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Best Buy Marketing Case Study
Robert Paul EllentuckEMBA 2011Marketing Management
Professor Hassan16 October 2009
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COPYRIGHT 2011
ROBERT PAUL ELLENTUCK
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Industry Overview Industry
Big box concept
Specialty Store - Consumer Electronics Segment
Major Players for Consumer Electronics 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 largepurchases
Consumer base evolving from technological novices to technicalcompetent
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Industry Overview Big Box push to increase sells of high margin
products
Emphasis evolved to offering service and support tocustomers
Consumers now focusing more on price over serviceand support
Popularity of online purchasing increased; free
shipping and delivery Big box concept declining; scaled-down version of
stores emerging
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Top 5 CE Merchandiser 10Ks
Select Category Comparisons2003
10KCategory
1.Best Buy
2.Wal-Mart
3.eBay
4.Dell
5.Amazon
Revenue($M) 21 256 2 35 5
GrossMargin (%)
25 22 81 18 17
Cash (%M) 2 5 1 4 1
Debt (%) 11 16 2 3 90
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Top 5 CE Merchandiser 10Ks
Select Category Comparisons2008
10KCategory
1.Dell
2.Best Buy
3.Wal-Mart
4. CircuitCity
5. CDWCorp
Revenue($M) 61 40 374 12 NotAvailable
GrossMargin (%)
19 24 15 21 NotAvailable
Cash (%M) 10 2 47 1 NotAvailable
Debt (%) 2 6 21 6 NotAvailable
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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
CustomerCentricityImplemented2005
Fortune names Best BuyTop 10 performing stock,2000
Best Buy Mobile stores &Geek Squad to Europe
2003
Global Expansion - Asia,Europe, Mexico, Turkey
2003Fortune 500 Top Co#56 - $45 BillionFY2009
CEO Dunn replacesretiring Anderson
2009
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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 a
customer isn't just looking for a product, but a solution orexperience that improves her life.
Ranked highest in customer satisfaction among national andmulti-regional from 2009 report by J.D. Power and Associates
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Background
(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 and video
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
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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%
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Product
(Big Box Retailing)Best Buy - Then
Big Box large retailfootprints Everythingunder one roof
Standard OperatingProcedures (SOPs)
Products Sold by category
Organizational Structure Top Down; One P&L
Best Buy Now
Introducing SmallerFoot- Print stores
Competitors arefollowing suit inSpecialty Markets
Overall lower costs
Customer Centricity
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Background/Product
(Customer Centricity) Model California Based Test Skewed Results
Roll-out: no financial modeling beyond test market
Aggressive Rollout Plan - 12 labs to 32 pilots to 110 storesnationwide
Leveraged prior acquisitions
Organizational structure - organized to unorganized
Product mix by solution based on Personas
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Competitive Analysis
(Changes in Landscape) Big Box push to increase sells of high margin
products
Emphasis evolved to offering service and support tocustomers
Consumers now focusing more on price over serviceand support
Popularity of online purchasing increased; free
shipping and delivery Big box concept declining; scaled-down version of
stores emerging
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Competitive Analysis
Audra - can we do a four square on KeyCompetitors reduces slides
Amazon Missing?
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Competitive Analysis
(Circuit City) Out of business - January 2009 Financials????
CEO blamed demise on poor macroeconomic conditions
Unknowledgeable sales staff Lack of quality stock (What does this mean product mix)
Late to the game with Firedog customer service business,didnt resonate with customers as well as Best Buys GeekSquad
Unfortunate position Mid-level Player
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Competitive Analysis
(Wal-Mart) Strengths: financials
Top Retailer in the country - $$$$
Lost leaders to drive traffic
Convenience & wide range of products in one store
Poised to be solid position in a down economy increase ofconsumers
17% margins in the Consumer Electronics (Mid-player) (Strength orweakness)
Weaknesses: Quality and service
General Merchandiser; not specialized in consumer electronics
Lack of flexibility as some of its more focused competitors due to
large range of products (clothing, food, electronics)
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Competitive Analysis
(Dell) Strengths: financials
Customized products
Reliability, Service and Support
Other forms of products and services ????
Weaknesses Unsuccessful at attracting college segment of market (Is this important?)
Customers cannot go to retailers for custom-built products
Lack of use of distribution channels (cant they go to best buy for a dell?)
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Competitive Analysis
(Other Competitors) Other competitors have entered consumer electronics
retailer market over time Target (isnt mentioned in the case study?)
Costco and Sams Club (???) what about this and can it goon another slide
Large retailers creating more stand-alone shops (removeon another slide)
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SWOT AnalysisStrengthsHeavily driven customersatisfaction/customer service based
Standard Operating Procedures; guaranteedstandard experience across network
Valued, trained, rewarded workforce
Central corporate structure/territory
WeaknessesCustomer Centricity model fragmented byindividual store locations
Creation of unified sales force more costly inother markets
Valued, trained, rewarded workforceexpensive to replicate across other markets
Turf battles /Lack of synchronizationbetween business units
OpportunitiesCentricity; max profit in high-endproducts and 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: CC model fragmentedby individual store
locations Creation of unified salesforce based on CC morecostly in other markets
Valued, trained,rewarded workforce
expensive to replicateacross other markets
Turf battles /Lack ofsynchronization betweenbusiness units
TO: Still have major customer
segments; grouped by
location more (e.g. 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:
Low priced big box
stores playing into highlycompetitive arena
Market expansion intoother markets/regions
Online sales
TO:
Sell products with
services and solutions;Best Buy also has theirown brands
Best Buy startedexpansion into China in
2003 Best Buy now also
multiple 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 and
expands externally because they hit saturation in theUS
Overall big box concept pushing for lower priced
items
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Change from Input to Output Price of technology, appliances, home office equipment
costs are dramatically reduced between FY2003 andFY2009
People setting up home offices sustain the growth (thesepeople also need serviced)
Services are now at 7% of Best Buys revenue vsFY 2005 when it didnt exist
Down Economy resulted in two competitors out of themarket more competition from other retailers (e.g. Wal-Mart and Target)
Increase in online purchasing for music, games, etcimpacting entertainment software
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Problem Definition Implementation of Customer
Centricity caused internal conflicts,
increased expenses, and loss of thecommon customer experience from anoverall brand image to a fragmentedmodel
Needs to be refined
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The Following slides are real
busy Need to decide who will speak to these
sildes
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Alternatives Evaluation Continue to convert all stores to Customer
Centricity; allow time for concept to mature
Advantages Company already invested resources and time
Instill investor confidence for concept
Gives time for customer to adjust to concept
Disadvantages Wal-Mart continues to take market share
Expensive; continue to mount without seeing pay-off
Negative impact on earnings
Solutions and service may not be needed as technology getseasier
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Alternatives Evaluation
contd Create a hybrid; continue with Customer Centricity;
group personas/segments to market level instead ofindividual store (e.g. DMAs/cluster stores in market)
Advantages: Company already invested resources and time
Not a drastic change; makes concept more mainstream(would increaseinvestor confidence)
Makes customer experience more uniform by market area
Marketing and promotions less expensive; customized by market not
individual stores
Disadvantages Wal-Mart continues to take market share
Wal-Mart, Target, Office Depot can still take away from Best Buy
Still expensive; but not as costly as converting each store (may have animpact on technocrats)
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Alternatives Evaluation
contd Abandonment of Customer Centricity to SOP
common Best Buy (Big Box) customer
experience Advantages
Proven customer experience
Less costly
Cohesive brand experience
Economies of scale drives pricing
Disadvantages Wal-Mart continues to take market share
Costs associated with model are fixed costs that will impact bottom line
Negative impact on earnings, sales by square foot would continue todecline
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Alternatives Evaluation
contd Shift channels of distribution from primarily
offline retail brick & mortar to more online
channels Advantages
Less costly way of doing business (staff, operations, real estate)
Gain market without going beyond market saturation point
Create companion user experience
Disadvantages Cannibalize retail sales
Greater competition with manufacturers and online retailers
Lose opportunity to upsell or provide a solution
Declining market share
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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 forhigh profit margin sales
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Customer-Centric Best PracticeNeeds refinement
Best 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 Organizational Behavior
Technology Strength (assetvisibility, RFID)
Best Buy
Yes
Not fully
Yes Struggled to implement
Yes or no???
Yes, but diminishing
No, higher than optimal to cover
expenses Struggled with this
No
http://www.redprairie.com/resources/resources_detail.aspx?contentid=de57de32-
bf5b-4dba-8d1e-938fb2a1ddee&type=7&lid=1
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Background (Personas)
Good information for Selection Marketers increasingly using personas
Demographics dont always explain/predict human behavior
Money being spend by a lot of companies on personaresearch
Forrester survey - one in four companies withrevenues above $200M planned to increase spendingon persona research
Persona research can make a dramatic difference
Sources: Howlett, Greg (2007) and Gardener, Elizabeth (2007)
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Implementation Plan Communicate internally that customer centricity model is
new mode of operation
Ensure all levels of organziation have buy-in - new way
of doing business
Create task force that reviews strengths/weaknesses ofmodel; 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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Implementation Plan -
Budget RUSS TO ASSIST WITH THIS SECTION
INCORPORATE SOME BUDGET BULLETS BASED ONBEST PRACTICE RESEARCH
Need to find out from Russ what he found
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Background (Personas)
Good information for Selection Marketers increasingly using personas
Demographics dont always explain/predict human behavior
Money being spend by a lot of companies on personaresearch
Forrester survey - one in four companies withrevenues above $200M planned to increase spendingon persona research
Persona research can make a dramatic difference
Sources: Howlett, Greg (2007) and Gardener, Elizabeth (2007)
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References to be checkedIndustry Overview (Slide 2)
Taylor, Dave (02 June 2008). Intuitive.com business blog annotating a TWICE (This Week inConsumer Electronics) 2007 review
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
Background (Big Box Retailing) (Slide 9)
Shevory, Christina. A Recession Play Mini Versions of Big-Box Stores.New York Times 19 May2009, Print.
Background (Evolving Customer Centricity) (Slide 10)
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.
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References contd to be
checkedBackground (Personas) (Slide 13)
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
Competitive Analysis (Circuit City) (Slide 15)
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/
Competitive Analysis (Dell) (Slide 17)
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