Best Buy Co., Inc: Sustainable Customer Centricity Model

Best Buy is the largest national electronics chain and the only one that remains since the closing of Circuit City in 2009 and Comp USA before that. Founded in St Paul, Minnesota in 1966 as the Sound of Music Store, it was rebranded as Best Buy in 1983 with a single flagship store in Burnsville, Minnesota. By 1993, Best Buy had become the United States second-largest consumer electronics retailer, breaking into Fortune magazine’s annual ranking of top 500 companies two years later at number 373. A partnership with Microsoft in 1999 help to boost the company’s profile and lead to the opening of its first retail store in Shanghai which was followed by stores in Canada, Mexico, Turkey, and nine European countries (Lowe, 2008 May 8).

Best currently operates 1,105 big box stores in the United States. In addition to personal computers, computer equipment, and consumer video and audio products, Best Buy outlets, which are on average 44,000 square feet in size, also offer large and small appliances, and entertainment software that includes DVD’s, compact discs, video games, and computer software (Funding Universe, n.

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d.). Best Buy’s subsidiaries include Geek Squad, Magnolia Audio Video, Pacific Sales, and in Canada, it operates under both the Best Buy and Future Shop labels.

Best Buy differentiates itself from its closest competitors, Walmart and Amazon.com, by not focusing on low cost products but by switching from an aggressive commission-based system of service to highly trained sales associates and service solutions. Having a well-trained staff who can educate the customers regarding product features, allows the customer to make informed buying decisions on big-ticket items.

In addition, with Geek Squad capabilities available in-store, Best Buy is able to provide installation services, product repair and on-going support for these or other items the customer purchases (Hill & Jones, 2013, pC22). This end-to-end solution is one aspect that separates Best Buy from its competitors.

This is also one of the many strengths Best Buy currently possess’. Best Buy’s customer centricity approach is key in its survival and is something often missing from their competitors. Best Buy takes the time to understand who its customer is and what they need. They then took this information and started selling solutions instead of just products.

Best buy also changed the layout of the store based on customer feedback. This included bundling together related products, offering installation help for all electronics, and improving store productivity by adding more technology experts to the sales floor and deploying touch screen monitors with product information. Future plans also include a 10% reduction in US square footage over the next 3 to 5 years. A reduced floor plan will not only be more cost efficient but will provide an overall easier shopping experience for the customer (Briggs, 2011 April 14). Customer centricity is necessary in today’s competitive market and it is a concept Best Buy continues to excel at.

One of Best Buy’s weaknesses includes the decline of net income and operating margins. Although this could be a function of increased costs, it is more likely due to pricing pressure (Hill & Jones, 2013, pC20). The economic decline and consumer pressure has forced the prices of consumer electronic products to be lowered. This decrease in prices has caused the decline in margins which negatively affect net income and operating margins. Another area of concern is the increase in accounts receivable and inventory. Best Buy had a 1% increase in inventory from 2008 to 2009 and a 12.5% increase in revenue accompanied by a 240% increase in accounts receivable (Hill & Jones, 2013, pC20). This creates a potential risk for losses due to bad debts. Best Buy is weak in their ability to quickly adjust inventory level to the demand, in order to reduce costs related to inventory. Best Buy did not recognize the economic downturn and was not successful in adjusting their inventory levels (Sienna College, 2009 April 17). This is an area for improvement for Best Buy as the economic downturn has created an oversupplied market.

Best Buy’s best opportunities lie in their series of acquisitions into their Best Buy family. Best has gained valuable experience in the process of integrating new companies and service providers with their keen ability to know where to expand and is a key component in their ability to differentiate their company from others in the marketplace (Hill & Jones, 2013, pC23).

Best Buy also has room for opportunities as they have expanded upon their global presence. This global presence exceeded expectation late in 2009 with a 15% uptick in international sales. European stores experienced a 4% gain in same store sales, while Best Buy’s China store sales jumped 34% (Lindner, 2010 March 25). This global presence also opens up opportunities to trace global technology trends first hand and opens the door to newly developing markets. It also provides a wide range of places to test and introduce new products and analyze customer needs.

Best Buy faces many threats beginning with the economic decline. Today’s customer has less disposable income and Best Buy sells luxury goods and not necessity items. The future of the economy including consumer confidence, unemployment, tax rates, fuel costs, and the availability of consumer credit are all factors that could affect consumer spending and Best Buys earnings.

Another concern for Best Buy is increased competition particularly from online competitors like Amazon.com. Amazon has an advantage over Best Buy because they are able to maintain a lower cost structure compared to a brick and mortar store like Best Buy and can push those savings through to their product pricing and selection. With an increasing trend in the consumer electronics industry to shop online, Amazon.com is positioned perfectly to maintain strong market growth and potentially steal some market share away from Best Buy (Hill & Jones, 2013, pC22). Best Buy will have to continue to differentiate themselves from their internet competitors with their unmatched customer centered model of business.

Based on the findings of the SWOT analysis, Best Buy should continue to develop and implement their customer centricity model. This customer based model creates better customer satisfaction, promotes growth, and creates a unique experience. On the other side, Best Buy needs to address their decline in net operating income. This means cashing in on opportunities such as expanding their global presence which has had much success in generating profits. Best Buy should also be conscientious of their inventory levels in comparison to revenue increase. They need to adjust for the economic downturn while continuing to offer a good mix of products accompanied with superior service.

Best Buy needs to stay on top of technology trends in order to keep up with online sales threats from Amazon.com and others. Best Buy’s focus should be on the continual improving of the in-store shopping experience that currently differentiates them from competitors like Amazon. This means added customer service, technology experts, and services that take the customer from the initial purchase all the way through installation and use.

Best Buy’s corporate level strategy revolves around their customer centricity model and is the core of their company mission and goals. To implement this strategy and achieve a competitive advantage, Best Buy maintains a wide variety of products to meet customer needs but also goes beyond the initial sale into service offerings. Best Buy has used their customer centricity model, which is built around a significant database of customer information, to construct a diversified portfolio of product offerings (Hill & Jones, 2013, pC22).

This vital database allows Best Buy to structure customer needs to the locations they are requested, which in turn helps keep costs lower by shipping the correct inventory to the correct locations. This is important because it helps to offset the extra costs required to provide high-level training to sales associates and service professionals. This structuring of inventory is a large part of their business-level strategy and is advantageous for Best Buy because each market contains the products most desired and avoids items not sought after by customers.

Best Buy’s customer based structure is only as strong as their greatest service professional and staff member. Best Buy recognizes this and invests a lot into their employees. Best Buy has a reputation for retaining their talent and is widely recognized for superior service. Highly trained sales professionals, like the members found at Best Buy stores, have become a unique resource in the consumer electronics industry, where technology is changing at an unprecedented rate, and this is a significant source of competitive advantage for Best Buy (Hill & Jones, 2013, pC23).

Currently, Best Buy has recently gone through an organizational change due to the departure of CEO Brian Dunn, U.S. retail chief Mike Vitelli, and chief administrative officer Tim Sheehan. New CEO, Hubert Joly, is in the process of outlining new strategies that will strengthen operations and financial performance. He has stated that he will continue to build on their strong customer service model and their multi-channel shopping experience (Best Buy News Release, 2012 November 13). While this falls in stride with Best Buy’s previous strategy, Joly has also stated that Best Buy has been slow in capturing their fair share of the online channel. This leads me to my first recommendation, having a larger e-commerce presence.

While Best Buy can’t duplicate their high-level customer service experience found in-store they can expand on sales by offering a broad range of products online. From here, customers can be invited to visit stores in person for services that may aide in the set-up and installation of products purchased online. I also recommend that Best Buy address their issues with outstanding debt by temporarily halting expansion and focus on their current strengths. While acquisitions have been very profitable for Best Buy, they may want to slow down temporarily as the economy starts to recover and consumer spending slowly begins to increase.

While Best Buy has faced a lot of hardship in recent years, they also have made smart strategic decisions that have kept them pliable. Best Buy’s new leadership has a lot to work with and should also introduce fresh organizational change that will help propel Best Buy into profitable territory.

References
Best Buy News Release. (2012, November 13). Best buy holds analyst and investor day to provide assessment of the company and to outline priorities to reinvigorate performance and rejuvenate its business. Retrieved from http://pr.bby.com/phoenix.zhtml?c=244152&p=irol-newsArticle&ID=1758160&high