BEST BUY: USING CUSTOMER
CENTRICITY TO CONNECT WITH CUSTOMERS
“So much of our
business success comes down to understanding consumer behaviour,” explains Joe
Brandt, a store service manager at one of Best Buy’s newest stores. “What we do
is we try to keep our ear to the railroad tracks. In essence, we listen to the
customer to be able to change on a dime when a customer wants us to tailor that
experience a certain way and provide certain shopping experiences and certain
services.”
“Consumers look at a lot of different things,” Joe added.
“They look at brands, shopability of the store, how easy it is to navigate the
store, how pleasant the employees are, price, and how we take care of the
customer.” Overall there are many factors that “customers look at when they’re
making a purchase decision.”
Best Buy is the world’s largest consumer electronics
retailer with 1,172 stores, 140,000 employees, and $35.9 billion in revenue.
Its U.S.
and Canadian market share is almost 20 percent, far ahead of rivals Wal-Mart
and Costco.
Best Buy operates superstores which provide a limited
number of product categories with great depth within the categories. The
retailer sells consumer electronics, home office products, appliances,
entertainment software and related services. In addition to its U.S. and Canadian stores, Best Buy has recently
opened stores in China and
has announced plans to open stores in Puerto Rico,
Mexico and Turkey. Best Buy also offers its
products online through bestbuy.com, and design and installation services
through Geek Squad and Magnolia Audio and Video.
Best Buy began as The Sound of Music, a small specialty
audio retailer, in 1966. A tornado severely damaged one of its stores in 1981.
Instead of closing the store for repairs, Dick Schulze, the owner, had a
tornado sale in which more goods were brought in from its other stores and
prices were slashed. The sale was so successful that it was repeated the
following two years. “When the tornado hit, we decided to market to the
community as a whole, and get electronics out there to everybody. We geared
ourselves up to win by understanding what consumers want in technology,” said
Joe Brandt. In 1983, The Sound of Music changed its name to Best Buy and opened
its first superstore.
The company continued to grow as the consumer electronics
category exploded in the 1980s and 1990s. Based on consumer feedback, Best Buy
moved away from the traditional sales approach in 1989 by eliminating
commissioned sales representatives. This move was embraced by customers, but
questioned by some suppliers and Wall Street analysts who thought it would
reduce sales and profits. Best Buy’s approach was successful at generating
growth in stores and revenues. However, company expenses increased and profits
declined. When growth of the consumer electronics market slowed and mass
marketers like Wal-Mart, Target, Costco, and Sam’s Club became competitors,
Best Buy considered changes to its approach.
Best Buy began to differentiate itself from the mass
marketers by offering more services, delivery, and installation. Instead of
selling individual products, it concentrated on selling entire systems. The
acquisition of the Geek Squad to provide in-store, home and office computer
services and Magnolia Audio and Video to provide complete audio and home
theater systems reflect these changes. These additions significantly increased
profit and insulated the company from discount store competition. Responding to
customer needs and competitive changes was an important part of Best Buy’s
strategy.
When Dick Schulze stepped down as CEO, his successor, Brad
Anderson, began looking for new ideas to continue the company’s growth. He
invited Larry Seldon of Columbia
University to present his
theory of “customer centricity.” Seldon’s theory suggested that some customers
account for a disproportionate amount of a firm’s sales and profits. Anderson adapted the
theory to try to understand the needs and behaviours of specific types of
customers, or segments. Initial research identified five segments which
included:
● Barry:
The affluent professional who wants the best technology and entertainment,
and who demands excellent service.
● Jill:
The prototypical “soccer mom” who is a busy suburban mom who wants to
enrich her children’s lives with technology and entertainment.
● Carrie
and Buzz: The “early adopter,” active, younger customer who wants the
latest technology and entertainment.
● Ray:
The “practical adopter” who is a family man who wants technology that
improves his life through technology and entertainment.
● Small
business: The customer who runs his or her own business and has specific
needs relating to growing sales and increasing the profitability of the business.
Best Buy used “lab” stores to test product offerings, store
designs, and service offerings targeted at each segment. Successful offerings
and designs were then expanded to a larger number of pilot stores which would
undergo significant physical changes and require substantial new training of
sales associates. The cost of applying customer centricity to a store was often
as much as $600,000. Early results were impressive as customer centricity stores
reported sales much higher than the chain average. As Best Buy began rapid
conversion of hundreds of Best Buy stores to the centricity formats, however,
expenses increased and profit declined.
The impact of Best Buy’s new approach on profitability led the company to
continue to adapt its ideas about customers. One consideration, for example, was that the
“Jill” segment should be broadened to include all females.
Research showed that women spend $68 billion on consumer electronics each year
and influence 89 percent of all purchases. Unfortunately, females did not
embrace the Best Buy experience, largely because its stores were male-oriented
in merchandise, appearance, and staffing. “Men and women shop very
differently,” observes Brandt. Men “typically love the technology” and they
like to “play with it” while women are “looking for a knowledgeable person who
can answer their questions in a simple manner.” To address this problem Best
Buy began to implement many changes that would make Best Buy the place
for women to shop (and work!).
Today, Best Buy is trying a variety of new approaches. Its
stores, for example, are being changed to be more appealing to women. Store
layout has been changed to include larger aisles, softer colours, less noise,
and reduced visibility of boxes and extra stock. In addition, Best Buy now
offers women, and all customers, a personal shopping assistant who will walk a
customer through the store, demonstrate how the products function, and arrange
for delivery and installation after the sale. Best Buy has also created rooms
that resemble a home in the store to show customers exactly how the products
will look when they are installed. According to Brandt, “we try to personalize
the experience as much as possible, and we really try to build a relationship.
Once we do that we have the opportunity to really listen and answer questions
that customers have.” Best Buy is undertaking other initiatives as well. It
created the Women’s Leadership Forum (WOLF) to develop female leaders within
the company. Early results have yielded an increase in applications and a
decline in turnover. Overall, these changes appear to be working. Best Buy has
observed an increase in its female market share in consumer electronics!
In the future Best Buy’s customer centricity efforts will
continue to focus on understanding consumer behaviour and improving the
customer experience. Brandt explains: “Customer centricity, in simple terms, is
listening to the customer, putting the customer at the forefront of everything we
do. That is, whatever shopping experience that they are looking for, we gear
our company and our structure to satisfy that need as much as possible.”
Questions
1. How
has an understanding of consumer behaviour helped Best Buy grow from a small
specialty audio retailer to the world’s largest consumer electronics retailer?
2. What
were the advantages and disadvantages of using “customer centricity” to create
five segments of Best Buy customers?
3. How
are men and women different in their consumer behavior when they are shopping
in a Best Buy store?
4. What
are two or three (a) objective evaluative criteria and (b)
subjective evaluative criteria female consumers use when shopping for
electronics at Best Buy?
5. What
challenges does Best Buy face in the future?
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