In crucial economies overseas, its old direct-sales model hasn't paid off
Buying a computer, putting it in your trunk, and driving home with it may not seem revolutionary--unless that computer is a Dell (DELL). The company pioneered made-to-order, direct-to-customer PC sales, and boasts on its Web site that it can introduce the latest technology "more quickly than companies with slow-moving, indirect distribution."
Now, as its global market share slips, Dell Inc. is giving that slow-motion model a closer look. The company is cautiously becoming a brick-and-mortar retailer, a path that has paid off big-time for rival Apple Inc. (AAPL) but which hobbled computer maker Gateway Inc. (GTW) In October, Dell will open a store in an upscale Moscow mall. That follows the introduction of a similar outlet in downtown Budapest in April.
These aren't the simple kiosks found in some U.S. malls, where consumers can try out Dell machines but must place an order for later delivery. Although operated by local partners, these stores stock only Dell PCs, which shoppers can buy on the spot and take home. "In Hungary, Internet shopping is not as widespread as in the U.S. or Western Europe, so it is very important that people can come to the brand store," says Tamás Damján, country manager for Dell Hungary. Dell won't detail plans for stores elsewhere, but hints that more are likely.
Not long ago, this approach would have been sacrilegious, but Dell needs to find a way to tap into emerging markets. In Russia, for instance, laptop sales are growing about 50% a year, but Dell only ranks eighth, with a 4.2% share, according to researcher IDC. In desktops, Dell doesn't even make the top 10. To boost its share, the company needs stores since, like most emerging countries, Russia lacks the home delivery services needed to support direct sales, and customers have little experience with e-commerce.
The stores in Budapest and Moscow represent just the latest move toward traditional retailing for Dell. This year, the company started selling at Wal-Mart (WAM) in the U.S., Carphone Warehouse (CRWHF) stores in Britain, and Bic Camera outlets in Japan. And on Sept. 24, Dell announced it was teaming up with China's biggest electronics retailer, Gome. After nearly a decade in China, the second-biggest computer market after the U.S., Dell has less than 10% share among corporate buyers there and only 2.5% of consumers. That's in part because the Chinese enjoy shopping in stores and find delivery inconvenient. Dell is also considering traditional retail outlets in India, another market with vast potential but similarly poor conditions for direct sales.
Selling in retail stores exposes Dell to new challenges: anticipating what kind of PCs consumers will want and managing inventory. With direct sales, Dell builds only the machines that customers order. And it's not clear what competitive advantage a PC from a Dell store has over a machine from a rival with more retailing experience.
While Dell's retail presence may signal the start of a fundamental shift in strategy, it isn't yet large enough to add a lot of sales. At the 500-square-foot Budapest store, about 50 to 100 people visit on a typical day, and sales usually amount to a couple of PCs or laptops daily. On a recent weekday morning, only one customer is in the store: György Fischer, a 48-year-old information-technology manager for a government research institute. Although he hasn't yet pulled out his wallet, Fischer says he's thrilled with Dell's Latitude 620 notebook and its three-year guarantee. Says Fischer: "I don't know any other companies that offer such a long warranty."
There are six shared characteristics of top B2B global brands, according to a study by the Harvard School of Business
Many business-to-business (B2B) CEOs view marketing as the domain of consumer goods brands. They are wrong. Among Interbrand's 10 most valuable global brands, we find Microsoft, Intel, IBM and GE. All generate far more B2B revenues than sales to end consumers.
An HBS research team recently conducted a study of top B2B global brands. They shared the following six characteristics:
1. The CEO is a willing brand cheerleader, loves the brand heritage and is a great storyteller. The CMO sees his or her purpose as helping the CEO achieve this role.
2. The CEO understands that building brand reputation reduces commercial risk, insulates the company in a crisis and provides the common purpose that can bond all the company's stakeholders.
3. Efforts are focused on a single, global corporate brand rather than individual product brands.
4. The payback on marketing expenditures is measured rigorously to the satisfaction of the hard-nosed engineers and finance staff who run the typical B2B enterprise.
5. Coordination of company websites worldwide to present a consistent face to stakeholders is the best way to get control of marketing communications that may have become too decentralized.
Why should brand-building be important to B2B CEOs?
First, most B2B marketers have to address thousands of small businesses as well as enterprise customers. They cannot do so economically using the traditional direct sales force.
Second, if left unattended, individual managers will each do their own adhoc marketing. The result will be a hodgepodge of corporate logos, taglines and packaging. Customers will be confused and the company will look disorganized.
Third, B2B marketers are realizing that developing brand awareness among their customers' customers can capture a larger share of channel margins and build loyalty that can protect them against lower-priced competitors.
Consider these examples:
Intel is the ultimate ingredient brand. Zero sales to end consumers yet Intel built a consumer demand pull for its chips that required every PC manufacturer to incorporate them and to advertise Intel Inside on their products and in their ads. Other ingredient brands include Goretex, Teflon and even the Boeing 787 Dreamliner (as a differentiating ingredient for early adopter airlines).
GE and Microsoft are hybrid brands with some direct-to-consumer sales that have helped to build the reputations of what are primarily B2B firms. But these enterprises, although selling to businesses, want to be in touch with end consumers, with their aspirations and their needs. That is a source of competitive advantage in driving their innovation agendas.
Accenture sells nothing to consumers. But its Performance Delivered campaign, backed by the advertising presence of Tiger Woods, has created a positive awareness of the brand among hundreds of thousands of people who may be working for the enterprises to which Accenture consults (or is seeking to consult). And the motivational value of inviting top customers, prospects and employees to golf events involving Tiger cannot be underestimated.
Would Dupont's shareholder value be the same today if it had not made consumers aware of Nylon, Lycra and Stainmaster and linked these innovations to the Dupont name? Definitely not.
Do you think brand-building is essential for B2B companies? Have you seen other characteristics of leadership in smartly branded B2B companies?
Business plan competitions are raising their profiles with bigger cash prizes, and some even throw in office space and site hosting
When Clifford King attended the Global Security Challenge reception at London Business School on Nov. 8, he was one of five finalists in the business technology contest. King says realizing his team was the one left standing after the suspense-filled critique stage "was like [being on] a reality TV show." His team had just won what's billed as the world's richest business plan competition prize (BusinessWeek.com, 5/30/07)—a $500,000 grant to help expand NoblePeak Vision, a night-vision camera company he co-founded.
Hosted by London Business School and largely sponsored by the Defense Dept., the Global Security Challenge calls for new security-focused tech startups, a field that has been expanding rapidly in the wake of the September 11 terror attacks. In a lucky break for King, the second annual event increased its prize from $10,000 to $500,000 because of heightened interest and increased sponsorship from the U.S government. Yet it still has the same "few strings attached" to the winnings as it did for the smaller amount, according to organizer Simon Schneider.
Even though most competitions haven't boosted their prizes so dramatically, many are adding larger grand prizes. For instance, MIT has announced its $100K Entrepreneurship Competition, which used to award two $30,000 prizes, will now give six cash prizes, including a new clean energy prize worth more than $200,000. Because of the increasing figures, organizer Jeff Sabados says he will also drop the "$100K" from the moniker, a number that refers to the total value of prizes presented during the 2007 contest.
Smaller prizes across the nation have been growing, too. The University of Southern California's business plan competition prize has doubled. The university-wide contest now awards two $25,000 grants for two business plan tracks, traditional and technology commercialization.
Rising Entrepreneurship Prizes
In some cases there's even more prize money involved if the business idea is viable and has a socially conscious twist. For example, New York University's Stern School of Business competition gives twice as much money to the social entrepreneurship track winner as it gives the traditional track winner. Since its start four years ago, interest in the $100,000 Social Entrepreneurship cash prize has grown steadily—the percentage of applicants has doubled since 2006 to 30% of submitted plans, says Mara Rose, director of the Stewart Satter Program in Social Entrepreneurship at Stern.
Rosemary Gliedt, who manages Washington University's Skandalaris Center for Entrepreneurial Studies, says she has also observed this trend of increased awards for social plan winners. For example, the school's Social Entrepreneurship & Innovation Competition gives out $50,000 more in total prizes than the Olin Cup, the university's flagship business plan competition. Part of the reason for growth within this track, according to Stern's Rose: "A social capital market is harder to tap into, and there are not as many potential sources of funding—there's sort of an idea that this can be a challenging sell."
Not every competition feeling the pressure to up the ante has the cash resources to do so. Their solution? Mixing cash with company-sponsored, in-kind prizes sponsored. At the 2008 Rice Business School competition, besides $20,000 in cash and a $100,000 investment, winners will get $110,000 in additional in-kind services (including office space, airplane tickets, and Web site hosting), a $25,000 increase from the 2007 contest.
All About the Exposure
However, it's the hefty $200,000 value for the entire set of prizes that garners extra attention from applicants and future investors. Competition director Philana Diaz says winners must be based in Austin to take advantage of office space and, to be eligible for Web services, they can't already have a Web site. Terms of the large $100,000 investment are drawn up with the Grand Order of Successful Entrepreneurs (GOOSE) Society of Texas, a six-member group that invests in the competition and is not regulated by the school.
Rice is also working on increasing its cash awards. "In an entrepreneurial startup, cash is king," acknowledges Diaz. "Our goal is to get more cash prizes." But for now, Nicholas Seet, chief executive of 2005 winner Auditude, a tech company that develops automated media tracking, says the exposure from participating in Rice's competition led his company to more investment opportunities and helped get the company on its feet. Investors "liked the idea so much they added a cool million more," he says.
And while some may be bumping up prizes, others are looking for ways to start competitions from scratch and encourage growth in entrepreneurial infrastructure. At the annual three-day Global Startup Workshop, which grew out of the MIT competition 10 years ago, attendees can learn how to set up a business plan competition. This year, Hanfei Shen, a lead organizer of the workshop, figures 63 of the 250 participants came to the 2007 conference, held in Norway, to establish a competition within their own organizations. Participants included representatives from groups in Ghana, Nigeria, Ethiopia, Argentina, and Costa Rica. So far, 16 business plan competitions have emerged from the workshop.
Cash Is Still Essential
Past competition winners, such as Ingenia Technology co-founder Mark McGlade, believe upping the prize can have a more lasting effect by creating a higher profile for both the startup company and the competition. "The higher the prize money, the higher the media attention and the higher the venture capital," says McGlade, who won $10,000 in the inaugural Global Security Challenge competition.
But for other fledgling companies, startup capital—not publicity—is most essential. Noah Dinkin, who won NYU's $50,000 social entrepreneurship prize more than a year ago, says the cash and six months of free office space gave him a way to keep developing his business. Scheduled to launch in early 2008, Dinkin's Verge Records will be a record label promoting artists from poverty-stricken urban areas such as the shantytowns of Rio de Janeiro. "I've yet to meet an entrepreneur who doesn't need the money when they're starting a business—cash is very important," says Dinkin.
And what if your contest victory isn't a cash cow? B. Michael Roberts, a senior lecturer at Harvard Business School, which awards $10,000 to winners of its business plan competition, says the contest is more about enriching the student's experience than providing funding. "For our students it's a great capstone experience."
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