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 OHier, J. (2009); Pressler,

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

35

Gross
Margin
(%)

25

22

81

18

17

Cash ($B)

Debt (%)

11

16

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

Circuit
Wal-Mart City

Revenue
($B)

61

40

374

12

Not
Available

Gross
Margin
(%)

19

24

15

21

Not
Available

Cash ($B)

10

47

Not
Available

Debt (%)

21

Not
Available

CDW
Corp

Source: United States Securities and Exchange Commission via their web (2009) and Spinali, L. and
OHier, J. (2009)

Company Overview
Grab and Go
New Logo1989
Best Buy Becomes
Sound of Music
company name - 1983
1967- St. Paul, MN

Best Buy Sale @ SOM

tornado hit 9 Stores -1981

Global Expansion - Asia,

Europe, Mexico, Turkey
2003-present Fortune 500 Top Co
Customer #56 - $45 Billion
Centricity 2009
Implemented

2nd Largest Consumer Best Buy Mobile stores &

Geek Squad to Europe
Electronics Retailer - 1993
2003
CEO Dunn

Public Offering $33.6M

12 Stores - 1986

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

replaces
- 2003 retiring
Fortune names Best Buy Anderson
Top 10 performing stock,
2009
2000

Company Overview
(Consumer Driven)

We believe that focusing on customers' needs

generates growth opportunities

At Best Buy, we aspire to be a responsible, valuesdriven 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

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

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

FY2005

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

Competitive Analysis
Out of Business
CEO blamed demise on poor
macroeconomic conditions
Unknowledgeable sales staff
Late to the game with Firedog
customer service business, didnt
resonate with customers as well as
Best Buys 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 cant 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

SWOT Analysis
Strengths

Weaknesses

Heavily driven customer

satisfaction/customer service based
Standard Operating Procedures;
guaranteed standard experience
across network
Valued, trained, rewarded workforce
Central corporate structure/territory

Opportunities

Threats

Centricity; max profit in high-end

products and solutions
Solution based to increase sales of
products and services

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

Low priced big box stores playing

into highly competitive arena
Market expansion into other
markets/regions

TO (2009):

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

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

Threats to Opportunities
TO (2009):
FROM (2005):
Low priced big box
stores playing into
highly competitive
arena

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 CustomerCentricity caused
internalorganizational
conflictsand itincreasedoperating
expenses, which led to aloss of
the overall brand image and
fragmentation.
Theorganizationhad lost focus
during the implementation process
resulting in the overall goal

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
contd
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

Customer-Centric Best
Practice
Adoption rate among stores

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

high
Best
FoundBuy
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-CentricRetail 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

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 OHier, 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 OHier, 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

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-elector
nics-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.h
tml#
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_comp
uters
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-CentricRetail 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-retai
l-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

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 6months 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 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 mix and competition. Gail Sidibe made it a point that two of Best Buys
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 wasnt 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.