CS6

Marketing Excellence Best Buy

Best Buy is the world’s largest multichannel consumer electronics retailer, with

$45 billion in sales in fiscal 2013. Sales boomed in the 1980s as the company

expanded nationally and made some risky business decisions, like putting its

sales staff on salary instead of commission. This decision created a more

consumer-friendly, low-pressure shopping atmosphere and resulted in an

instant spike in overall revenues. In the 1990s, Best Buy ramped up its

computer product offerings, and by 1995 it was the biggest seller of home

PCs, a powerful market position during the Internet boom.

At the turn of the 21st century, Best Buy faced new retail competitors,

including Costco, Walmart, and Target, which boosted their electronics

divisions and product offerings and often priced lower than Best Buy. The

company believed the best way to differentiate itself from the competition was

to emphasize customer service by selling product warranties and offering

personal services like home delivery and installation. Its purchase of Geek

Squad, a 24-hour computer service company, proved profitable and

strategically wise as home and small-office networks became more complex

and the need for personal computing attention increased. By 2004, Best Buy

had placed a Geek Squad station in each of its stores, providing consumers

with personal computing services in multiple channels: in the stores, online, on

the phone, and at home.

Best Buy also segmented its broad customer base into a handful of specific

targets such as the affluent tech geek, the busy suburban mom, the young

gadget enthusiast, and the price-conscious dad. It used extensive research to

determine which segments were the most abundant and lucrative in each

market and configured its stores and trained its employees to target those

shoppers. For example, stores targeting affluent tech geeks offered a separate

home theatre department with knowledgeable salespeople on location. Stores

with a high volume of suburban mom shoppers offered personal shopping

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assistants to help Mom get in and out as quickly as possible with the exact

items she needed.

Sometimes a store experienced a new type of lucrative customer. For

example, in the coastal town of Baytown, Texas, the local Best Buy observed

frequent visits from Eastern European workers coming off cargo ships and oil

tankers. These men and women used their precious free time to race over to

the store and search the aisles for Apple’s iPods and laptops, which were

cheaper in the United States than in Europe. To cater to this unique consumer,

the store rearranged its layout, moving iPods, MacBooks, and their

accessories from the back to the front, and added signage in simple English.

The result: Sales from these European workers increased 67 percent.

Best Buy is hailed for growing into a $50 billion company virtually through one

channel. However, in recent years, the company has struggled to maintain its

retailing dominance. One reason is that consumers no longer have the same

interest in large television sets, computers, or entertainment centers that took

up so much retail space in years past. In addition, “showrooming” has become

a problem, in which consumers visit stores to look, touch, and test out the

products but leave empty-handed and purchase online instead. In fact, online

retailers like Amazon.com have become Best Buy’s biggest competitors in

recent years. The company’s overall market share in electronics and

appliances is 16 percent, but it has only a 7 percent market share online. In

comparison, Amazon’s overall market share in electronics/appliances is 4

percent, but it is the market leader online, with a 21 percent market share.

Best Buy has acknowledged that it was slow to respond to category and

channel shifts and was too focused on a single channel strategy when

consumers’ behaviors were changing. As a result, sales slipped, customer

satisfaction declined, and stock value went with it. To turn things around, the

company hired a new CEO who implemented a strategic initiative in 2013.

“Renew Blue” was developed to reinvigorate and rejuvenate the customer

experience. Online, Best Buy put a huge emphasis on improving the

consumer’s experience with faster and easier navigation tools, more

competitive pricing, and relevant product offerings. The company also started

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shipping many of its online orders directly from nearby store locations, which

improved delivery time and inventory turns.

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Within its 1,477 domestic retail stores, Best Buy integrated a new optimization

layout, which allocated additional space to growing and more profitable

products like smart phones and reduced space for declining categories like

entertainment. The company also plans to decrease the number of large

stores it operates and increase the number of smaller, mobile stores.

As Best Buy evolves from a single-channel to a multichannel retailer, it faces

many opportunities to grow its business even further. The U.S. consumer

electronics and appliance market is a $228 billion industry, and the company is

making changes to compete better and capture more market share. With so

many storefronts across the nation, Best Buy has a competitive advantage

and can leverage these assets as it expands into more channels.

Questions

1. What were the keys to Best Buy’s success? What are the challenges it

faces in today’s retail environment?

2. How else can Best Buy compete against retail competitors like Walmart

and Costco as well as online competitors like Amazon.com?

Sources: .Jena McGregor, “At Best Buy, Marketing Goes Micro,” Businessweek, May

15, 2008; Matt Richtel, “Last Man Standing,” The New York Times, July 17, 2009;

Matthew Boyle, “Best Buy’s Giant Gamble,” Fortune, March 29, 2006; Millstein, “Best

Buy’s Quest to Master Customer Centricity,” Chain Store Age, December 2007; Ann

Zimmerman, “Best Buy Plays Web Hardball,” Wall Street Journal, October 12, 2012;

Walter Loeb, “Best Buy in Turmoil, Will It Survive?,” Forbes, August 22, 2012; Paula

Rosenblum, “Can Best Buy Survive and Are Its Problems Really All about Amazon?,”

Forbes, August 12, 2013; Margaret Bogenrief, “Best Buy Is Pulling Off an Incredible

Turnaround,” BusinessInsider, July 30, 2013; NPD, Nielsen, Stevenson Traqline, Best

Buy internal analysis, “Renew Blue,” Best Buy Analyst and Investor Day presentation,

November 12, 2012; BestBuy.com, 2012 Annual Report.

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