Michael Dell, the Founder of
Dell Computer Corporation, discovered the power of market segmentation
when he was 16. Michael got a summer ob selling newspaper subscriptions to
The Houston Post. "At that time the newspaper gave its salespeople a of
new phone numbers issued by the telephone company and told us to cold call
them. It struck me as a pretty random way of approaching new business", says
Michael soon noticed a pattern,
however, based on the
feedback he was getting from potential
customers during these conversations. There were two kinds of people
who almost always bought subscriptions to The Houston Post:
people who had just moved into new houses or apartments and people
who had just married.
Having discovered this trend, Michael wondered
how he could find all the people who were getting mortgages or
getting married. He hired two of his high school buddies to identify
sources of such information. Michael created a personalized letter
for high-potential customers offering them a subscription to the
newspaper. Within a matter of weeks, Michael created a steady income
stream. The subscriptions came in by thousands. His income was about
$18,000 that year. Actually, he made more money that year than his
economics teacher did.
Selling Is Problem Solving
An important element of Dell
integration with the customers is segmentation by different
kinds of customer. Segmentation is not a new idea. But like may
it has worked so well for them because they did it
Segmentation initially started as a sales concept to most
effectively meet the needs of different groups of customers. It soon
evolved into a series of complete
business units, each with its own sales, service, finance, IT,
technical support, and manufacturing arms.
"When you've got a large market
opportunity facing you, the only way to handle it is to divide and
Michael Dell, the Founder of
Dell Computer Corporation. "That's the basis behind
our concept of segmentation. It ensures that as we grow, we are able
to serve each individual customer more effectively, and it has
become the organizing philosophy of our company.
"Most companies segment by product. We
decided also segment by customer. We believe that a customer's
unique needs and behaviors more closely determine what products and
services we should develop for them. And because Dell sells directly
to our customers, understanding the unique needs of each customer
to address them better."
If you organize a large multinational
company around products, the people who are running the business
wouldn't know everything they should know about the customers – from
cultures from everywhere in the world – who buy those products.
An organization that is focused on a particular type of customer in
a particular region of the world knows and understands those
customers much better.
"From the very beginning of the
company's existence, we realized that we had different types of
customers," continues Michael Dell. "Take, for example, our large
corporate customers and consumers. Each group buys different
products, has different cost structures associated with serving
those products, and even different sales models. The sale model for
large customers utilizes face-to-face contacts and telephone, as
well as the Internet. Consumers and small businesses are served
primarily with a telephone- and Internet-based sales models."
Dell Computer Corporation created
different sales organizations that specialized in understanding the
needs of different groups of customers, and as the company grew,
they split those customer segments into large and medium-sized
companies, educational institutions and government organizations,
and small businesses and consumers.
This idea goes beyond the concept of
simple demographics. Dell segment according customer needs and
behaviors; how a customer uses a Dell's product is as important
as what they what they use it for.
"Customers can't help noticing the
difference between what a traditional product-focused organization
offers and what we can provide," says Michael Dell. "In a word, it's
service. Whether it's anticipating their technology needs or
supporting them with fast, reliable delivery and on-site service,
we've been able to create a feeling of personalization – of a
relationship – that comes with buying a PC from Dell. And while
some have expressed concern that as we grow, we'll lose touch with
them, we have found that the opposite happens. Each time we segment,
we learn a little more about a customer's unique set of needs. It's
our goal to know our customers' needs as well as or better than they