Dell Computers Case Study

Background

Dell Corporation decided to implement TaguchiNow's proprietary ad optimization methodology because Dell's Retail Marketing VP - Tim Mattox, an MIT engineer - was familiar with the Taguchi method.

In June of 2004, Dell selected the Employee Purchase Program (EPP) e-mail campaigns as the initial implementation of the Taguchi-based ad optimization methodology with the aim of expanding the project later to other audiences (Home, Corporate and Small Businesses). EPP mail advertising campaigns are targeted to 450,000 individuals: 250,000 corporate employees, 150,000 government employees, and 50,000 professors at schools or universities, all of them users of Dell computers at work. The aim of Dell's EPP mail campaigns is to sell computers, software and peripherals to these individuals for their personal use leveraging the fact that they are already familiar with the brand. As an enticing benefit, Dell's EPP members enjoy discounts of up to 12% and special promotions like free shipping, product bundles, and others.

The response rate of the traditional e-mail marketing is typically well below the one percent mark. Dell had good lists of potential customers who already new the brand and its products and had experience working with Dell computers. Even then the Click Thru Rate on the control mail was only 3%.

The Results

Below is an extract from Dell's Landing Strip spreadsheet comparing the response rate and sales of a control and the optimized mail, both sent on June 17, 2004.

SUMMARY:

• Click Through Rate increase: 5.2 times
• 7.1 times more sales per mail
• Annual sales before optimization: $8,900,000
• Annual sales after optimization: $63,100,000

The Process

This is an example of a Dell EPP mail before the Taguchi optimization:

A Taguchi testing array was selected to analyze 7 factors with 2 options and 4 factors with 3 options in only 18 test e-mails. This allowed analysis of 10,368 campaigns with only 18 tests - a small fraction of all possibilities (1:576 in this case) or a 99.8% compression rate.

The following factors and options were tested simultaneously:

Two test campaigns of 18 test e-mails were sent to 2 different populations, the first to collect open rate and sales data and the second to verify the data of the first campaign. The results are in the table below.

Below is a table showing the influential factors with the optimum option and the percentage of influence. Influential factors were ranked by importance. In this case six factors were considered to be significant (statistically different than "noise").

Below are several examples of Dell EPP e-mail campaigns after the Taguchi optimization:

January 31, 2005

September 1, 2005

November 21, 2005

January 20, 2006

Conclusion

The application of TaguchiNow's optimization methodology increased Dell's e- mail campaign open rate more than 5 times and sales more than 7 times in only 4 months. In addition to these impressive results, Dell was able to better understand which influential factors did play a role and at what level for each factor the outcome, as measured by the Click Through Rate response, was optimized.

Although Dell engineers and marketers considered providing all the technical specifications important, it did not lure customers to buy. As can be noted in the ad samples above, the extensive product specifications of the original ads were replaced by friendlier, more appealing, and cleaner ads. The Taguchi-optimized ads were still being used in January of 2006, 18 months after the original optimization.

Through the application of the Taguchi method to their advertising campaigns, Dell did gain insight (Marketing Intelligence), which was used not only in the EPP program but in other marketing and advertising campaigns as well (Home, Corporate, Small Business, etc.).