Best Buy Marketing Case Study
Robert Paul Ellentuck
EMBA 2011
Marketing Management
Professor Hassan
16 October 2009
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COPYRIGHT © 2011
ROBERT PAUL ELLENTUCK
Industry Overview
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Industry
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Major Players for Consumer Electronics
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Big box concept
Specialty Store - Consumer Electronics Segment
Top 5 2008: Dell, Best Buy, Wal-Mart, Circuit City, CDW
Market Development
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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 technical
competent
Industry Overview

“Big Box” push to increase sells 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 CE Merchandiser 10K’s
Select Category Comparisons
2003
10K
Category
1.
Best Buy
2.
Wal-Mart
3.
eBay
4.
Dell
5.
Amazon
Revenue
($M)
21
256
2
35
5
Gross
Margin (%)
25
22
81
18
17
Cash (%M)
2
5
1
4
1
Debt (%)
11
16
2
3
90
Top 5 CE Merchandiser 10K’s
Select Category Comparisons
2008
10K
Category
1.
Dell
2.
Best Buy
3.
Wal-Mart
4. Circuit
City
5. CDW
Corp
Revenue
($M)
61
40
374
12
Not
Available
Gross
Margin (%)
19
24
15
21
Not
Available
Cash (%M)
10
2
47
1
Not
Available
Debt (%)
2
6
21
6
Not
Available
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
Fortune 500 Top Co
#56 - $45 Billion
Customer
FY2009
Centricity
Implemented
2005
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
Company Overview
(Consumer Driven)
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“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
Background
(Evolving Customer Centricity)
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Customer-centricity (CC) retailing
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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)
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Branded products designed out of customer
research and priced to fill gaps

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Napster
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Working with Dell to have a streaming audio and video
Geek Squad
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Dynex, Init, Insignia, and Rocket Fish
Affordable technological assistance services
Best Buy Mobile and Car phone Warehouse
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Smaller footprints focusing on mobile products and
solutions in US and Europe
Company Overview
( Revenue by Product Group)
FY2005
FY2008
Sales
Sales
CE 38%
Home
Office 34%
Entertain
SW 17%
Appliances
6%
Services
7%
Entertain
SW 22%
Home
Office 34%
CE 38%
Appliances
6%
Product
(Big Box Retailing)
Best Buy - Then
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Big Box large retail
footprints – Everything
under one roof
Standard Operating
Procedures (SOPs)
Best Buy Now
 Introducing Smaller
Foot- Print stores
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Products Sold by category
Organizational Structure
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Competitors are
following suit in
Specialty Markets
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Overall lower costs
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Customer Centricity
Top Down; One P&L
Background/Product
(Customer Centricity)
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Model California Based Test – Skewed Results
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Roll-out: no financial modeling beyond test market
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Aggressive Rollout Plan - 12 labs to 32 pilots to 110 stores
nationwide
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Leveraged prior acquisitions
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Organizational structure - organized to unorganized
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Product mix by solution based on Personas
Competitive Analysis
(Changes in Landscape)

“Big Box” push to increase sells 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
Competitive Analysis
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Audra - can we do a four square on Key
Competitors reduces slides
Amazon Missing?
Competitive Analysis
(Circuit City)
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Out of business - January 2009 Financials????
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CEO blamed demise on “poor macroeconomic conditions”
Unknowledgeable sales staff
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Lack of quality stock (What does this mean – product mix)
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“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
Competitive Analysis
(Wal-Mart)
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Strengths: financials
 Top Retailer in the country - $$$$
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Lost leaders to drive traffic
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Convenience & wide range of products in one store
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Poised to be solid position in a down economy increase of
consumers
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17% margins in the Consumer Electronics (Mid-player) (Strength or
weakness)
Weaknesses:
 Quality and service
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General Merchandiser; not specialized in consumer electronics
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Lack of flexibility as some of it’s more focused competitors due to
large range of products (clothing, food, electronics)
Competitive Analysis
(Dell)
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Strengths: financials
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Customized products
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Reliability, Service and Support
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Other forms of products and services ????
Weaknesses
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Unsuccessful at attracting college segment of market (Is this important?)
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Customers cannot go to retailers for custom-built products
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Lack of use of distribution channels (can’t they go to best buy for a dell?)
Competitive Analysis
(Other Competitors)
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Other competitors have entered consumer electronics
retailer market over time
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Target (isn’t mentioned in the case study?)
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Costco and Sam’s Club (???) what about this and can it go
on another slide
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Large retailers creating more stand-alone shops (remove
on another slide)
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:
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
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TO:
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Still have major customer
segments; grouped by
location more (e.g. DMAs
– cluster 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:
Low priced “big box”
stores playing into highly
competitive arena
Market expansion into
other markets/regions
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Online sales
TO:
 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
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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 the
US
Overall “big box” concept pushing for lower priced
items
Change from Input to Output
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Price of technology, appliances, home office equipment
costs are dramatically reduced between FY2003 and
FY2009
People setting up home offices sustain the growth (these
people also need serviced)
Services are now at 7% of Best Buy’s revenue vs
FY 2005 when it didn’t exist
Down Economy resulted in two competitors out of the
market – more competition from other retailers (e.g. WalMart and Target)
Increase in online purchasing for music, games, etc
impacting entertainment software
Problem Definition
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Implementation of “Customer
Centricity” caused internal conflicts,
increased expenses, and loss of the
common customer experience from an
overall brand image to a fragmented
model
Needs to be refined
The Following slides are real
busy
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Need to decide who will speak to these
sildes
Alternatives Evaluation
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Continue to convert all stores to Customer
Centricity; allow time for concept to mature
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Advantages
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Company already invested resources and time
Instill investor confidence for concept
Gives time for customer to adjust to concept
Disadvantages
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Wal-Mart continues to take market share
Expensive; continue to mount without seeing pay-off
Negative impact on earnings
Solutions and service may not be needed as technology gets
easier
Alternatives Evaluation –
cont’d
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Create a hybrid; continue with Customer Centricity;
group personas/segments to market level instead of
individual store (e.g. DMAs/cluster stores in market)
 Advantages:
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Company already invested resources and time
Not a drastic change; makes concept more mainstream(would increase
investor confidence)
Makes customer experience more uniform by market area
Marketing and promotions less expensive; customized by market not
individual stores
Disadvantages
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Wal-Mart continues to take market share
Wal-Mart, Target, Office Depot can still take away from Best Buy
Still expensive; but not as costly as converting each store (may have an
impact on “technocrats”)
Alternatives Evaluation –
cont’d
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Abandonment of Customer Centricity to SOP
“common” Best Buy (“Big Box”) customer
experience
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Advantages
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Proven customer experience
Less costly
Cohesive brand experience
Economies of scale drives pricing
Disadvantages
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Wal-Mart continues to take market share
Costs associated with model are fixed costs that will impact bottom line
Negative impact on earnings, sales by square foot would continue to
decline
Alternatives Evaluation –
cont’d
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Shift channels of distribution from primarily
offline retail “brick & mortar” to more online
channels
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Advantages
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Less costly way of doing business (staff, operations, real estate)
Gain market without going beyond market saturation point
Create companion user experience
Disadvantages
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Cannibalize retail sales
Greater competition with manufacturers and online retailers
Lose opportunity to “upsell” or provide a solution
Declining market share
Best Alternative Rationale
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Allow time for the concept to mature; continue to convert
all stores
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Heritage of valuing customer relationship
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Prepares for future of industry and competition – Big
Box “price” driven vs Big Box “solution”
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Connects to company values & retains talent/staff
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Localization and segment relate to closer community,
customer, and retail experience
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Creates opportunity for new products and services for
high profit margin sales
Customer-Centric Best Practice
Needs refinement
Best Practice
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“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
Technology Strength (asset
visibility, RFID)
Best Buy
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Yes
Not fully
Yes
Struggled to implement
Yes or no???
Yes, but diminishing
No, higher than optimal to cover
expenses
Struggled with this
No
http://www.redprairie.com/resources/resources_detail.aspx?contentid=de57de32bf5b-4dba-8d1e-938fb2a1ddee&type=7&lid=1
Background (Personas)
Good information for Selection
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Marketers increasingly using personas
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Demographics don’t always explain/predict human behavior
Money being spend by a lot of companies on persona
research
Forrester survey - one in four companies with
revenues above $200M planned to increase spending
on persona research
Persona research can make a dramatic difference
Sources: Howlett, Greg (2007) and Gardener, Elizabeth (2007)
Implementation Plan
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Communicate internally that customer centricity model is
new mode of operation
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Ensure all levels of organziation have “buy-in” - new way
of doing business
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Create task force that reviews strengths/weaknesses of
model; make changes based on recommendations
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Slow down pace of store conversions
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Devise actions for implementation plan
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Calculate how new model is affecting sales per sq foot
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Make adjusts to model as needed
Implementation Plan Time Schedule
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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
Implementation Plan Budget
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RUSS TO ASSIST WITH THIS SECTION –
INCORPORATE SOME BUDGET BULLETS BASED ON
BEST PRACTICE RESEARCH
Need to find out from Russ what he found
Background (Personas)
Good information for Selection
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Marketers increasingly using personas
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
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Demographics don’t always explain/predict human behavior
Money being spend by a lot of companies on persona
research
Forrester survey - one in four companies with
revenues above $200M planned to increase spending
on persona research
Persona research can make a dramatic difference
Sources: Howlett, Greg (2007) and Gardener, Elizabeth (2007)
References to be checked
Industry Overview (Slide 2)
Taylor, Dave (02 June 2008). Intuitive.com business blog annotating a TWICE (This Week in
Consumer Electronics) 2007 review
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
Background (Big Box Retailing) (Slide 9)
Shevory, Christina. “A Recession Play – Mini Versions of Big-Box Stores.” New York Times 19 May
2009, Print.
Background (Evolving Customer Centricity) (Slide 10)
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.
References – cont’d to be
checked
Background (Personas) (Slide 13)
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
Competitive Analysis (Circuit City) (Slide 15)
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/
Competitive Analysis (Dell) (Slide 17)
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