Best Buy Marketing Case Study Robert Paul Ellentuck EMBA 2011 Marketing Management Professor Hassan 16 October 2009
Best Buy Marketing Case Study
Robert Paul EllentuckEMBA 2011
Marketing ManagementProfessor Hassan16 October 2009
COPYRIGHT © 2009 ROBERT PAUL ELLENTUCK
Industry Overview Industry
Big box concept Specialty Store in Consumer Electronics Segment
Major Players for Consumer Electronics Top 5 2002: Best Buy, Wal-Mart, Circuit City, Dell, Amazon.com Top 5 2008: Dell, Best Buy, Wal-Mart, Circuit City, CDW
Market Development Emerging “discount” retailers emerging -consumer choosing price over
service/support
Competition online “etailers” growing - free delivery on large purchases
Consumer base evolving from technological novices to technologicallycompetent
Sources: Lal, R., Knoop, CC-I., and Tarsis, I. (October 2006;, Spinali, L. and O’Hier, J. (2009); Pressler, M.W. (2004)
Industry Overview – cont’ “Big Box” push to increase sales of high margin products
Emphasis evolved to offering service and support tocustomers
Consumers now focusing more on price over service andsupport
Popularity of online purchasing increased; free shippingand delivery
“Big box” concept declining; scaled-down version ofstores emerging
Top 5 Consumer ElectronicsMerchandiser Comparisons
200310KCategory Best Buy Wal-Mart eBay Dell Amazon
Revenue($B)
21 256 2 35 5
GrossMargin (%)
25 22 81 18 17
Cash ($B) 2 5 1 4 1
Debt (%) 11 16 2 3 90
Source: United States Securities and Exchange Commission via their web (2009) and Lal, R. , Knopp, CC-I., and Tarsis, I,(October 2006)
Top 5 Consumer ElectronicsMerchandiser Comparisons
200810KCategory Dell Best Buy Wal-Mart
CircuitCity CDW Corp
Revenue($B)
61 40 374 12 NotAvailable
GrossMargin (%)
19 24 15 21 NotAvailable
Cash ($B) 10 2 47 1 NotAvailable
Debt (%) 2 6 21 6 NotAvailable
Source: United States Securities and Exchange Commission via their web (2009) and Spinali, L. and O’Hier, J. (2009)
Company Overview
Sound of Music1967- St. Paul, MN
“Best Buy” Sale @ SOMtornado hit 9 Stores -1981
Public Offering - $33.6M12 Stores - 1986
Best Buy Becomescompany name - 1983
“Grab and Go”–New Logo-1989
2nd Largest ConsumerElectronics Retailer - 1993
CustomerCentricityImplemented- 2003
Fortune names Best BuyTop 10 performing stock,2000
Best Buy Mobile stores &Geek Squad to Europe
2003
Global Expansion - Asia,Europe, Mexico, Turkey
2003-present Fortune 500 Top Co#56 - $45 Billion2009
CEO Dunn replacesretiring Anderson
2009
Source: Bestbuy.com, Fortune (5/4/09)
Company Overview(Consumer Driven)
“We believe that focusing on customers' needs generatesgrowth opportunities”
“At Best Buy, we aspire to be a responsible, values-drivenglobal corporation – we believe that's what you expect”
“And we believe in customer centricity - the idea is that acustomer isn't just looking for a product, but a solution orexperience that improves her life”
Ranked highest in customer satisfaction among national andmulti-regional from 2009 report by J.D. Power and Associates
Sources: Bestbuy.com, Wolfe (2009)
Company Overview(Evolving Customer Centricity)
Customer-centricity (CC) retailing Embraced by broad range of organizations Uses insights from analytics to identify/understand core group of
valued customers Predicts what motivates shopping behavior
Essential for retailers facing demands ofcompetitive marketplace
Forward-looking strategy; must permeateevery area of enterprise
Reinvents retailer's value propositionSource: Biggs, John (2009)
Company Overview(Products)
Branded products designed out of customer research and pricedto fill gaps Dynex, Init, Insignia, and Rocket Fish
Napster Working with Dell to have a streaming audio/video
computer
Geek Squad Affordable technological assistance services
Best Buy Mobile and Car phone Warehouse Smaller footprints focusing on mobile products and solutions
in US and Europe
Source: Bestbuy.com, Sidibe, G (10/7/09 )
Company Overview( Revenue by Product Group)
FY2008
Sales
CE 38%
HomeOffice 34%EntertainSW 17%Appliances6%Services7%
FY2005
Sales
EntertainSW 22%HomeOffice 34%CE 38%
Appliances6%
Source: Bestbuy.com 10 K(FY2008), (FY2005)
Product(Big Box Retailing)
Best Buy – Then (2005) Big Box large retail
footprints – Everythingunder one roof
Standard OperatingProcedures (SOPs)
Products Sold bycategory
OrganizationalStructure Top Down; One P&L
Best Buy Now (2009) Introducing Smaller
Foot- Print stores
Competitors arefollowing suit in SpecialtyMarkets
Overall lower costs
Customer Centricity
Source: Shevory, Christina (2009)
Product “Solution Based”(Customer Centricity)
Model California Based Test – Skewed Results
Roll-out: no financial modeling beyond Pilot testStores
Aggressive Rollout Plan - 12 labs to 32 pilots to 110stores nationwide
Leveraged prior acquisitions (e.g. Geek Squad)
Organizational structure - organized to unorganized
Product mix by solution based on Personas
Competitive Analysis
•Out of Business•CEO blamed demise on “poormacroeconomic conditions”•Unknowledgeable sales staff•“Late to the game with Firedog customerservice business, didn’t resonate withcustomers as well as Best Buy’s GeekSquad”•Unfortunate position Mid-level player
•Top retailer in the country•Lost leaders in drive traffic•Convenience & wide range of products inone store•17% margins in CE (Mid player)•Quality and service•General merchandise•Lack of flexibility
Dell
•Customized products•Reliability, Service and Support•Customers can’t go to retailers forcustom-built products
•Huge global brand•Customer Relationship Management andIT support business strategy•Addition of new categories to businessmay hurt brand•May need to reconsider free shipping tocustomers
Sources: Spolsky, Joel (2009), Kavilanz, Parifa (2009), Cuizon, Gwendolyn (2009) and www.marketingteacher.com
SWOT AnalysisStrengthsHeavily driven customersatisfaction/customer service basedStandard Operating Procedures;guaranteed standard experience acrossnetworkValued, trained, rewarded workforceCentral corporate structure/territory
Weaknesses•Customer Centricity model fragmented byindividual store locations•Creation of unified sales force more costlyin other markets•Valued, trained, rewarded workforceexpensive to replicate across other markets•”Turf battles” /Lack of synchronizationbetween business units
Opportunities•Centricity; max profit in high-end productsand solutions•Solution based to increase sales ofproducts and services•Expansion of CC model into all U.S. stores
Threats•Low priced “big box” stores playing intohighly competitive arena•Market expansion into othermarkets/regions•Online sales
Weaknesses to StrengthsFROM (2005): CC model fragmented byindividual store locations Creation of unified salesforce based on CC morecostly in other markets
Valued, trained, rewardedworkforce expensive toreplicate across othermarkets ”Turf battles” /Lack ofsynchronization betweenbusiness units
TO (2009): Still have major customer
segments; grouped bylocation more (eg. DMAs-cluster stores in market)
CC model working ifsolutions are sold;revenues justify expense
CC model working if workforce is trained to sale;“upsell” a customer & salesolution
Corporate needed to seesegment leaders mutuallybenefitted from CC model
Threats to Opportunities
FROM (2005):Low priced “big box”stores playing into highlycompetitive arena
Market expansion intoother markets/regions
Online sales
TO (2009): Sell products with
services and solutions;Best Buy also has theirown brands
Best Buy startedexpansion into China in2003
Best Buy now alsomultiple online channels
Linking Internal and External
Organization changing at same time as industry ischanging; extreme dynamic occurring
Pace and synchronization of rollout affected internalorganization and sales revenues
Customer Centricity model increases sales per foot andexpands externally because they hit saturation in US
Overall “big box” concept pushing for lower priceditems
Change from Input to Output Price of technology, appliances, home office equipment costs
dramatically reduced during time-period
Home offices continues to be sustainable with 34% of product mixrevenues year over year
Services increased 7% of revenues from FY08 vs. FY05
Down economy resulted in two competitors out of the market –more competition from “Big Box” retailers (e.g. Wal-Mart andTarget)
Increase in online purchasing for music, games, etc. impactingentertainment software
Source: Bestbuy.com 10 K(FY2008), (FY2005); Sidibe, G (10/7/09 )
Problem Definition
Implementation of Customer-Centricitycaused internal organizationalconflicts and it increased operatingexpenses, which led to a loss of theoverall brand image andfragmentation.
The organization had lost focus duringthe implementation process resulting inthe overall goal of providing anoutstanding customer experience.
Alternatives Evaluation
A. Continue to convert all stores toCustomer Centricity; allow time forconcept to mature
B. Create a hybrid; continue withCustomer Centricity; grouppersonas/segments to market levelinstead of individual store (e.g.DMAs/cluster stores into local market)
Alternatives Evaluation – cont’d
C. Abandonment of Customer Centricityto SOP “common” Best Buy (“BigBox”) customer experience
D. Shift channels of distribution fromprimarily offline retail “brick &mortar” to more online channels forcost efficiencies
Best Alternative Rationale Allow time for the concept to mature; continue to
convert all stores
Heritage of valuing customer relationship
Prepares for future of industry and competition – BigBox “price” driven vs. Big Box “solution”
Connects to company values & retains talent/staff
Localization and segment relate to closer community,customer, and retail experience
Creates opportunity for new products and services forhigh profit margin sales
Customer-Centric Best PracticeBest Practice
“Last mile” retail Localization Assortment Outperform peers Supply Chain inclusive Six weeks or less of inventory Above average annual sales
increases, year-to-year “Promo to Supply” Pricing
(Optimization) Overcome Organizational
Behavior
Best Buy Adoption rate among stores high Found Growth in localization:
Assortment, store size, globalization Out performed peers in specialty
(CE) Big Box Struggled in implementation phase Increases in year over year annual
sales, but diminishing No, higher than optimal to cover
expenses Organization struggled and now is
empowered
Source: Baird, N. and Kilcline, B. (2008). The New Customer-Centric Retail Supply Chain: Benchmark Report 2008.Copyright RSR Research, LLC. All rights reserved.
Customer CentricityPersonas
Marketers increasingly using personas Identify mindset and goals of customers/Better predictor
human behavior – Some companies report 400% conversionrate
Forrester survey - one in four companies withrevenues above $200M planned to increase spendingon persona research
Persona research made a dramatic difference in BestBuy performance and overall revenues duringturbulent times as their closest competitors filedbankruptcy.
Sources: Howlett, Greg (2007) and Gardener, Elizabeth (2007), Sidibe, G (10/1/09 )
Implementation Plan Communicate internally and externally that customer
centricity model is new mode of operation
Create task force that reviews strengths/weaknessesof model; make changes based on recommendations
Slow down pace of store conversions
Devise actions for implementation plan
Calculate how new model is affecting sales per sq foot
Make adjusts to model as needed
Implementation Plan -Time Schedule
One year for implementation based onwhen store was converted
Modify the conversion process (slowerpace) than the ones in initial conversionprocess
Benchmark in 3-6 month incrementsbased on how stores were initiallyconverted
ReferencesIndustry Overview (Slide 2)Lal, R., Knoop, CC-I., and Tarsis, I. (October 2006). Best Buy Co., Inc.: Customer-Centricity. Harvard
Business School, exhibit 4aSpinali, L. and O’Hier, J. (March 2009). Dealerscope.com annual top 101 rankings report on consumer
electronics retailers/etailersPressler, M.W. (Sunday 11 July 2004). “Big-Box Stores Rule Top 10 List: Wal-Mart's No. 1 Rank Shows
U.S. Goes for Price”, Washington Post online edition, page F01
Top 5 CE Merchandiser ‘s and their 10K Select Category Comparisons (Slides 4 and 5)Lal, R., Knoop, CC-I., and Tarsis, I. (October 2006). Best Buy Co., Inc.: Customer-Centricity. Harvard
Business School, exhibit 4bSpinali, L. and O’Hier, J. (March 2009). Dealerscope.com annual top 101 rankings report on consumer
electronics retailers/etailersUnited States Securities and Exchange Commission via their web (2009)
Company Overview (Slide 6)Bestbuy.com, Fortune (4 May 2009)
Company Overview (Consumer Driven) (Slide 7)Bestbuy.com, Wolfe (28 September 2009). Majap Survey: Best Buy Tops In Customer Satisfaction.Twice.
ReferencesCompany Overview (Evolving Customer Centricity) (Slide 8)Biggs, John. “Wal-Mart stepping into the big box breach.” Crunch Gear. 18 May 2009. CrunchGear,
Web. 4 Oct 2009. http://www.crunchgear.com/2009/05/18/wal-mart-stepping-into-the-big-box-electornics-breeech.
Company Overview (Products) (Slide 9)bestbuy.com, Sidibe, G (10/7/09 ) Interview
Company Overview (Revenue by Product Group) (Slide 10)Bestbuy.com 10 K(FY2008), (FY2005)
Product (Big Box Retailing) (Slide 11)Shevory, Christina. “A Recession Play – Mini Versions of Big-Box Stores.” New York Times 19 May
2009, Print.
ReferencesCompetitive Analysis (Slide 13)Spolsky, Joel. “Why Circuit City Failed, and Why B&H Thrives.” Inc. 1 May 2009.
http://www.inc.com/magazine/20090501/why-circuit-city-failed-and-why-bh-thrives.html#Kavilanz, Parija. “Circuit City to shut down.” CNNMoney.com. 16 January 2009.
http://money.cnn.com/2009/01/16/news/companies/circuit_city/Cuizon, Gwendolyn. “SWOT Analysis of Dell Computers.” Suite101.com 5 March 2009http://strategic-business-planning.suite101.com/article.cfm/swot_analysis_of_dell_computershttp://www.marketingteacher.com/SWOT/amazon_swot.htm
Change from Input to Output (Slide 18)Bestbuy.com 10 K(FY2008), (FY2005); Sidibe, G (10/7/09 ) Interview
Customer-Centric Best Practice (Slide 23)Baird, N. and Kilcline, B. (2008). The New Customer-Centric Retail Supply Chain: Benchmark Report
2008. Copyright RSR Research, LLC. All rights reserved.
ReferencesPersonas (Slide 24)Howlett, Greg. “Developing Personas to Boost Your Retailing Success.” Marketing Pilgrim. 13
November 2007. Marketing Pilgrim, Web. 4 Oct 2009.http://www.marketingpilgrim.com/2007/11/developing-personas-to-boost-your-retail-success.html
Gardner, Elizabeth. “Personalizing.” Retailer. November 2007. Internet Retailer, Web. 4 Oct 2009.http://www.intemetretailer.com/article.asp?id=24243
Sidibe, G (10/7/09 ) Interview
References (Interview)Michelle Dunn conducted Interview of Gail Sidibe, Director of In-store Entertainment, Western
Territory for Best Buy via telephone on 10/7/09
Gail Sidibe has worked for Best Buy for close to four years in her present position. She also spent 6-months as aGeneral Manager of Store in the East Bay, CA. Prior to Best Buy, Ms. Sidibe worked for HEAR Music as theDirector of Music Acquisition.
Customer Centricity is very active program in all stores. Localization is at” the heart” of the Best Buy as abusiness. Ms. Sidibe is very proud of the companies commitment to communities that they serve throughtheir corporate responsibility program. It is reflected in the stores, employees from corporate, territories andstore levels and it includes volunteering.
In addition, Ms. Sidibe believes that most retailers use some sort of Customer Centricity. Merchandise mix reflectsthe retailers point of view, skewed to demographics and shopping patterns at the store level. (Her examplewas Nordstrom and Gap) It is no longer something we talk about as we have already put it into practice.She wasn’t part of the “growing pains” – most of the implementation came into being after I arrived.
Ms. Dunn inquired about the economic down-turn in the economy, if that had an impact on the merchandising mixand competition. Gail Sidibe made it a point that two of Best Buy’s competitors left the market; however, theTargets and Wal-Marts have been more active in consumer electronics . As for her Department, In-storeEntertainment, Best buy gas gain in market-share of CDs and DVDs over the new competitive retailers. Itwas noted that Gail did make mentioned that iTunes and Amazon as well as down-loadable software hadmade more of an impact on the business. Her Department is moving into more gadgets (eBooks readers(e.g. Sony), Leap frog and Sharper Image label products As a side note, Gail indicated that Dell is workingwith Best Buy in creating a bundle computer with Napster streaming audio and video.
.
References (Interview) – cont’Michelle Dunn conducted Interview of Gail Sidibe, Director of In-store Entertainment, Western
Territory for Best Buy via telephone on 10/7/09
Finally, Ms. Dunn asked if Ms. Sidibe could comment on the transition between Mr. Dunn and Mr. Anderson asthe CEO. This was very smooth transition, corporate create virtual town halls for all employees.. We knewthat Mr. Anderson was retiring, so it wasn’t a surprise. The company is till focused on excellent customerservice even as it expands into other countries (Kalampour is a new location), new mobile focused storeswith the Carphone Warehouse have been very successful, She mentioned that the American ConsumerOrg and JD Power had named Best Buy number one in customer service. Gail has a lot of pride being apart of the Best Buy family.