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Best Buy’s Problems Essay

1. After Anderson took over Best Buy in 2002, he pursued four pivotal strategic initiatives, what prompted him to do so – his rationale?

After Brad Anderson became the CEO of Best Buy in 2002 his team of executives came up with and emphasized four main central strategic initiatives, which are customer-centricity, promoting an efficient enterprise, win with providing the best service, and win in entertainment. As we all know, customer-centricity being by far the most important initiative. One major reason that prompted Brad Anderson and Best Buy to come up with these strategic initiatives was the main threat of imitation by competitors for example the emergence of Wal-Mart, Target as mass merchandisers/wholesalers and other forms of retail such as Amazon (online retailers).

In the past, most of Best Buy’s competition focused on customers whose main concern is pricing, without providing anything extra such as advice, support and services. However as the competition began to emulate or imitate Best Buy’s strategy/business model by delving into the higher-end consumer domain (electronics) which is of course Best Buy’s bread n’ butter, Brad Anderson and his team of executives had to come up with a new way to do business by focusing on customer-centricity instead of just focusing on the product (or the selling of it) itself. For example Wal-Mart is poaching or headhunting talented Best Buy salespeople or their rising stars by offering them better benefits which will in turn cause a high turnover rate of Best Buy staff and hinder their sales force and development program. Another reason, which is also vital and in turn prompted change in Best Buy’s strategic initiative is the key concept that the environment or the world we live in as well as the people/customer will continually change.

One who understands this concept will ultimately grasp the fact that people’s needs are constantly evolving and changing over time. For example as mentioned briefly above whereas in the past clients tended to be more function and price-conscious, in the modern world of today customers will tend to value service and support and put more of an emphasis on those elements rather than just the pricing itself so instead of trying to just sell the product/service, a company must in essence place more emphasis on the customers themselves, thus creating a customer-centric worldview by centering on individual needs instead of the “one style fits all” approach and by redefining its value proposition in a coherent way which aligns with the central strategic initiative of customer-centricity.

2. What are the key elements of Anderson’s most important strategic initiative – customer centricity?

One of Best Buy’s core goals is to create a customer-centric culture by developing a better understanding of customer’s needs or requirements and by providing them with attention, care, excellent service and knowledge. Therefore one crucial element in Anderson’s customer centricity strategic initiative is the introduction of customer segmentation. He firmly believed that Best Buy would do well if it could concentrate on the most profitable segments and deter the unprofitable segments altogether. Because of this Anderson aimed to build customer loyalty with the profitable segments and in doing so, the company’s existing assets can then be leveraged. Therefore 5 different customer segments were introduced and implemented; Barry, Buzz, Ray, Jill and BB4B (for businesses) each led by a segment leader whose primary purpose was to deeply understand his/her segment’s buying behavior, attitudes and tendencies, armed with insight into consumer needs. By focusing on customer segmentation, Best Buy can come up with or improve its system and products catered to the specific needs of each group thereby also enhancing differentiation to meet long-term trends or needs.

Another key element in Best Buy’s customer centricity model is the concept of Best Practice Sharing and instead of just focusing on the selling of the product, staff (sales) must also focus on offering customers solutions. For example instead of just offering to sell a single product, the informed staff can offer to sell the “whole deal” such as video conferencing, digital signage, and technology lifecycle management packaged altogether for a business client. Because of this I believe that HR has a very important role to play in providing development/training programs for the employee as well as identifying and recruiting “star” employees, providing them with the benefits so that their services can be retained on a long-term basis.

A central element in Best Buy’s customer centricity initiative is a change in its labor force or model. Because of this new specialized positions were added into the Best Buy labor force. So instead of solely having skilled salespeople, Best Buy also employs Geek Squad agents (technology experts valuable to small businesses and well equipped to deal with the BB4B Best Buy for Business segment), home-theater/technological product installers, and even personal shopping assistants. This focuses on extensive training regarding the different customer segments, addresses the need to recognize the different necessities of many types of customers and also finally to identify customers most likely to buy which product from a particular segment/domain (scope). In addition to the change in labor force or model, leveraging prior acquisitions is also an important element in Best Buy’s customer centric ideology. By leveraging the two, Best Buy can pool its resources and put its customers first and in turn offer them more options as well as solutions. Customer relationships can also be leveraged to create customer loyalty fostering long-term relationships with the client.

For the sake of brevity I would like to briefly mention the last important element in Best Buy’s customer centric ideology/strategy, which is the empowering element. This calls for empowering sales staff to make wholesome, informed merchandizing decisions. With a proper training and development programs, employees can use their knowledge about customer behavior, form hypotheses and test it out in a real world setting to see what works. After they can discuss about the results and if something yields favorable results (promoting and meeting a variety of needs with more choices for customers), new ideas can be implemented to promote and attain the perfect customer experience and customer satisfaction. By empowering its employees new and worthy ideas can be attained. The ever-comprehensive Best-Buy reporting system and its “chalk-talks” are also vital in obtaining important information (customer centric vs. non-centric stores) and trends as well as teaching its employees good business practices.

3. How would you recommend Brad Anderson for further actions?

I believe that Best Buy’s problem lies in its function of a flawed business model, which in turn led to a function of poor execution. The poor model being where the merchant organization, segment/domain leaders, and GMs were forced to coexist and work wholly together as a business group. Before the customer centricity initiative kicked in, the merchant organization was in charge of everything such as buying, pricing, marketing/merchandizing, etc. The new model however forced merchants to work together with segment leaders. This in turn forced the merchants to switch out of their comfort zone and take a more holistic view of the business, focusing more on customer needs. The company’s growth path now expected merchants to put the customer first and foremost and grow the business by offering more than just the product itself, it must also identify customer trends.

While the merchant organization was used to controlling everything, now they have to listen to and work with the segment leaders who have all the insight regarding customers, where they tended to focus on the opportunity solely from the consumer’s point of view. Ron Boire (VP & GM) himself believed that their loss in the third-quarter results was because there was no camaraderie between the three business units (GMs, Merchants, and Segment leaders). Coexistence between the business units is difficult, therefore contributing to a flawed model.

For positive further action, one thing Anderson could do is eliminate the risk of fragmentation altogether. Fragmentation can lead to a “focus on everything” strategy, which in turn can harm the business by trying to do too much, and wasting away valuable resources. It should concentrate and have at all times 3-5, but never more than 5 customer segments, which will create confusion and loss of focus. Best Buy should ultimately focus its assets on its “angel” group or most profitable customer niche. For example it can separate its most successful segment that being BB4B (Best Buy for Business) and establish an individual unit. This is because that segment in itself can be a separate yet focused unit because it will inevitably also encompass various segments in the business as well, cross-cutting.

Another element that Best Buy can focus on is (I know that this has been said and done over and over again) having a proper staff development program in place, which of course, focuses on customer centricity. I’m sure this element is and has been addressed before however I would like to emphasize the importance of having a proper system to measure the results of the program itself. Training can be done repeated again however what is most important is that there is a system that directly measures the results of effects of staff development initiative.

Another way to go would be to cut costs and heavily promote online sales. Best Buy has been slow in capturing the online market share. It also has to improve its image as it suffers from price comparison issues. Best Buy should ultimately focus on these factors, which it is of course currently doing in its “Renew Blue” strategy:

* Reinvigorate the customer experience. Best Buy’s plans include offering customers unique benefits and exclusive membership programs, and continuing to develop a “leading edge, multi-channel shopping experience through a highly relevant and effective system.

* Attract and grow “transformational leaders” who will inevitably energize employees to deliver “extraordinary results.”


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