all online media. The solution to Dell s challenges is to continually improve the underlying processes. The three objectives above can be viewed as positively correlated: By shortening time-to-market through efficiency improvements, marketing costs for production are reduced giving the agency (AdPeople) greater scope in optimising creativity within the same budget. 3

5 3. Dell Dell is the world s largest PC manufacturer 1 and their mission is to be the most successful computer company in the world at delivering the best customer experience in the markets we serve. The company s strategy is to deliver relevant technology at superior value. Dell was founded in 1984 by Michael Dell in Texas, USA. Since then, the success of the company has forged ahead with their decision to solely use the Dell Direct Business Model, which means that Dell products can only be bought via the internet or telephone. The business model must ensure that customers are offered high quality products using the latest technology at a competitive price. As Dell s products cannot be seen and touched by customers in shops, their marketing strategy is always to influence customers to the optimum effect at all contact points both offline and online. Financially, Dell is doing extremely well. From 2004 to 2005 global net turnover increased by 18.7% and the net profit by 15% 2. The root of this success is found in Dell s unique distribution model and flexible price structure. Dell s fundamental strength lies in the direct sale to private customers and the business segment, whereby a costly dealer link is removed. This has enabled Dell to maintain high profit margins whilst at the same time eliminating a vast and costly in-house stock inventory. All Dell products are builtto-order and this also means that Dell needs to be very flexible in their production e.g. in case of technology changes or sudden changes in demand. Figure 1 Perception of Dell Direct Business Model UK Q4, IDC, Q2 July Dell Annual Report 2005 Source: Dell Quarterly Brand tracker, Q

6 Direct sales are combined with a constant focus on the price structure. Dell mainly concentrates on offering the best prices and therefore price promotions are often the main feature in the communication strategy. With pricing being a key part of the communication, it is vital that Dell is always in a position to match competitors offers and products, and that the reaction time to communicate this to the market is minimal. The basis on which Dell is able to communicate pricing so aggressively in the UK is that they maintain a very high value for money ratio and, as demonstrated in Figure 1, the perception of the direct sales model is very strong among customers. Through direct sales to customers, Dell has achieved real competitive advantages and in order to maintain these, they must constantly ensure that the underlying processes contribute towards this. 5

7 4. PC market in the UK Dell was introduced in the UK in 1987 and is now well established as the leading PC manufacturer in this market. As can be seen from Figure 2, Dell s main competitors in the UK are HP, NEC/Packard Bell and Acer. Dell is facing stiff competition partly from computer producers and partly from dealers such as PC World and Currys. Whilst the competitors can use the online media and other media to promote their brands and leave the distribution to dealers, Dell on the other hand is both producer and distributor every time the customer is to be influenced. Figure 2 PC market in the UK, Q All form factors Andre; 41% Dell; 25% HP; 17% Acer; 7% NEC/ Packard Bell; 9% Source: IDC PC-tracker, 4 th Quarter 2005 As already mentioned, the intense competition has led to a sharp focussing on pricing campaigns. For Dell this, therefore, requires that their pricing strategy, value propositions and underlying processes are working perfectly to combat competition. The above should also be seen in the light of the UK online market which has exploded in recent years: It is estimated that in 2005 the marketing budget for online advertising in the UK increased by 66% to more than 15 bn DKK 3 ( 1.4 bn). One in five British internet users shop online once a week 4. Overall the number of shoppers is expected to reach 25 million and annual purchases via online will increase to 235 bn. DKK ( 21.8 bn) towards * On average the British internet user is online 33 hours each month. 6. but that said, on average the British internet user spends only 44 seconds per web page. 3 Interactive Advertising Bureau UK, March UK Office of Communications, Datamonitor, Nielsen/Netratings, January

8 Needless to say, that the battle to make oneself known online will be intensified. Research has shown that internet users can spend as little as 50 milliseconds to assess a homepage 8 and this further supports the great demands made on online advertisers to capture the attention of the internet audience. The lucrative online market in the UK has, however, also brought about some less positive effects for advertisers. In recent years, click-through and open frequency for banners and s have been falling. 9 This means that internet user does not click on the web banner or the recipient of does not open it at all. This situation depicts an overall market where online ads can easily be daunting for internet users and even become an irritation factor. 7 Nielsen/Netratings, January Computerworld, 17 th January DoubleClick Internal Benchmark Statistics, 2nd Quarter

9 5. Target group This case focuses on Dell s online initiatives in relation to private customers and small/medium sized businesses in the UK. Dell has been successful in establishing themselves in both of these segments in the UK. Their strategy, where the aim is to reach as many customers as possible in both segments, makes it obvious to use a cost effective media such as the internet. The online strategy is concentrated on two front s viz. direct marketing and the more traditional online mass communication e.g. web banners. The direct marketing part taps into their internal database, where private customers and businesses have agreed to receive relevant offers and promotion news based on very attractive prices. In addition Dell subscribes to s from external data providers. To ensure that the hits the most relevant and profitable target customers, the database is segmented using criteria such as whether the address can be supplied gratis, the quality of the domain and the specific details stored on each recipient. Dell s in-house analyses show that communications from their internal databases generate 9 times more sales than from addresses bought in. The explanation for this is probably that customers are more willing to take up offers from newsletters, which they have chosen to receive. In their segmentation process, Dell work among other things with: 1. Private customers versus businesses 2. Existing customers and prospective customers 3. Simple scenario models 4. Purchase data 5. Lowest deciles versus highest deciles (potential) In addition, Dell use analysis of the entire database for selection and placement of web banners on the most appropriate homepages, which will be seen by more existing customers and prospective buyers within the relevant segment. 8

10 6. The solution model Based on Dell s internal visions, the development of the PC market in the UK and the evolution of the internet as an advertising media, AdPeople devised a strategy on the following principal lines: The competitive environment and the online market in the UK the need for a short reaction time (time-to-market). Cost effectiveness. A simple and effective operational set-up. To meet Dell s challenges, AdPeople developed the DellShare TM portal which is also being used in other areas of Dell s direct marketing activities. DellShare is a comprehensive workflow system designed for the internal marketing departments of global players. The system delivers significant cost reductions and quality improvements due to efficiency improvements in the overall planning and production process in terms of project and team management, quality assurance, template design and outsourcing coordination capabilities in both online and offline production. Additionally DellShare integrates brand management, marketing, planning and coordination, the creative process, production and budget control and workflow management into a single operational web based and team based web portal. The architecture consists of several flexible independent modules and tools which can be integrated in a customized solution and scaled to clients specific needs. AdPeople applied that part of DellShare which can be used to generate powerful banners and s. This process is based on an extremely tight structure which can help Dell regional marketing management to quickly adjust banners and s to meet local market requirements. Figure 3 Updating of web banners: 9

11 As shown in Figure 3, the process of updating and developing new banners begins with Dell briefing AdPeople through the DellShare system. The required formats are selected and thereafter AdPeople create the master templates. These templates are then forwarded directly by to Dell s regional offices (in this case the UK), where adjustments are made to suit the local price structure and competitive situation. Thereafter the banners are made ready and sent to the banner-hosting partners who update the existing live banners on the homepages. By using DellShare, AdPeople have been able to produce and update banners up to 33 times faster than hitherto. Sending of s DellShare is also used to send s and the process is very much like that for banners, but with a slightly longer production and updating processes as s often consist of several elements. Creative strategy Before the implementation of DellShare, Dell used an out dated and non-integrated platform, where e- mails and banners were not harmonised. Moreover, the design of these had no recognition effect in relation to Dell s own website and their own overall creative universe. Also the style of photography used in product pictures was of low quality. Overall these parameters gradually resulted in a negative effect, whereby customers increasingly chose not to click on Dell s banners or open s received. and banner before the use of DellShare In order to improve customers perception of Dell, AdPeople also developed a new creative platform in connection with the implementation of DellShare. 10

12 The main objective was to produce an uncomplicated platform which would meet all the needs of online elements. At the same time the creative platform should: Enhance customers quality perception of Dell s products Make the production phase more effective Provide an impression of uniformity between Dell s homepage, s and banners Since customers, as previously mentioned, spend an extremely short time on their spontaneous decoding of online elements, both s and banners were developed with the following simple model in mind: No exaggerated use of capital letters and punctuation Avoidance of large fonts Use of web-safe colours Readable product names Sharp, clear and high quality product pictures In continuation of the above rules and to make updating as easy and fast as possible, it is only possible to change the product picture, the price, the date and the text. Neither the backdrop nor adjustments to the elements can be changed. This is to ensure uniformity in the overall design and to improve the impression of quality. Apart from the obvious desire to advertise Dell online, the uniformity throughout online advertising helps customers to decode s and banners and thereby improve awareness. Viewed as a whole, AdPeople and Dell have succeeded in keeping the creative platform very simple: It creates a uniform experience of Dell It is production effective both in terms of cost and time It provides a central key message: A great deal 11

13 s and banners with the use of DellShare 12

14 Media strategy To make full use of the creative strategy and to combine this in the best possible way with the media strategy, both online marketing projects and online ads are given high priority. Dell s desire is to reach as many existing and prospective customers as possible in the most cost effective way possible. For instance, homepages most visited are selected in preference to PC sites for specialists. DellShare banners are based on Flash which is far more cost effective than the traditional production in gif format. The savings from this, among other things, is invested in more share-of-voice on the internet. Banners are also utilized by Dell to segment private PC users and businesses. In order to hit the small and medium sized business segment, banners are placed on the largest news sites and homepages providing business related contents. In the same way, banners aimed at the private segment are placed on homepages for sport, culture, music, popular news sites etc. It is a simple and effective media strategy which helps Dell to reach as many existing and prospective customers as frequently as possible. 13

15 8. Results By implementing the strategies mentioned and utilizing DellShare in the UK, Dell has been able to exceed their own targets in The main objective for Dell was to increase quarterly sales in 2005 by 30% over the same quarter in the previous year. The DellShare portal has meant that online activities can be achieved at lower costs and faster. Combining this with the new creative design has enabled Dell to further improve effectiveness. In the UK Dell sales in Q increased by 32.4% over the same period in The UK market share increased from 21.5% to 25% over the same periods 10 34% sales increase generated from s 11 43% sales increase via banners 11 48% sales increase generated from partners (sales generated through external homepages) 11 Evaluating these results against the three overall objectives viz. cheaper, faster and better, AdPeople s strategy has also been a success. The cost of producing banners has been reduced by 32% 11. This reduction stems mainly from a significant shortening of both development and production times in producing banners. This minimising of time-to-market is demonstrated in Figure 4, where the production time of 800 banners is reduced from 3 ½ days to 2 ½ hours. Updating of banners on homepages for the whole of EMEA can be carried out via DellShare right down to 20 minutes from the time AdPeople have received the brief from Dell. Figure 4 Banner production time Source: Internal AdPeople analysis 10 IDC EMEA PC tracker, Q Internal Dell analysis 14

16 These reductions enable Dell to react extremely fast to market changes and competition threatening prices. At the same time the reductions also strengthen Dell s opportunity to further exploit the potential of the internet as an advertising medium, by the significant curtailment of time-to-market. The third objective was to improve the creative level in order to lift customers perception of Dell. As shown in Figure 5, during 2005 Dell enhanced customer perception of their products and at the same time they offered the best prices in the market. Figure 5 Quality vs. Price, UK PC market, Q1-Q Source: IDC PC Tracker, Q The results show that AdPeople together with Dell have created a simple and effective creative strategy in the UK market, where competition is intense and time-to-market is paramount. With the use of the DellShare system, Dell can in close co-operation with AdPeople implement this strategy and execute it effectively in the market. At the same time the savings made in the marketing budget achieved by faster production times - can instead be allocated to further development of Dell s online activities. 15