The Blog Post that May Cost Dell Millions

No, not this post you’re reading here. This post, over at Joel on Software, which thousands of techies read. Joel complains about the way Dell’s site forces users to select which segment they belong to (Home, Education, Small Business, etc). Joel wonders why Dell can’t be more like Apple or Lenovo, and simply let customers select the products they want. Lenovo certainly does a nice job of using configuration and features to segment price buyers from value buyers.

Dell’s new home page looks very product-centered. However, if you actually try to click on a product, you get a pop-up menu like the one below. You still have to select your segment.

Dell’s official explanation is that they need to know your segment so that when you call on the phone they can route your call to people trained to help customers like you. Joel doesn’t buy it. He writes:

This business about creating “greater value” is a bit of a whitewash. We all know exactly what’s going on. They’re trying to charge business customers more. That’s all there is to it. It’s Pricing 101.

I’m not a believer in the conspiracy theory side of this. Dell could be doing much more effective things to charge people more. I think it has more to do with Dell’s organizational structure, that their businesses for home office, small business, large, business, etc, are all the size of Fortune 500 corporations, with their own internal processes, systems, strategies, and politics. The problem for Dell is that they have created the impression (often driven by their very-short term promotions) of airline-like price segmentation. The perception in the customer’s mind is what counts, not the intention in Kevin Rollins’ mind.

The damaging part of the post comes later, though, as Joel writes:

Whenever we buy servers from Dell, even though they eventually offer us a price that beats the competition, we still have to spend a week or two negotiating, gathering competitive bids, etc. By the time we place our order the price we pay is about 20% to 30% less than the price advertised on the web, and we’re still not sure if we could have paid less.

How many small businesses will read this and start negotiating with Dell instead of just buying off the web site? This will drive prices down and sales costs up.

Like many successful businesses, Dell has evolved rapidly and without good coordination of pricing. Now that they have essentially won the PC game, they need a more coherent pricing strategy to deliver the profit growth that is no longer available simply by growing unit volume.