Feature

News Analysis: Can Dell turn his firm around?

Dell's hiring of Mother is one strand of its founder's strategy to fix the struggling company, writes Gemma Charles.

Beleaguered computer giant Dell is set to turn up the marketing volume following its appointment last week of Mother to create a global ad campaign.

If there were ever a sign that Dell, which has built its business on selling PCs directly to the consumer, wanted to overhaul its image, the hiring of the creative hotshop is surely it.

Dell is a company used to success and its launch has become business legend. In 1984, while still a student at Texas University, Michael Dell founded what would become Dell Corporation, following a time-honoured entrepreneurial tradition, by trading computers from his room. The company grossed more than $73m in its first year of trading.

Recently Dell has encountered a rockier path, culminating in it losing its position as the world's top PC manufacturer last year to a resurgent Hewlett-Packard. Chief executive Kevin Rollins resigned and Dell, who had stepped back from the day-to-day running of the business, returned to the frontline to replace him in January.

A look at the two companies' results reveals why Rollins had to go. While HP posted a 26% year-on-year increase in profits to $1.55bn (£781.7m) in the quarter to the end of January, Dell's income for the quarter ending 2 February fell by a third to $673m (£339.4m).

Dell's core positioning of being the cheapest on the market has been eroded by new entrants including Taiwanese brand Acer, which grew by 155% between 2004 and 2006 to become the bestselling laptop manufacturer in the UK, according to Mintel.

Michael Larner, senior research analyst at technology intelligence group IDC, points out that 85% of Dell's business is B2B, which enabled it to boom around the turn of the century when the business market was going through a state of renewal. Now that growth is being driven by consumers, it is struggling. 'Although Dell has been good in marketing to the type of buyer who understands what they are looking for, such as gamers, it is missing out where the mass market is concerned,' he says.

The fact that some consumers want to see and touch their potential PC purchases places Dell and its arms'-length sales model at a distinct disadvantage, adds Larner.

As well as having to deal with shifts in the market, Dell's reputation has taken a battering. A groundswell of discontent emerged a couple of years ago when influential US journalist Jeff Jarvis began to blog about his frustrating experiences of Dell's customer service system. The phrase 'Dell hell' was born and consumers' horror stories about dealing with Dell spread online before migrating to traditional media.

Then last year, in a hail of bad publicity, the company was forced to recall more than 4m laptop PCs after faulty batteries caused some of them to catch fire. The battery manufacturer, Sony, took the blame, and other manufacturers were also affected by the problem, but the debacle's standout images were of burning Dell laptops.

If it is to recover, observers argue that the company's core brand personality is in need of a shake-up. This is where Mother, famed for creating funky ads for brands from Coca-Cola to Boots, fits in.

Futurebrand marketing director Tim Hill urges Dell to move beyond its functionality message toward an aspirational position more in tune with today's consumers, who are much more emotionally attached to their PCs and do more with them than ever before. 'All Dell's competitors have improved their products and image,' he says. 'Apple is the obvious one, but they have all spent time thinking about brand image. Dell, unfortunately, is a brand that looks a little staid; it's a bit boring.'

Leo Campbell, deputy chairman of the Zulu Network, which unsuccessfully pitched for Dell's direct marketing business last year, agrees. 'Since Apple got its act together everybody else has been trying a bit harder, while Dell has allowed its brand to become commoditised.' He speculates that Mother's appointment could have been driven by Apple's ad campaign attacking PCs, which he says has 'caught people's imagination'.

Dell's fightback has already started, with Michael Dell making a series of changes and high-profile external hirings. Besides Rollins, chief financial officer James Schneider and half a dozen senior vice-presidents have left. In April, Oracle marketer Mark Jarvis was poached for the new position of chief marketing officer in charge of global brand, advertising and marketing. And Ron Garriques, formerly head of Motorola's handset group, joined in the new role of president of the global consumer group.

With its founder on the warpath and the creative juices of Mother thrown into the mix, the coming months could prove a tumultuous time for Dell.

DATA FILE DELL TIMELINE

1984: Michael Dell founds Dell Computer Corporation. It becomes Dell, Inc. in 2003, to reflect its broader offering

1986: Dell introduces the Turbo, the first computer system of its own design

1987: International expansion from US routes begins with opening of a UK subsidiary

1991: The company introduces its first Latitude notebook computer

1996: Dell begins to sell computers via its website

2004: Michael Dell steps aside as chief executive in favour of Kevin Rollins, but retains his position as chairman

2006: Dell is overtaken by Hewlett-Packard as the biggest-selling PC manufacturer

2007: Michael Dell is reappointed chief executive on 31 January.