best buy marketing case study - robert paul ellentuck

7/29/2019 Best Buy Marketing Case Study - Robert Paul Ellentuck

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Best Buy Marketing Case Study

Robert Paul Ellentuck

EMBA 2011

Marketing Management

Professor Hassan

16 October 2009


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COPYRIGHT 2009

ROBERT PAUL ELLENTUCK


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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 OHier, J. (2009); Pressler, M.W. (2004)


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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


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Top 5 Consumer Electronics

Merchandiser Comparisons

2003

10K

Category 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)


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Top 5 Consumer Electronics

Merchandiser Comparisons

2008

10K

Category Dell Best Buy Wal-Mart

Circuit

City 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 OHier, J. (2009)


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Company Overview

Sound of Music

1967- St. Paul, MN

Best Buy Sale @ SOM

tornado hit 9 Stores -1981

Public Offering - $33.6M12 Stores - 1986

Best Buy Becomescompany name - 1983

Grab and GoNew 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-presentFortune 500 Top Co#56 - $45 Billion2009

CEO Dunn replacesretiring Anderson

2009

Source: Bestbuy.com, Fortune (5/4/09)


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Company Overview

(Consumer Driven) We believe that focusing on customers' needs generates

growth 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 or

experience 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)


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Company Overview

(Evolving Customer Centricity) Customer-centricity (CC) retailing

Embraced by broad range of organizations

Uses insights from analytics to identify/understand core group ofvalued 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 proposition

Source: Biggs, John (2009)


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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/videocomputer

Geek Squad

Affordable technological assistance services

Best Buy Mobile and Car phone Warehouse

Smaller footprints focusing on mobile products and solutionsin US and Europe

Source: Bestbuy.com, Sidibe, G (10/7/09 )


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Company Overview( Revenue by Product Group)

FY2008

Sales

CE 38%

Home

Office 34%

Entertain

SW 17%Appliances

6%

Services

7%

FY2005

Sales

Entertain

SW 22%

Home

Office 34%

CE 38%

Appliances

6%

Source: Bestbuy.com 10 K(FY2008), (FY2005)


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Product

(Big Box Retailing)Best Buy Then (2005)

Big Box large retailfootprints Everythingunder one roof

Standard OperatingProcedures (SOPs)

Products Sold by

category

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)


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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 110stores nationwide

Leveraged prior acquisitions (e.g. Geek Squad)

Organizational structure - organized to unorganized

Product mix by solution based on Personas


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Competitive Analysis

Out of BusinessCEO blamed demise on poormacroeconomic conditionsUnknowledgeable sales staffLate to the game with Firedog customerservice business, didnt resonate withcustomers as well as Best Buys GeekSquadUnfortunate position Mid-level player

Top retailer in the countryLost leaders in drive trafficConvenience & wide range of products inone store17% margins in CE (Mid player)Quality and serviceGeneral merchandiseLack of flexibility

Dell

Customized productsReliability, Service and SupportCustomers cant go to retailers forcustom-built products

Huge global brandCustomer Relationship Management andI T support business strategyAddition of new categories to businessmay hurt brandMay need to reconsider free shipping tocustomers

Sources: Spolsky, Joel (2009), Kavilanz, Parifa (2009), Cuizon, Gwendolyn (2009) and www.marketingteacher.com


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SWOT AnalysisStrengthsHeavily driven customersatisfaction/customer service based

Standard Operating Procedures;guaranteed standard experience acrossnetwork

Valued, trained, rewarded workforce

Central corporate structure/territory

WeaknessesCustomer 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

OpportunitiesCentricity; max profit in high-end productsand solutions

Solution based to increase sales ofproducts and services

Expansion of CC model into all U.S. stores

ThreatsLow priced big box stores playing intohighly competitive arena

Market expansion into othermarkets/regions

Online sales


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Weaknesses to StrengthsFROM (2005): CC model fragmented byindividual store locations

Creation of unified salesforce based on CC morecostly in other markets

Valued, trained, rewarded

workforce expensive toreplicate across othermarkets

Turf battles /Lack ofsynchronization betweenbusiness units

TO (2009): Still have major customer

segments; grouped by

location more (eg. DMAs-cluster stores in market)

CC model working ifsolutions are sold;revenues justify expense

CC model working if work

force is trained to sale;upsell a customer & salesolution

Corporate needed to seesegment leaders mutuallybenefitted from CC model


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Threats to OpportunitiesFROM (2005):

Low priced big box

stores playing into highlycompetitive arena

Market expansion into

other markets/regions

Online sales

TO (2009):

Sell products with

services and solutions;Best Buy also has theirown brands

Best Buy startedexpansion into China in

2003

Best Buy now alsomultiple online channels


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Linking Internal and External Organization changing at same time as industry is

changing; 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


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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 )


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Problem DefinitionImplementation of Customer-Centricity

caused internal organizational

conflicts 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.


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Alternatives EvaluationA. Continue to convert all stores to

Customer Centricity; allow time for

concept to mature

B. Create a hybrid; continue with

Customer Centricity; grouppersonas/segments to market levelinstead of individual store (e.g.DMAs/cluster stores into local market)


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Alternatives Evaluation contd

C. Abandonment of Customer Centricityto SOP common Best Buy (Big

Box) customer experience

D. Shift channels of distribution from

primarily offline retail brick &mortar to more online channels forcost efficiencies


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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 for

high profit margin sales


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Customer-Centric Best PracticeBest Practice

Last mile retail

Localization Assortment

Outperform peers

Supply Chain inclusive

Six weeks or less of inventory

Above average annual salesincreases, year-to-year

Promo to Supply Pricing(Optimization)

Overcome OrganizationalBehavior

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 annualsales, but diminishing

No, higher than optimal to coverexpenses

Organization struggled and now isempowered

Source: Baird, N. and Kilcline, B. (2008). The New Customer-Centric Retail Supply Chain: Benchmark Report 2008.Copyright RSR Research, LLC. All rights reserved.


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Customer Centricity

Personas Marketers increasingly using personas

Identify mindset and goals of customers/Better predictorhuman behavior Some companies report 400% conversion

rate

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 )


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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


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Implementation Plan -

Time Schedule One year for implementation based on

when 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


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ReferencesIndustry Overview (Slide 2)

Lal, R., Knoop, CC-I., and Tarsis, I. (October 2006). Best Buy Co., Inc.: Customer-Centricity. HarvardBusiness School, exhibit 4a

Spinali, L. and OHier, 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. HarvardBusiness School, exhibit 4b

Spinali, L. and OHier, 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.


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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 May2009, Print.


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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 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 Report2008. Copyright RSR Research, LLC. All rights reserved.


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ReferencesPersonas (Slide 24)

Howlett, Greg. Developing Personas to Boost Your Retailing Success.Marketing Pilgrim. 13November 2007. Marketing Pilgrim, Web. 4 Oct 2009.http://www.marketingpilgrim.com/2007/11/developing-personas-to-boost-your-retail-

success.htmlGardner, 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


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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 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 wasnt 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 Buys 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.

.


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References (Interview) contMichelle 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 wasnt 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.

best buy marketing case study - robert paul ellentuck

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