Michael Dell Discovers the Power of Segmentation at the Age of 16

Michael Dell, the Founder of Dell Inc., 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 Dell.

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.

Dell Inc.

An important element of Dell virtual integration with the customers is segmentation by different kinds of customer. Segmentation is not a new idea. But like may things at Dell, it has worked so well for them because they did it differently. 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 conquer," says 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 allows us 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 various 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 do."


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Main source: Direct from Dell, Michael Dell with Catherine Fredman