Q&A: Dell CMO on consumer electronics

Michael Kanellos recently spoke with Dell's marketing chief about the Round Rock, Texas company's play for consumer electronics and what that portends for the competition.

Mike George, chief marketing officer and general manager of the US consumer business at Dell, has the sort of resume that is getting to be fairly common at the company.

He's not a longtime member of the technology community or even a company lifer. Instead, he came from consulting firm McKinsey about four years ago. What does that mean? It means that George is a wealth of data when it comes to price points, demand elasticity and customer surveys.

How's the US consumer business looking these days?
We are pretty excited about the potential to really expand the role of the PC as the central entertainment appliance in the home and then to market an array of access and communication devices. We are really focused on the top three or four usage models around the PC and trying to make sure we have - either through Dell directly or through our partners - the right products and services.

For us, photography means continuing to expand our printer lineup. You have seen us morph our printer line into a line that has a pretty rich photo capability. We also sell a lot of digital cameras. That business has really grown. Today that is all through partners like Canon and Kodak. I don't anticipate at this point a change because I think those companies have great camera line-ups.

How do you decide what to go into?
We look at every category in the digital home and ask a series of questions. Can we add a lot of value to that marketplace, or do we think there is a big price umbrella to go after? Or do we think we've got some unique supply partnerships or advantages in the market? We rank ordered the priorities and cameras just fall a little bit lower for us. It's not obvious that we bring great supply advantages, and again, we think our partners do an awfully good job. That was a very different story in printers and a very different story in TVs.

So tell us about TVs.
Consumer electronics stores are quickly moving to be digital-TV stores because they can get a 40 per cent markup on those products. The reason I put the focus on big-screen digital TVs is, that's where they're getting all of their gross margins. That spells opportunity. Our plasma launch was a great example. We came in with an absolutely awesome quality 42-inch plasma TV for $3,499. Sony's product is $7,999, and the other guys are in the $5,000 to $6,000 range.

I have talked to lots of the traditional CE players and they say Dell faces two problems. The company has no retail shelf space and you need it for home consumer electronics. Two, product design. Dell doesn't have a huge history of designing a lot of products for the home and making that emotional connection with consumers. Are those real issues and, if so, how are you directing those?

We are not overly concerned. We think this market will mature like most other markets are maturing. You can debate analogies but I honestly think that 10 years ago, when you were looking at buying a $3,000 to $4,000 PC, some people said direct sales wouldn't work. We've seen a high level of interest in our products. The competitors can poke fun at our design skills all they want - which is fine. I think that you judge for yourself. These plasma TVs are fantastic-looking products. I've got a 30-inch LCD in my living room. I don't think anyone would be anything other than thrilled to look at these products and have them in their home.

With everyone getting into this market, are we going to see consolidation and price declines?
Yeah, we will absolutely see it in this market. This is the only prediction I'll make today. A margin decline is a good thing because we have structurally the lowest costs.

Do you have much of an overseas opportunity for your CE products, or is it primarily a US push?
I think we have a good overseas opportunity. I would view [our strategy] as, first and foremost, win the business customer, and win the enterprise customer.

Second is, win the consumer of PCs. Third would be to win the consumer with consumer electronics. In some of our more mature international markets with the most developed consumer businesses - like the United Kingdom, Japan, Canada and Australia - we definitely see a big opportunity in those markets for consumer electronics.

Even in Japan?
Japan is a wonderful market for our flat-panel TV. It's a wonderful market for small PCs. Our business in Japan is quite good, and we're rapidly approaching No. 1. We're not there yet but are rapidly approaching it.

What point will drive the adoption of the Dell Digital Jukebox compared to the Apple iPod - like Dell PCs compared to Macs? What needs to happen?
I don't know, and it's honestly not a particularly high focus for us. Music players are not in the Dell scale. They're not a particularly large market. They are huge for smaller companies but for us they will never be a large market. Would I love to be the number one player? That would be great but that's a market where I give a ton of credit to Apple Computer. They came up with great products and a nice music service.

Are they using Dell PCs at work?
Perhaps. We don't know that. We know from our database that they've never bought a Dell PC from us directly.

Is that changing your marketing strategies with these new products, in terms of where or how you advertise?
One of our most important advertising vehicles is the Sunday newspaper insert.

It's a very successful vehicle for us. We started to do things like put TVs or music players on a cover of that insert, where six months ago, we would have said we want the PC on the cover. By putting that TV on the cover, we sell more PCs than when we have with a PC on the cover. We have to sell a lot more TVs but we also have to sell more PCs.

Is price your main asset?
Dell's great secret and success in the PC market is that we have a fairly low market share among value-price PCs and an absolutely dominant market share among high-end PCs. If you were to use third-party data like IDC, what you would find in the sub-$500 category, which is the overwhelming share of PCs sold at retail, is that we have about 3 per cent market share; in the category $1,500 PCs, we have between 50 per cent and 75 per cent market share.

So it is not surprising that we're winning in high-end electronics because we are taking that same customer. Again, the vast majority of customers that spend more than $2,000 on a PC come to Dell. It's those same customers that are earlier adopters of the digital lifestyle.

Michael Kanellos writes for CNET News.com