Dell's Growing Pains

According to a recent article on cnet news.com, Dell's market leadership has come at a price:

Dell continues to win market share and turn out record quarterly profits, but two recent surveys show that the company has slipped, when it comes to a more subjective measurement: customer service.

According to two new reports that rate the satisfaction of PC buyers, Dell's scores have declined in recent months. While statistically, the results are not catastrophic for a company that prides itself on offering superior service, it's a potentially troubling trend Dell executives acknowledge and have taken steps to address...

While all PC companies talk about the importance of customer service, Dell has been particularly vocal for several reasons. By cutting out the middleman, Dell has a closer relationship with customers, thus taking all the praise from happy buyers--and all the blame when things go wrong. In addition, the PC business is becoming increasingly commoditized, marked by similarly equipped machines and price erosion. One way to stand out from the crowd is to pamper buyers by offering better service and support than competitors.

Isn't this the truth for any business that sells directly to customers? Too many options often lead to commoditization, especially when one competitor starts a price war. I've had several clients who discovered -- rather reluctantly -- that they were in a commodity business after we did some customer research. Customers often don't see any meaningful difference between various options, much to the dismay of execs and product managers. (For more on this topic, see my post on "Stop the Madness!")

Do you know whether your business has a meaningful point of difference that customers are willing to pay extra for? If not, you have one of three options: continue battling the price war, differentiate on service, or do something radically innovative that addresses pent-up demand. #1 really isn't an option if you want to stay in business, and #3 isn't a short-term or cheap solution. The future of business, according to The Support Economy, is providing deep support that goes beyond today's shallow definition of customer service. (I'll write up a recap when I'm finished reading it!)

 

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[Robert Paterson]

I am sure that Deep Support is a critical idea. Maybe the current model of Dell support being only derived from Dell is where the problem? It's just too costly. What if Dell looked at eBay and their use of community? If Dell support was designed as a distributed peer to peer network maybe it would work better for all?

[David Foster]

"Battling the price war" isn't *always* a bad solution. If you are in an industry that is susceptible to very strong economies of scale, it may be the right thing to do--to get yourself to a scale point which it will be very difficult for others to match. But in PCs, although some economies of scale certainly exist, I doubt if they are very strong in comparison to some other industries.

The problem with differentiated customer service as a strategy in the PC industry is that there are so many different things that can go wrong, and it's not usually clear to the customer--even the fairly technical customer--who or what is at fault. So any attempt to provide really outstanding customer service is likely to be very, very expensive.

Overall, I think the PC business is just a really tough business to make money in over the long term.