more infrastructure than necessary to get a product into a buyer’s hands with maximal efficiency.
From a PC brand perspective, this philosophy has meant that there were four brands, neatly laid
out on a two-by-two matrix with form factor (desktop vs. notebook) on one edge and an odd quality
called “stability” (keep components the same for as long as possible vs. change components
whenever something better comes along) on the other. Dell determined early on that the only
important buying criteria were form factor and stability and assigned a brand to each cell in the
matrix. All other buying preferences could be handled by configuring systems within these
brands (Table 1).
the components exactly the same on a given model. Since consumers buy only one box at a
time, they don’t care at all about stability, but big companies, which sometimes buy tens of
thousands of boxes over a period of as long as a year and a half, do. They want to make sure
that their qualified image — the exact string of bits corresponding to the compiled version of all
their applications, operating software, and, especially, device drivers (the last of which
correspond to exact versions of disk drives, graphics subsystems, and other basic components)
— runs perfectly on every system installed from the first to the last more than a year later.
Thus, Dell’s brands have been Inspiron (the continuously updated notebook), Latitude (the
stability notebook), Dimension (the continuously updated desktop), and OptiPlex (the stability
desktop). This lean brand strategy has been in notable contrast to Dell’s competitors, which
have in many cases fielded overlapping brands based more on the legacy of products inherited
during acquisitions (e.g., HP-Compaq, Gateway-eMachines) than on a particularly rational
marketing program.
A New Brand to Cover the Premium Space: XPS
So, why this late in the game would Dell introduce a new brand, and where does it fit? Unlike the
earlier brands, XPS stretches across form factors (Table 2). Rather than dividing along the
stability dimension, The XPS derives its DNA from the “changes frequently” group in that it will
move along adroitly with technological development, but its distinguishing characteristic is that it
is a premium offering in both desktops and notebooks.
brand, was originally a Dimension gives a pretty clear indication that XPS is targeted primarily at
consumers.
The consumer PC market has become a steadily more challenging business, particularly in the
United States. Even Dell, the most profitable company in the PC industry, has trouble making
money on low-end consumer PCs. Up through the last year, Dell has been quite successful at
trading consumers up to higher value purchases. Management in the consumer business unit
has indicated that most of the unit shipment volume on the consumer side has come from the
higher end. However, achieving these sorts of results has become increasingly difficult as
consumers dig in their heels, expecting more and more capability on basic units at bargain-
basement price points. There is probably no other business on earth in which buyers continually
expect more for less, and while Moore's Law (the number of transistors in a silicon chip of a given
size doubles every 18 months) has held up for many years and still has some life left in it, costs of
other basic components (cases, fans, frames, power supplies, and a multitude of diodes and
resistors) are already at rock bottom and aren't going much lower.
In launching the XPS line, Dell is hoping to capitalize on its strong positioning with high-end
consumers, broadening the appeal of the existing XPS products, which, before the launch, sat at
the top of the Dimension portfolio and were targeted primarily at PC gamers.
Differentiation
Management seeks to differentiate the new XPS line along three areas: sales, product, and
support. Through enhanced offerings in all three areas, Dell intends to distinguish XPS as a truly
high-end experience, comparable to the difference between the buying experience of a Lexus and
that of a Camry.
Sales
Like other Dell products, XPS is being sold through direct channels, of course, but during the
presales (information gathering) and sales processes, XPS buyers enjoy a more personal
experience than the average buyer. XPS buyers have dedicated representatives, who are schooled
in the fine points of the products as well as many other topics that concern high-end buyers.
These dedicated representatives are charged with engaging the buyer in a consultative sale, one
focused on what the potential buyer intends to do with the system, specifying just the right
configuration, and answering any general questions about computing that the buyer has. Such
buyers are likely to respond better to a knowledgeable enthusiast than to a freshly minted sales
person who may know the product attributes and little else.
On the Web side, XPS buyers are channeled over to a dedicated section of Dell.com that has its
own look and feel while retaining enough of the Dell persona to feel connected to it.
Products
The XPS launched with three desktops and a notebook. The desktops— XPS 600, 400, and 200
— are matched to the three target audiences: high-end gamers, technology enthusiasts, and well-
heeled mainstream buyers. All come standard with Windows Media Center Edition (WMCE) as the
operating system. The 400 and the 200 both have BTX chassis, designed for cool, quiet operation.
The XPS 600 ships with a dual-graphics solution (nVidia SLI products), dual-core Intel Pentium 4
processors with hyperthreading (yielding four independent computing streams), and a chassis
borrowed from Dell’s Precision workstation line. The 600 is a no-compromise box for the
hardcore gamer. It’s big, and it’s hot, and it really rocks.
The XPS 400 is much more of a multimedia machine. It ships with Microsoft’s WMCE has a roomy
chassis designed to take on lots of extra cards, including audio, one or more TV tuners, and
external graphics as well as a dual optical solution for those home users who like to rip content
from one drive and burn it to the other at the same time.
The XPS 200 comes in a smaller box, a close relative of the 5100C chassis (with a 10 litre
capacity, for those of you who speak metric). It offers as much performance as the higher end
boxes, but, given its smaller size, fewer choices for component add-ons.
The XPS notebook, the first of what will eventually become a full line when the next generation of
notebook platforms comes out over the next several months, features nVidia’s latest mobile
graphics processor, which delivers more performance than almost all of the desktop graphics
processors on the market.
Support
After the initial sales contact, the buyer (now owner) gets to talk to the same sales rep each time
as part of the support package. The rep then connects the owner to a host of dedicated resources
as necessary. The XPS service offering is differentiated from ordinary service. The owner is
passed through quickly by phone or instant message chat to experience pros who not only have
solid knowledge of the XPS hardware and gaming software, but who also have advanced
certifications (e.g., MCP, MCSE, and various hardware platforms).
Part of the support experience is access to fee-based value-added services, such as outside
warrantee help and repairs, spyware and virus removal, tune-up services (e.g., hard drive
defragmentation, registry clearing). Obviously, some of these services are for buyers with limited
PC knowledge, but whether the caller is expert or novice, the key to the XPS service equation is
experienced technicians with a great bedside manner.
To help with the possible disconnect between the knowledge of the customer and the support rep,
Dell has deployed a set of tools that allows the rep to take control of the user’s PC remotely and
perform diagnostics and modifications, all while letting the customer see what’s being done. This
process allows the rep to educate the customer, who can then perform the procedure him or
herself the next time the issue arises, leading to a sense of satisfaction likely to enhance
customer loyalty.
Target Audiences
The XPS line is aimed at three groups: high-end gamers, technology enthusiasts, and well-heeled
consumers who just want a better experience.
Gamers
Gamers are a distinct audience and one already well used to the XPS name and service
experience. These buyers are quite knowledgeable and are able to do much of their own service
themselves. Gamers are likely to pop open the hood and play around in the innards of their PC,
modifying it to increase performance and suit their needs and interests. Overclocking (modifying a
processor to run at a speed higher than it’s rated for) is one of their favorite sports when they’re not
competing with other gamers on the machines. They are analogous to hot-rodders, who both
modify and race their cars. This audience needs highly knowledgeable support, people who can
get them the tools they need and who understand the depths of the system, technicians who know
the shorthand and can cut right to the chase.
Technology Enthusiasts
The technology enthusiasts are a growing market of people who know PC technology fairly well,
are comfortable under the hood to some degree, but are not the insane extremists represented by
the gamers. These buyers want the best, but their interests are slightly different. They are much
more likely to be family types, to have a good income and own homes, and to use their PCs
primarily for the enjoyment of digital media. They are likely to own digital peripherals like video and
still cameras and scanners and use their PCs to listen to music, make home movies, watch
videos and recorded TV, and edit, sort through, and watch digital slide shows. Although these
customers have a high level of general education, they may not all be experts in PC technology.
The XPS technicians need to be careful not to talk down to them, but must also be prepared for a
fair amount of handholding.
Well-heeled Mainstream Buyers
This group, which probably has the greatest potential for the XPS brand, is made up of people with
money who are less knowledgeable about PCs, but who still want the best. They don't have any of
the knowledge of traditional gamer, but they like the feeling of having a really hot machine. These
customers are most likely to take advantage of the remote assistance and the fee-based value-
added services and represent a valuable potential market for Dell.
Legacy Lines
The Inspiron and Dimension lines will continue on as they are for now, but will split into two
categories, which will increase in contrast over time. One of these categories will target audiences
for basic systems, and the other will aim at markets for entertainment PCs. The entertainment
series will come with WMCE standard and the basic series will be loaded with Windows Home
Edition. Although the entertainment systems will offer WMCE both with and without TV tuner and
related hardware, Dell expects most of these units to go out the door without the media hardware,
since most customer interested in media will probably trade up to the XPS series.
Conclusions
The basic Dimensions will hold down the low end, competing effectively with companies like
eMachines. The entertainment-oriented Dimensions will cover the middle of the range, likely
hovering below $1,000 with a swing of a few of hundred dollars either way. The XPS Series starts
at $1,100 and goes up to $5,000 or even higher. However, the step up from a Dell system with
Windows Home edition to one with WMCE and no extra hardware will be gentle, on the order of
$35. The step from a machine with WMCE and no media hardware to one with media hardware
will be $100-200. Because each increment in capability involves a fairly small dollar increase but
a fairly large rise in value, many buyers are likely to choose the new XPS branded systems to
obtain a premium experience in sales, product performance, and service and support.
Dell's proposition to buyers is based on the idea of increasing the overall value to them at each
higher price point. A small example will illustrate how this strategy benefits both the customer and
Dell (these are my numbers, not Dell's, and are not reflective of real prices, margins, and
packages). Let's say that a consumer could buy a basic system for $500 that cost Dell $450 to
deliver. Dell's gross profit on the sale would be $50. Now let's say that by adding some capability
— for argument's sake, a trade up from Windows XP Home to WMCE, a second optical drive, say,
a DVD-RW, another memory module to bring the system total up to 1GB, a higher-level external
graphics card, a better set of speakers, a TV tuner, a remote control, and a bigger monitor — the
imputed price of the box would become $1,000. For this bundle of capability, Dell's cost (in the
example) would be $850. However, instead of taking the entire $150 margin for itself, Dell prices
the system at $925, giving half back to the customer in the form of a lower price. Thus, Dell has
delivered a better deal to the buyer at the higher price point and made $75 instead of $50 for itself.
By increasing the value to the customer at each small step up the product line, the company
encourages the buyer to stretch a little and take the next package up.
It is exactly these sorts of micro-decisions that the new positioning of Dell’s consumer lines is
supposed to promote. In particular, Dell's tailoring of its XPS offerings to how consumers actually
use their computers creates a series of attractive choices. Gamers want support technicians who
speak their language and can transfer information quickly. Media enthusiasts want technicians
who understand the specific issues of digital media and whose language is accessible. Well-
heeled mainstream users want technicians who can help them out without talking down to them.
Each customer group has its own set of needs and preferences.
XPS will offer a differentiated buying and owning experience for those users who are willing to pay
a premium. Although much focus in the PC market has been on the low end and ever-lower prices
in recent years, all this attention has left the high-end market under-served. The new XPS brand is
designed to give these buyers access to what they are looking for, delivered by a major brand.
Between XPS, which caters to high-end buyers with money to spend on the best hardware and
premium services, and the re-positioned Dimension lines, which will give buyers what they want
while making it easy for them to reach for the next level, Dell may be able to reinvigorate its U.S.
consumer business, improve consumers' overall experience with systems better aligned their
needs and preferences, and clear up one of the few problem areas in the company's business
portfolio.
