Best Buy Marketing Case Study Robert Paul

slide1. Best Buy Marketing Case Study Robert Paul Ellentuck
EMBA 2011
Marketing Management
Professor Hassan
16 October 2009<br>
slide2. COPYRIGHT © 2009
ROBERT PAUL ELLENTUCK<br>
slide3. 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 technologically competent

Sources: Lal, R., Knoop, CC-I., and Tarsis, I. (October 2006;, Spinali, L. and O’Hier, J. (2009); Pressler, M.W. (2004)<br>
slide4. 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<br>
slide5. Top 5 Consumer Electronics Merchandiser Comparisons 2003 Source: United States Securities and Exchange Commission via their web (2009) and Lal, R. , Knopp, CC-I., and Tarsis, I, (October 2006)<br>
slide6. Top 5 Consumer Electronics Merchandiser Comparisons 2008 Source: United States Securities and Exchange Commission via their web (2009) and Spinali, L. and O’Hier, J. (2009)<br>
slide7. Company Overview Sound of Music
1967- St. Paul, MN “Best Buy” Sale @ SOM
tornado hit 9 Stores -1981 Public Offering - $33.6M
12 Stores - 1986 Best Buy Becomes
company name - 1983 “Grab and Go”–
New Logo-
1989 2nd Largest Consumer
Electronics Retailer - 1993 Customer Centricity
Implemented - 2003 Fortune names Best Buy
Top 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 Billion
2009 CEO Dunn replaces
retiring Anderson
2009 Source: Bestbuy.com, Fortune (5/4/09)<br>
slide8. 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)<br>
slide9. 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)<br>
slide10. 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 )<br>
slide11. Company Overview( Revenue by Product Group) FY2008 FY2005 Source: Bestbuy.com 10 K(FY2008), (FY2005)<br>
slide12. 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 Best Buy Now (2009) Introducing Smaller Foot- Print stores
Competitors are following suit in Specialty Markets
Overall lower costs
Customer Centricity Source: Shevory, Christina (2009)<br>
slide13. 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<br>
slide14. Competitive Analysis Sources: Spolsky, Joel (2009), Kavilanz, Parifa (2009), Cuizon, Gwendolyn (2009) and www.marketingteacher.com<br>
slide15. SWOT Analysis<br>
slide16. 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. 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<br>
slide17. Threats to Opportunities FROM (2005):
Low priced “big box” stores playing into highly competitive arena

Market expansion into other markets/regions

Online sales TO (2009):
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<br>
slide18. 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<br>
slide19. 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 )<br>
slide20. 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.<br>
slide21. Alternatives Evaluation Continue to convert all stores to Customer Centricity; allow time for concept to mature

B. 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)<br>
slide22. Alternatives Evaluation – cont’d C. Abandonment of Customer Centricity to SOP “common” Best Buy (“Big Box”) customer experience

D. Shift channels of distribution from primarily offline retail “brick & mortar” to more online channels for cost efficiencies<br>
slide23. 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<br>
slide24. 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.<br>
slide25. 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 )<br>
slide26. 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<br>
slide27. 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<br>
slide28. 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.<br>
slide29. 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-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.<br>
slide30. 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.<br>
slide31. 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-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<br>
slide32. 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.
.<br>
slide33. 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.<br>