Thursday, November 28, 2019
Direct business model is better than traditional business model
Background A comparison between direct business model and traditional business model depends on the selling network or the channel applied by the company in order to build a solid relationship with customers. There is close cooperation between wholesalers, retailers and firms that operate in a traditional business model when they are in the process of manufacturing and supplying finished products to the targeted market. However, clients and manufactures are usually sidelined in this process in terms of direct interaction.Advertising We will write a custom essay sample on Direct business model is better than traditional business model specifically for you for only $16.05 $11/page Learn More This is an indication that the firm that uses a direct business model heavily relies on retailers and wholesalers to develop a strong relationship with customers. If consumerÃ¢â¬â¢s demand for value can be met by the available intermediaries, then it makes it possibl e for the manufacturer to create a closer link with the target market. This translates into repeated purchases and increased revenue. However, if retailers and wholesalers are unable to meet the companyÃ¢â¬â¢sÃ¢â¬â¢ expected value offering, then it is likely that there will be poor relationship between the firm and its customers. Therefore, it is necessary for the firm to identify the correct intermediaries who are capable of meeting the value offering of the company to the consumers (Fusco, 2010). On the other hand, a direct business model aims at creating a direct relationship between the company and its customers by making direct offers to customers in order to address their needs. In this model, it is easier for companies to develop a direct relationship with customers. Use of technology such as internet makes it easier for companies to create a website that provides information on the products and services offered by the company. The companyÃ¢â¬â¢s website also shows tran saction options to help minimize involvement of intermediaries and consequently enable the company to concentrate on building direct relationship with the customers (Fusco, 2010). Some companies such as Dell have managed to realize significant growth as a result of using the direct business model. According to Kraemer, Dedrick and Yamashiro (2000), the outstanding performance of Dell Company can be attributed to the companyÃ¢â¬â¢s innovative response to fundamental and competitive factors in the computer industry. Dell has also been able to improve on its product and service portfolio through its inventory method bearing in mind the direct business model bridges the gap between consumers and the producer. This has enabled the company to realize higher investment returns and a larger market share. The direct business model being used by Dell has also benefited greatly from the adoption of latest platform of technological development.Advertising Looking for essay on business e conomics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Flexibility and efficiency in the manner services are being offered have been improved in comparison to reliance on offline services and outdated technology. Therefore, this research paper explains the reasons why a direct business model is better compared to a traditional business model. In this analysis, Dell Company has been used as a typical example of a company that uses a direct business model while HP company as been used as a company that applies traditional business model. Comparison between direct business model and traditional business model The direct business model used by Dell Company offers numerous advantages to the company in relation to the traditional business model that has been adopted by HP. In terms of relationship building, Dell has successfully managed to use the direct business model to take specifications and orders from customers, forward them to assembling plant s and later on deliver the final products to customers. Both technical support services and selling to customers directly has been made much easier since the company makes use of one-on-one communication systems such as telephones. On the other hand, HP has not been in a position to adequately extend such services to customers. This is mainly because of the existence of middlemen in the distribution chain. Some of the appointed distributors may not have the necessary knowledge and skills regarding the features of the product being sold to the customer. Offering such services to the customers involve complex procedures since the distributors need to communicate with the company about the issues raised by the customers. With regard to market expansion, Dell has used the direct business model to expand into the global market allowing the company to reach a top position amongst other manufacturers of personal computers. The model also allowed Dell to serve diverse markets as a result of lower prices of goods. Dell managed to lower the prices because of elimination of extra costs which are particularly spent on intermediaries involved in the marketing of products. HP cannot manage to lower the cost of its products because of the absence of such opportunities for reducing the total production cost which allow the reduction of prices. Involvement of middlemen in product distribution is likely to increase the price of a product since all the parties involved in distribution are interested in making substantial profits (Shaw, 2003). Thus, it is likely that the retailers and wholesalers will increase the profit in order to realize more profits.Advertising We will write a custom essay sample on Direct business model is better than traditional business model specifically for you for only $16.05 $11/page Learn More The direct business model has enabled Dell to leverage its relationship with both customers and suppliers. Through such relationsh ips, the company has been virtually integrated and thereby allowing it to focus on issues that add value and growth to its establishment. This model enables customers to get the exact products that they require. Specifically, Dell uses the information gathered from the direct customers before and after making any sale in order to provide services that match the needs of customers. When the direct business model was first introduced by Dell Company, its competitors like HP were using the traditional model that involves selling of products through distributors. The use of direct model enables Dell to have continuous communication with its customers. The chief advantage associated with direct communication is that Dell is able to monitor the sale trends and at the same time learn about the unmet needs of the customers. In order to drive the direct model, Dell Company uses the information gathered from the customers. This information relates to the products and services needed by custom ers and the time when the customers expect to complete a transaction (Shaw, 2003). The direct selling model has made it easier for Dell Company to eliminate additional capital required in sales and marketing. On the other hand, the traditional business model used by HP does not provide an opportunity for customers to interact with directly with the manufacturing company. This is from the fact that retailers or wholesalers are interested in making sales other than consumer satisfaction. Direct selling eliminates such middlemen and allows the firm to make continuous contact with customers. According to Kraemer, Dedrick and Yamashiro (2000), the direct approach used by Dell provides the company with approximately 6% cost advantage in relation to the traditional approach used by HP. Kraemer, Dedrick and Yamashiro (2000) note that the direct sales approach provides Dell Company with detailed knowledge of its customers. One of the major setbacks at HP is that all the feedbacks obtained fr om customers are secondary in nature and also takes a lot of time before such feedback processes are accomplished. The direct business model has also enabled Dell Company to run business with low inventory making it unnecessary to have a warehouse. This is because the components of given products are gathered after placement of an order by the customer. From the fact that personal computers are not prebuilt, the company can manage to offer full product customization. This means that customers are free to choose their preferred processor, RAM level, graphic cards and other features. The result is an efficient production which is based on the customer expectations. In the case of HP, it is extremely difficult for customers to obtain their exact products since the products are already manufactured without consulting consumers. The consumers lack the freedom of defining the specifications of a given product. Instead, the customers are limited to choose from the few available options whi ch at times may not meet the expectations of most consumers (Shaw, 2003).Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The direct business model makes it easier for Dell to segment customers into different groups such as international, transactional and relationship customers. Therefore, the company is always in a position to adjust its offerings as per the changing tastes and preferences of consumers. Moreover, it takes a relatively short period of time to make such changes because of segmentation. Each customer or region is provided with a sales representative tasked with the responsibility of attending to the needs of the customers. On the other hand, HP cannot manage to segment its customers because of the existence of a wide chain of distribution that complicates this process. The absence of a direct relationship with customers makes it exceedingly difficult for HP to monitor the behavior and perception of customers toward the products and service offered by the company. The direct business model has also enabled Dell Company to lower the price of its products. This is due to the elimination of middlemen thereby saving extra cost on retailers. Consequently, the savings are passed to the customers (Baumann, 2010). The direct selling model offers the Dell company firsthand intelligence on the needs and preferences of the customers. Whenever there are technical or mechanical hitches after products have been purchased, clients are allowed to contact the company promptly using the available portals. It has also facilitated easy monitoring of all the activities that takes place in the company. In case a defect is observed, the company is able to send this information to the design engineers so that they can correct that particular problem. DellÃ¢â¬â¢s management believes that its ability to quickly address customerÃ¢â¬â¢s issues and complaints give the company a significant boost over its rivals, particularly manufacturers such as HP. Customers who observe defects after purchasing HP products are likely to wait for long before their issues can be addressed. Customers are re quired to make complaints to the appointed dealers who in turn forward these complaints to the manufacturers. This is a process that takes considerably a lot of time especially under circumstances whereby the middlemen are reluctant to forward the customers complaints to the manufacturer. Clients who are located in diverse market locations have been offered the opportunity to drive the communication system since they solely initiate conversations to the company whenever they are in need to make any inquiries. The traditional business models cannot provide this kind of opportunity. This is because it might take longer for new computer models manufactured by HP to reach the distributors. Use of technology Dell has successfully used technology to generate more revenue and reduce the companyÃ¢â¬â¢s cost. The company launched www.dell.com in the year 1994 (Baumann, 2010). Currently, the site receives millions of visits from customers in different countries. More than half of DellÃ¢â¬â ¢s sales are web-enabled with other technical support also occurring online. The internet strategy of the company makes use of three principles which are all aimed at creating quality customer experiences, reducing costs and convenience use. Customers are able to access the companyÃ¢â¬â¢s site at all times. This makes it possible for customers to access any information from the company at all times. The internet is a self-service infrastructure and this helps in reducing the cost. The quality experience of the customer comes in because of the reduced cost especially when customers decide to buy Dell products online. When making any online order, customers have the option of designing their computer with features that suit their needs. After identifying the features, customers are able to see the price of the product from the web page. In case of any changes, adjustments in prices are also reflected on the page. Payment can be made using different payment options provided by the c ompany. For instance, customers are free to pay online or pay directly to the company. Customers are also in a position to monitor the state of their computers in different states and production stages. In addition, the customers are provided with full sales support which is done through the internet .Detailed instructions are available in the pages which customers can use to resolve minor issues and question (Viardot, 2004). It is evident that Dell has used the internet strategy as a major tool for out-competing its competitors like HP. Online transactions involve lesser costs compared to the traditional business model used by HP. Baumann (2010) is quite categorical that technology has enabled Dell to minimize costs while increasing revenue. This allows for profit optimization and also reduces the time spent by consumers in purchasing the product. Dell Company has also used a considerable large amount of capital on technology to control inventory. The additional capital has mostly been used by the company especially in its effort to engage in advanced intermediaries like marketing blogs and blog service providers that are all sponsored by the company. The major advantage of such services is provision of comments, reviews and tips regarding the products and services of the company. There are various links for the company on the internet that have been sponsored that enable clients to obtain additional information on various products that are being offered by the company. Such information also includes specifications of each products and the price list. any available discounts are also stated through these links. in addition, Dell has managed to set up an interaction platform that makes it possible for its current and prospective clients to interact with the support department of the company. The blogs also provide a conversational and relaxed atmosphere to DellÃ¢â¬â¢s customers and at the same time enable customers to read the companyÃ¢â¬â¢s advertisements . The company has also used additional capital to widen up its network partnership. Dell Company has realized that there is need to maintain constant communication with its customers especially when the latter is need to make inquiries or clarifications. This practice has tremendously boosted its relationship with clients. The use of technology offered Dell Company an excellent opportunity of developing a more cost-effective version of direct selling. Leeman (2010) observes that Dell Company was the first manufacturer of personal computers that made use of new technology like the internet in reducing the companyÃ¢â¬â¢s cost. After opening its business through website, Dell managed to realize increased sales and the sales continued to increase at a rate of twenty percent per month. According to Leeman, more than eighty percent of internet orders were built, customized and distributed to different customers under a remarkably short duration of time. The company only spent more time on testing its products and loading different software compared to the time spent in assembling these components. On the other hand, companies like HP which rely on the traditional sales model had to wait for more than thirty five days before receiving payments from its primary dealers. Dell has used so much money on technology especially in developing premier pages. Moreover, it is now possible for clients from different target markets to have direct access to the most valuable information of the company through its premier online portal. This strategy offers numerous benefits to customers. These include providing customers with prices of these products and placing online orders that are electronically forwarded to the top-level managers for approval. Customers can also use the premier pages to sort invoices and transaction history. These improvements have reduced the volume of paperwork that Dell used to make use of in the past. In addition, less time is being spent when carrying out accounting and ordering processes. This strategy has not just helped to control costs. It has also helped the company to control its inventory. Through technology, Dell is able to know the different products sold in different countries together with the software installed and warranty records for its products. Technology has therefore boosted the productivity of its sales representatives based in different countries and consequently outwitted its competitors in delivering services to customers. Conclusion To sum it up, this essay has explored the direct and traditional business models with cross reference to Dell and HP companies. It is vital to reiterate that the context of a company largely determines the type of business model to put in place. This is an indication that the direct business model has enabled Dell to benefit significantly compared to the benefits enjoyed by HP. The latter uses the traditional business model. However, as Dell Company continues to expand, there i s need for the company to apply the traditional business model to its current mode. This will help Dell reach a wider market especially at this time when computer assemblers and manufacturers are facing intensive competition. Dell can also work towards applying the merits of the two types of business models since it will enable it boost its marketing and production capacity. This approach will consequently lead to higher revenues. References Baumann, C. (2010). Analysis of the website www.dell.com: Corporate Web Communication. New York: GRIN Verlag. Fusco, M. (2010).An Analysis of the Competing Business Models of Online Journalism. New York: lulu.com Kraemer, K.L, Dedrick, J, Yamashiro, S. (2000). Refining and Extending the Business Model with Information Technology: Dell Computer Corporation. Web. Leeman, J. (2010). Supply Chain Management: Fast, flexible supply chains in manufacturing and retailing. DuÃËsseldorf: Institute for Business Process Management. Shaw, M. (2003).E-busi ness management: Integration of Web technologies with business models. Boston: Kluwer Academic. Viardot, E. (2004).Successful marketing strategy for high-tech firms. Boston: Artech House. MuÃËnchen: GRIN Verlag GmbH. This essay on Direct business model is better than traditional business model was written and submitted by user Natural Sna1l to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.