Dell Cluelessly Destroys Its Brand Name

Once again we come across a perfect example of how it's product that creates brand, not brand marketing. Dell computer has been actively promoting its brand for years, splashing Dell computer onto print and online ads, product placements, direct mail, and other marketing materials. They also spent millions of dollars every year cultivating the press and analyst community.

But that's all wasted effort when your product sucks. According to today's New York Times, Dell has has been selling "desktop PCs riddled with faulty electrical components that were leaking chemicals and causing the malfunctions." The customers receiving those computers from 2003 to 2005 included everything from small businesses to Wal-Mart, and even medical institutions the Mayo Clinic.

According to the article,

"the company's employees were actually aware that the computers were likely to break. Still, the employees tried to play down the problem to customers and allowed customers to rely on trouble-prone machines, putting their businesses at risk."

The big question here is: how could Dell act in such a completely clueless manner? Here's what I think...

Dell is one of the companies that I've followed closely. I've interviewed Michael Dell, and done a fair amount of market research for them under private contract. I can't reveal any of that research, of course, because it's proprietary, but in the process I've come to understand something about the company and why it's screwing up.

Dell's primary problem is that it swallowed the brand marketing Kool-aid, hoping branding would solve a fundamental problem with their business model.

Dell's business model was based on the idea that people wanted to configure customized computers online or on the phone and that it was possible, with modern manufacturing techniques, to build custom machines profitably. In addition, the company would use that infrastructure to create lines of standard machines for wider distribution.

The business model, however, is fundamentally flawed because the end product -- a PC -- is a commodity and Dell was therefore embroiled in a price war over a commodity product. Dell found itself competing with vendors who could manufacture and distribute that commodity as cheaply or more cheaply than Dell.

In order to keep revenues, Dell took a typical brand marketing approach, and tried to build a brand perception that would guide people towards buying a Dell. (E,g. DUDE! IT'S A DELL!) At the same time, in order to remain profitable, they began to cut corners on product manufacturing and support.

The result was entirely predictable -- a mismatch between the brand image as promoted and the product as delivered creates the conditions for the brand to self-destruct. It's the Toyota scenario all over again.

What Dell needed to do was to figure out a way to provide higher quality at lower cost (HP's strategy), or much higher quality at slightly higher cost (Sony's strategy), complete product differentiation (Apple's strategy), or non-commodity solution-building (IBM's strategy).

Needless to say, any of those approaches would have been difficult for Dell to execute, but those are really the only way out of Dell's business model problem.

Why were none of these strategies attempted? Simple. Dell's top management was breathing their own smoke about how wonderful and innovative Dell was.

For example, Dell was featured as a case-study at the Harvard Business School. Dell executives apparently didn't realize that if HBS is the mecca of rear-view thinking. If HBS thinks your firm is hot potatoes, you are seriously effed up, because what made you successful enough to get on their "best practices" list is exactly the wrong strategy to take you into the future.

Anyway, the main "take away" from this post is that it's madness to think that brand marketing can create your brand. It can magnify it a bit, but the brand always eventually reflects the product and the delivery of that product. Dell forgot that and now we get to watch the horrible results unfold.