Saturday, April 11, 2009

Dell: Pricing Strategies

I just bought a new laptop computer from Dell. Definitely no more of this whole required Mac thing. Park was/is pretty ridiculous for requiring their students to purchase the MacBook Pro laptops. Of course the computers are nice and shiny and incredibly useful for those computer whizzes and TVR kids, but not IMC. All my scholarship and summer job money after high school went straight into a computer that I did not know how to use, and obviously didn’t last very long, even with only using it for internet and word. Either way, I was finally able to buy the Dell computer I wanted 3 years ago, that is also new and shiny, and a lot cheaper and fits my needs perfectly fine. My point is that when I was forced to buy the Mac (for my freshman fear of the unknown) I did not get to choose what came with it. Sure I had those options, but it was wiping me clean as it was so I had to get the basics of everything. With my own hard-earned money (again) I was able to really look at what I wanted in my Dell computer and order it with confidence that it was what I wanted and needed, for the price I was willing to pay.

Looking back at my own process through the Dell purchasing system I can easily see two different pricing strategies that work very successfully for Dell. Depending on the product and the consumer Dell is able to profit from using both fixed and dynamic pricing strategies.

Looking at the fixed pricing strategies it is obvious that Dell uses markup pricing, bundling pricing and strong promotional pricing (the end result of which is being typed on right now). Dell has a wide variety of products that are sold from the company itself and now also through distributing companies like BestBuy. Dell produces and sells a number of different products like laptop computers, desktop computers, printers, and scanners. The products they sell all have many variations and different qualities which allows Dell to price their products accordingly and reach as many consumers as possible. There is even a new laptop that is directly competing with Apple’s Macbook Pro through style and price. The new Dell, the Adamo, is shown in silver or black and starts at $1,999. Dell is obviously targeting those Apple customers who still want a Windows system. Most importantly, Dell does not actually produce each individual part that they use to build their computers. Dell has to first purchase parts from other companies like Intel and Microsoft in order to build the computers that their customers want to purchase. Dell uses a Markup strategy so that they do not lose money when buying the parts. Sure, it might be cheaper for an individual to buy all the parts themselves and put the computer together with no markup prices, but there are only a select few of us out there that can do that. Kodos to them, but the rest of the world wants their computers built and delivered to their doorsteps ready to turn on and use.

Depending on the product being purchased Dell is also able to offer bundling pricing. I don’t think Dell will cut the cost if one order included 5 computers or something similar but Dell does offer bundling prices within their services like computer support, insurance and in-home care, shipping and handling, and some smaller add-on products like games, Microsoft Office, and virus protection software.

Promotional pricing is Dell’s biggest advantage. On any given day Dell is putting on at least one promotion, if not more. I have seen Dell television commercials, product magazines, newspaper inserts, print advertisments, and countless internet ads. Dell is constantly is the consumer’s mind when it comes to purchasing a new computer. I purchased my own laptop because of Dell’s March Madness promotion. I was looking for a new computer anyway but I was taking my time to do a fair share of research before my purchase. The March Madness promotion went on for ten days and had a select individual promotion for each day. The daily promotions only lasted for that one day, so this promotion added the effect of scarcity into the equation. In addition to scarcity, only that day’s promotion could be seen so the consumer had to take a chance with not knowing what the other daily promotions would be. I actually ordered my own computer on the very last day of promotions. All of these promotional deals have a close end-date or “limited time offer.” The good thing about Dell is that even if one attractive promotion passes, there is a good chance a similar one will start again in a few weeks. Dell prices their computers as one of the lowest brands in the industry. The prices are configured depending on the parts that are included in each individual computer. There are regular computers offered but consumers are also able to customize their own which of course is now an expected part of web 2.0. Consumers can also choose to spend more to upgrade their hard drives, battery life, virus protection software, warranties and much more. In addition, consumers can end up spending hundreds more by the luring sidebar full of mice, printers, speakers, webcams, and other products that they can add on. $20 doesn’t seem like so much when you know you are already going to be paying over $700, and that is a fact that Dell has taken advantage of very well.

1 comment:

Kurt said...

Great analysis, Kursten. You've taken the pricing models we reviewed in class and applied them in analyzing Dell. Glad you finally got the laptop you were looking for. I agree that the requirement of the expensive MacBook Pro for IMC students is overkill unless you plan on working a lot with video or graphic design.

Grade - 5