Best Buy Rolls Out Customer-Centricity Program
May 7, 2004 2:41 PM PT
Whether it is CDs or refrigerators, megaretailer Best Buy believes it has the best deals in consumer electronics, home-office products, entertainment software and home appliances. And it wants customers to keep buying by putting them at the center of what it does.
The nearly US$25 billion company announced that it just finished almost a yearlong test of its "customer-centricity" program in 32 stores. During the next year, Best Buy plans to spread the customer-centric gospel to 110 more North American stores and to allocate $50 million in capital expenditures to those stores.
CRM industry analyst Denis Pombriant said that it is not clear which of the two customer-centric approaches Best Buy is targeting -- getting customers to buy what is already in stock, or asking them what products they would like to see the company offer.
"It appears to me that the 'buy what we have in stock' approach is at play here, and there's an assumption the manufacturer or someone else already asked the customer about needs and preferences," Pombriant told CRM Buyer.
Regardless of the approach, the pilot program shows promise. The 32 stores piloting the initiative showed seven percent sales gains over other U.S.-based Best Buy stores, while their "close rates" -- or percentage of shoppers who make a purchase -- also improved by six percent over these other stores.
Although selling, general and administrative costs, including nonrecurring and investment costs, rose considerably, the pilot program still delivered profits for the 32 stores over nonparticipating stores. These test stores also represented a mix of high- and under-performing operations.
Best Buy's consumers may have to decide whether the company's centricity initiative and tailored offerings are compelling enough for them to spend their money helping the giant retailer gain market share and improve financial results. Only by keeping customers continuously engaged can the company sustain the effort.
Best Buy has more than 600 stores across North America, with heavy concentration in Florida, Illinois, Texas and California. It also operates more than 100 stores under the banners of Future Shop in Canada and Magnolia Audio Video in the Western United States. The company opened its first Hawaiian store in January 2004 and plans to open 72 more branches across the United States by the end of the year.
Every week Best Buy "talks" to 50 million homes via its advertising inserts in Sunday editions of major metropolitan newspapers. The retailer has said it wants frequent interaction with its customers.
Best Buy has identified key customers in five areas of its customer-centricity program: affluent professionals seeking the best technology experience; younger males wanting cutting-edge technology and entertainment; fathers looking for technology to improve their lifestyle; mothers who seek technology to enrich their children's lives; and small-business people using technology to improve their bottom lines.
Best Buy is taking other steps, including implementing an adaptive operating model and giving those employees closest to the customer some of the more important decision-making responsibilities. This business model may involve variations in product offerings, customer service, promotions and even store design that could affect the Best Buy brand.
In addition, Best Buy store associates are receiving customer-centricity training and are being taught the importance of metrics for measuring the results of all investments in terms of segment growth revenue and return on capital investment.
Where's the Kiosk?
According to Pombriant, the kiosks with which the company was said to be experimenting were absent from its discussion. He explained that kiosks offer a great way to collect "voice of the customer" information and then provide it to trained sales representatives who can approach the customers once they are "qualified" and having trouble choosing between options.
Best Buy says it is focusing key executives on the effort and plans to make investments in corporate level capabilities that will facilitate its customer-centricity rollout, including supply chain management and CRM systems. Still, given the company's projected growth, the centricity initiative will only cover about one store in five by next February when its fiscal year ends.
What remains to be seen is whether or not Best Buy customers believe the retailer is committed to sustaining a customer-centricity push that they find compelling, or if it's merely lip-synching buzzwords.