Tuesday, May 09, 2006

Consumer Reports Says…Dell to Miss Numbers

Actually, I made that headline up.

What Consumer Reports actually says in its current issue is that Dell’s technical support is—as our readers already know (see “Dells Screws Up a Good Thing,” January 24)—bordering on K-Mart quality. Which is to say, it may actually be driving customers away.

“Get the most from tech support,” is what the Consumer Reports cover promises its readers. And based on the results inside the magazine, Dell customers are not getting very much.

In both laptops and desktops, Apple led the tech-support pack, being the only desktop vendor to have even satisfactory ratings for each of three measures—waiting time on the phone, how knowledgeable the support staff appeared to be, and whether they solved the problem. (Lenovo managed to tie Apple in each case in the laptop survey.)

Specifically, in desktops Apple scored 82 (out of 100) in tech-support satisfaction, compared to eMachines at 62, Sony at 57, Gateway and Dell at 54, HP at 53 and Compaq cruising in with a 46.

In laptops, Apple also scored an 82, with Lenovo at 69, Toshiba 57, Dell at 56 and the rest below 55.

Repair history showed the same general trend, with Apple desktops having the fewest repairs by far, according to Consumer Reports readers.

Meanwhile, Dell’s fiscal quarter ended a week ago, and it didn’t take the company’s bean-counters too long to figure out the numbers had come up short—with revenue up less than 10% and earnings per share down more than 10%.

CEO Kevin Rollins put the usual glossy spin on the announcement, saying “We are committee to delivering industry leading value to our customers, which ultimately results in industry leading growth for the company.”

But based on our own informal survey of reader satisfaction, not to mention the Consumer Reports data, Mr. Rollins may want to re-examine the logic behind his bold statement.

A personal computer long ago ceased being a stand-alone box used for calculating spreadsheets or creating slide shows: it is the means to connect to the internet, upon which all businesses now depend.

When the box at one of those businesses goes down, the business—which may be one guy in his basement office in Livonia Michigan or a trader in a glass tower above Canary Wharf—goes down.

And when a business goes down, no amount of pennies saved by buying the box direct from Dell can make up for lousy tech-support-on-the-cheap.

Me, I think Dell needs to do a Microsoft: I think it needs to start spending some serious money to upgrade its customer service. “Delivering industry leading value” is no longer just cheap boxes. It’s great service, too.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


DaleW said...

I remember about seven years ago Dell had some software they were going to load onto the computer that would allow their tech support to check your system remotely and walk you through problemsl. I was quit excited about it because I thought it gave them the ability to lower the users' total cost of ownership (ie, manage exceptions, not just normal operations) through a lower service delivery cost. My colleagues didn't know why I was asking about this stuff. I think it would be quite helpful if they developed that (I have no idea about the status of this) instead of leaving people hanging with techs from Mumbai whose lack of mastery of idiomatic English results in calls 2-3x as long as necessary, wiping out any overseas cost advantages.

I dealt with Dell's customer service when they sent me and charged me for a modem I didn't want and explicitly canceled at the time I ordered a system. It was "I don't handle that, you'll have to call this number" and "I can't credit that to your card," blah blah blah. Terrible service all the way around. We'll see how they handle this.

rvb1977 said...

When I worked for GE, we all had Dell laptops. I can recall one instance where it took me 45 minutes to convince the Dell "Help" desk that my battery was dead and I needed a new one. He insisted that my power cord was bad. (I have an electrical engineering degree, mind you)

I had several motherboards replaced and a mouse key that mysteriously decided to fall off one day.

Now I am a grad student and I have a Thinkpad, built by Lenovo. What a difference - it rarely gets turned off, is used for more hours per day than my old Dell, travels much more (and gets tossed in and out of a backpack all day long) and it just keeps on going.

raitchison said...

Perhaps it's telling that I recenly purchased an HP Server instead of a Dell, even though I'm an admitted Dell Fanboi, because Dell refused to sell me the configuration I wanted (complete story here).

I know that my sale doesn't add up to much but how many others I wonder didn't buy a Dell because of the way their system is currently set up.

Aaron Koral said...

Hi Jeff. I think your post suggests a larger, more fundamental question for investors to consider - namely, whether there is a positive correlation between companies with "good" customer service/support and stock price performance (think LUV, SBUX and Wells Fargo as examples). I would think that so long as a company maintains its competitive advantage by providing outstanding customer service, shouldn't the share price of the company be refelctive of its competitive position? I could be wrong, though...

fiveyearhold said...

My brother actually warned me not to call Dell when others are present in the house because "it turns you into somebody that you don’t ever want your loved ones to witness."

Everyone probably feels their story is special because it seems unimaginable that others have actually gone through this - that a company could do this to their customers regularly and survive. I’ve heard enough stories to know that mine is not special, so I’ll spare most of the details. Total incompetence, bureaucracy, poor language skills, total lack of accountability anywhere – all true in my experience. We are four days and at least ten phone calls into it and our computer is in worse shape than when we started. Without exaggeration, our last call was four hours long. Naturally we mentioned this to a few friends who all had their own stories, and one of them told us something very interesting:

A large local company (which everyone has heard of) recently conducted a focus group to see how their customers might react to them outsourcing call centers to India. Management had heard all the cost/benefit analyses and were keenly interested in the prospect. Apparently though, they did not expect such a strong negative reaction from the participants. The reason? DELL. The participants had all dealt with Dell’s tech support in India. Despite all the stories you hear about India’s bright prospects (which I’m sure are true), it is still a very bureaucratic place with deeply ingrained behaviors along those lines. Accountability is not something you learn working at the local government monopolies there.

Whether Dell’s stock is cheap or expensive is a very difficult question, and therefore I would not do anything with it. I have read all the value investor write-ups about how cheap it is. I know also that is in their DNA to read rants like this and say, “great, more negativity, must be cheap, buy more.” But I would be leery of that logic for two reasons:

1) Do you really know what Dell’s true free cash flow is? Dell has probably been "over-earning" for a number of years. They built their reputation with a great service offering and low cost manufacturing. Then they advertised and grew market share even further. But suddenly they decided to milk the cow by cutting the service offering, which is great for cash flow but is killing their reputation at a tricky time. Lenovo appears to have a singular goal of gaining market share (without regards to profitability) and Dell, as the market leader, is their prime target. So Dell is probably going to have to fight back by spending again, HARD, on both service and marketing – otherwise market share will continue to drop. That will not be good for free cash flows in the near future, and anything beyond the near future is pure speculation in the computer industry.

2) Value investors have had a great ride since 2000, and the money has followed into their funds. Now all those "fifty-cent dollars" they love have disappeared as they bought up each others’ holdings to higher and higher levels. And when you’re buying eighty- or ninety-cent dollars, as they are today, you had better know something more than how to read financial statements. The earnings power of a company becomes critical when you don’t have a decent margin of safety on price. That is a much more difficult thing to assess than a cash flow statement, especially for a company in such a competitive and fast-changing industry. I’m sure a number of these value investors are capable of doing so even with much higher asset bases, but I’m equally sure that many of them are not.

So I don’t know about Dell’s stock. What I do know that it will be a long time before I ever buy a computer from them again. As my wife said: "From now on, if they don’t have a store nearby with people we can speak to in person, we’re not buying there. Saving $100 at Dell is just not worth the aggravation."

BelowTheCrowd said...

I just posted an item on my blog about the same things. I don't think it's just the customer support that's suffering. Their entire customer experience has been degraded. They make it difficult to order what you want by limiting you to packages of what they want to sell, they make it hard to get service, and they don't offer products (AMD, AMD, AMD!) that the market clearly wants.

Much more long winded talk about my recent (and probably last) Dell experience here: http://www.belowthecrowd.com/archive/2006/05/not_surprised_a.html


BelowTheCrowd said...

Reading Robert's note, and his blog entry, I get the feeling that the problem is as serious as it could be.

People are avoiding Dell because Dell -- which built its reputation on allowing sophisticated users to order what they wanted -- is now making it all but impossible for many of us to configure products with the options we want. If I want a cookie-cutter configuration, I can go to Best Buy.


CoupNH said...

A 'sophisticated user' buying a Dell ? A 'sophisticated user' buying ANY 'brand' of Win box ?

The last computer I 'bought' instead of building ran CP/M.

Until you learn how to operate a screwdriver, you can drop the pretense that you're a 'sophisticated user'.

cheap computers said...

I think it needs to start spending some serious money to upgrade its customer service.

James said...

I an a professional person and admmit that I made a mistake when buying an expensive PC DELL and I did not check the consumer reports first. Now my name is added onto their list as a never again buyer. I have had computers since 1979 and this junky "NEW", Dell is by far the worst and most unreliable that I have ever experienced. My kids have MACS and there is no comparison. JFKConsumer

James said...

I an a professional person and admmit that I made a mistake when buying an expensive PC DELL and I did not check the consumer reports first. Now my name is added onto their list as a never again buyer. I have had computers since 1979 and this junky "NEW", Dell is by far the worst and most unreliable that I have ever experienced. My kids have MACS and there is no comparison. JFKConsumer