Best Buy Marketing Case Study
Robert Paul Ellentuck
EMBA 2011
Marketing Management
Professor Hassan
16 October 2009
COPYRIGHT © 2009
ROBERT PAUL ELLENTUCK
Industry Overview
Industry
Major Players for Consumer Electronics
Big box concept
Specialty Store in Consumer Electronics Segment
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 technologically
competent
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 to
customers
Consumers now focusing more on price over service and
support
Popularity of online purchasing increased; free shipping
and delivery
“Big box” concept declining; scaled-down version of
stores emerging
Top 5 Consumer Electronics
Merchandiser Comparisons
2003
10K
Category
Best Buy
Wal-Mart
eBay
Dell
Amazon
Revenue
($B)
21
256
2
35
5
Gross
Margin (%)
25
22
81
18
17
Cash ($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 Electronics
Merchandiser Comparisons
2008
10K
Category
Dell
Best Buy
Wal-Mart
Circuit
City
Revenue
($B)
61
40
374
12
Not
Available
Gross
Margin (%)
19
24
15
21
Not
Available
Cash ($B)
10
2
47
1
Not
Available
Debt (%)
2
6
21
6
Not
Available
CDW Corp
Source: United States Securities and Exchange Commission via their web (2009) and Spinali, L. and O’Hier, J. (2009)
Company Overview
Sound of Music
1967- St. Paul, MN
“Grab and Go”–
New Logo1989
Best Buy Becomes
company name - 1983
Global Expansion - Asia,
Europe, Mexico, Turkey
2003-present
Fortune 500 Top Co
Customer
#56 - $45 Billion
Centricity
2009
Implemented
- 2003
Best Buy Mobile stores &
2nd Largest Consumer
“Best Buy” Sale @ SOM
Electronics Retailer - 1993 Geek Squad to Europe
2003
tornado hit 9 Stores -1981
CEO Dunn replaces
Public Offering - $33.6M
retiring Anderson
12 Stores - 1986
2009
Fortune names Best Buy
Top 10 performing stock,
2000
Source: Bestbuy.com, Fortune (5/4/09)
Company Overview
(Consumer Driven)
“We believe that focusing on customers' needs generates
growth opportunities”
“At Best Buy, we aspire to be a responsible, values-driven
global corporation – we believe that's what you expect”
“And we believe in customer centricity - the idea is that a
customer isn't just looking for a product, but a solution or
experience that improves her life”
Ranked highest in customer satisfaction among national and
multi-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 of
competitive marketplace
Forward-looking strategy; must permeate
every area of enterprise
Reinvents retailer's value proposition
Source: Biggs, John (2009)
Company Overview
(Products)
Branded products designed out of customer research and priced
to 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
FY2005
Sales
Sales
CE 38%
Home
Office 34%
Entertain
SW 17%
Appliances
6%
Services
7%
Source: Bestbuy.com 10 K(FY2008), (FY2005)
Entertain
SW 22%
Home
Office 34%
CE 38%
Appliances
6%
Product
(Big Box Retailing)
Best Buy – Then (2005)
Big Box large retail
footprints – Everything
under one roof
Standard Operating
Procedures (SOPs)
Products Sold by
category
Organizational
Structure
Top Down; One P&L
Source: Shevory, Christina (2009)
Best Buy Now (2009)
Introducing Smaller
Foot- Print stores
Competitors are
following suit in Specialty
Markets
Overall lower costs
Customer Centricity
Product “Solution Based”
(Customer Centricity)
Model California Based Test – Skewed Results
Roll-out: no financial modeling beyond Pilot test
Stores
Aggressive Rollout Plan - 12 labs to 32 pilots to 110
stores 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 “poor
macroeconomic conditions”
•Unknowledgeable sales staff
•“Late to the game with Firedog customer
service business, didn’t resonate with
customers as well as Best Buy’s Geek
Squad”
•Unfortunate position Mid-level player
•Top retailer in the country
•Lost leaders in drive traffic
•Convenience & wide range of products in
one 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 for
custom-built products
•Huge global brand
•Customer Relationship Management and
IT support business strategy
•Addition of new categories to business
may hurt brand
•May need to reconsider free shipping to
customers
Sources: Spolsky, Joel (2009), Kavilanz, Parifa (2009), Cuizon, Gwendolyn (2009) and www.marketingteacher.com
SWOT Analysis
Strengths
Heavily driven customer
satisfaction/customer service based
Standard Operating Procedures;
guaranteed standard experience across
network
Valued, trained, rewarded workforce
Central corporate structure/territory
Weaknesses
Customer Centricity model fragmented by
individual store locations
•Creation of unified sales force more costly
in other markets
•Valued, trained, rewarded workforce
expensive to replicate across other markets
•”Turf battles” /Lack of synchronization
between business units
•
Opportunities
Threats
Centricity; max profit in high-end products
and solutions
•Solution based to increase sales of
products and services
•Expansion of CC model into all U.S. stores
•
Low priced “big box” stores playing into
highly competitive arena
•Market expansion into other
markets/regions
•Online sales
•
Weaknesses to Strengths
FROM (2005):
CC model fragmented by
individual store locations
Creation of unified sales
force based on CC more
costly in other markets
Valued, trained, rewarded
workforce expensive to
replicate across other
markets
”Turf battles” /Lack of
synchronization between
business units
TO (2009):
Still have major customer
segments; grouped by
location more (eg. DMAscluster stores in market)
CC model working if
solutions are sold;
revenues justify expense
CC model working if work
force is trained to sale;
“upsell” a customer & sale
solution
Corporate needed to see
segment leaders mutually
benefitted from CC model
Threats to Opportunities
FROM (2005):
Low priced “big box”
stores playing into highly
competitive arena
TO (2009):
Market expansion into
other markets/regions
Online sales
Sell products with
services and solutions;
Best Buy also has their
own brands
Best Buy started
expansion into China in
2003
Best Buy now also
multiple online channels
Linking Internal and External
Organization changing at same time as industry is
changing; extreme dynamic occurring
Pace and synchronization of rollout affected internal
organization and sales revenues
Customer Centricity model increases sales per foot and
expands externally because they hit saturation in US
Overall “big box” concept pushing for lower priced
items
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 mix
revenues 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 and
Target)
Increase in online purchasing for music, games, etc. impacting
entertainment software
Source: Bestbuy.com 10 K(FY2008), (FY2005); Sidibe, G (10/7/09 )
Problem Definition
Implementation of Customer-Centricity
caused internal organizational
conflicts and it increased operating
expenses, which led to a loss of the
overall brand image and
fragmentation.
The organization had lost focus during
the implementation process resulting in
the overall goal of providing an
outstanding customer experience.
Alternatives Evaluation
A.
B.
Continue to convert all stores to
Customer Centricity; allow time for
concept to mature
Create a hybrid; continue with
Customer Centricity; group
personas/segments to market level
instead of individual store (e.g.
DMAs/cluster stores into local market)
Alternatives Evaluation – cont’d
C.
D.
Abandonment of Customer Centricity
to SOP “common” Best Buy (“Big
Box”) customer experience
Shift channels of distribution from
primarily offline retail “brick &
mortar” to more online channels for
cost 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 – Big
Box “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 for
high profit margin sales
Customer-Centric Best Practice
Best 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 Centricity
Personas
Marketers increasingly using personas
Identify mindset and goals of customers/Better predictor
human behavior – Some companies report 400% conversion
rate
Forrester survey - one in four companies with
revenues above $200M planned to increase spending
on persona research
Persona research made a dramatic difference in Best
Buy performance and overall revenues during
turbulent times as their closest competitors filed
bankruptcy.
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/weaknesses
of 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 on
when store was converted
Modify the conversion process (slower
pace) than the ones in initial conversion
process
Benchmark in 3-6 month increments
based on how stores were initially
converted
References
Industry Overview (Slide 2)
Lal, R., Knoop, CC-I., and Tarsis, I. (October 2006). Best Buy Co., Inc.: Customer-Centricity. Harvard
Business School, exhibit 4a
Spinali, L. and O’Hier, J. (March 2009). Dealerscope.com annual top 101 rankings report on consumer
electronics retailers/etailers
Pressler, 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 4b
Spinali, L. and O’Hier, J. (March 2009). Dealerscope.com annual top 101 rankings report on consumer
electronics retailers/etailers
United 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.
References
Company 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-bigbox-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.
References
Competitive 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 2009
http://strategic-business-planning.suite101.com/article.cfm/swot_analysis_of_dell_computers
http://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.
References
Personas (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-retailsuccess.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 a
General Manager of Store in the East Bay, CA. Prior to Best Buy, Ms. Sidibe worked for HEAR Music as the
Director of Music Acquisition.
Customer Centricity is very active program in all stores. Localization is at” the heart” of the Best Buy as a
business. Ms. Sidibe is very proud of the companies commitment to communities that they serve through
their corporate responsibility program. It is reflected in the stores, employees from corporate, territories and
store levels and it includes volunteering.
In addition, Ms. Sidibe believes that most retailers use some sort of Customer Centricity. Merchandise mix reflects
the retailers point of view, skewed to demographics and shopping patterns at the store level. (Her example
was 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 mix
and competition. Gail Sidibe made it a point that two of Best Buy’s competitors left the market; however, the
Targets and Wal-Marts have been more active in consumer electronics . As for her Department, In-store
Entertainment, Best buy gas gain in market-share of CDs and DVDs over the new competitive retailers. It
was noted that Gail did make mentioned that iTunes and Amazon as well as down-loadable software had
made 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 working
with 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 as
the CEO. This was very smooth transition, corporate create virtual town halls for all employees.. We knew
that Mr. Anderson was retiring, so it wasn’t a surprise. The company is till focused on excellent customer
service even as it expands into other countries (Kalampour is a new location), new mobile focused stores
with the Carphone Warehouse have been very successful, She mentioned that the American Consumer
Org and JD Power had named Best Buy number one in customer service. Gail has a lot of pride being a
part of the Best Buy family.
