Dell Mixes Business with Pleasure

Annual revenue of $38.2 billion apparently isn’t enough for Austin, TX-based Dell. The computer manufacturing/marketing giant is branching out into consumer electronics. In September it introduced a line of roughly 30 home-electronics products, including high-definition TVs, gaming systems, and software.

“The reason we’re expanding is really because consumers are asking for these types of products, and Dell is in a unique position to leverage existing infrastructure to build products and ship them out to them to meet needs,” says Mark Oldani, director of marketing for Dell’s U.S. consumer business. Oldani points to the company’s line of wireless handheld products as an example of the PC-integrated merchandising typical of Dell’s foray into consumer electronics.

Another new business for Dell is its Dell Music Store, which also launched in September. Users can download one track or album at a time straight to a PC; the music can be listened to on the Dell DJ, a hard-drive-based MP3 player.

Dell launched microsites specifically for its Dell Music Store and home electronics products. And in late October it mailed a 32-page Dell Beyond catalog with the tagline “PC gear, home entertainment and much more.”

But Dell isn’t renting lists specifically geared toward consumer prospects, Oldani says. “We’ll continue to refine the mailing list over time, but there are no plans to carve out a separate list, because the PC is at the center of the digital home,” he explains. “We really believe [all of our products] work together, and our plan is to continue to merchandise in that way.”

Low risk, high reward

Dell’s product expansion seems to have little potential downside for the company. “Dell never makes strategic decisions without being sure there is a good profitable business in sight,” says Peter Kastner, executive vice president/chief research officer of Boston-based IT market research/positioning services firm Aberdeen Group. “Dell continues to pick up market share in its traditional business. The consumer electronic business is related but even more profitable and can leverage Dell’s brand and online presence.”

Dell isn’t the first computer company to expand into consumer electronics. HP and Gateway, for instance, began offering home electronics earlier this year. Kastner praises Dell, however, for “initially focusing on high-volume products like TVs and MP3 players.”

Dell is clearly serious about its expansion efforts. “Do not overlook the fact that Dell Computer Inc. changed its name to Dell Inc.,” Kastner says. “That’s a direct message from the board of directors that computers are not Dell’s only business anymore.”

That may be good news for consumers and bad news for other consumer electronics marketers. Russ Craig, director of research of semiconductors for Aberdeen Group, says that the entry of Dell into the consumer electronics market will push competitors to lower prices, sometimes to their detriment since most do not have the financial leeway Dell has to offer bargain pricing. “It will bring price points down and hurt the consumer electronic retail chains, putting more pressure on traditional consumer electronic companies,” Craig predicts.

At least one competitor, however, professes not to be concerned. Richard Souder, executive vice president of merchandising for Charlottesville, VA-based consumer electronics cataloger/retailer Crutchfield, says Dell will only be doing now what his company has been doing all along. “We believe their entry into the category will underscore the qualities that have made Crutchfield successful,” says Souder. “Dell will capture sales from other retailers. However, we are confident that our shoppers will continue to support Crutchfield because of our vast product selection and because of the quality service that we have consistently delivered since 1974.”

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