Running head: An Analysis on Best Buy's Customer-centric Innovation 1

Unit 2 Assignment A:

An Analysis on Best Buy's Customer-centric Innovation

Hoang T. Nguyen

Globe University

October 22, 2010

Running head: An Analysis on Best Buy's Customer-centric Innovation 2

Abstract

To sustain and increase the company’s position in marketplace, in 2004,

Best Buy innitiated its customer-centric innovation. With this initiative, Best Buy

became a best practice for customer-centric innovation in retail industry.

This article is an analysis on Best Buy's customer-centric innovation. In

this article, the author explains some possible reasons for the innovation and the

author's opinion about the approach that Best Buy used to put customer-

centricity concepts into actions. Regarding to this approach, the author also puts

forward some risks and problems that Best Buy may encounter during the

expansion of this initiative. In according to the author, Best Buy should analyze

these risks and problems to apply appropriately corrective actions to improve the

effectiveness of the innovation.

Keywords: Best Buy, customer centricity, innovation, segmentation

Running head: An Analysis on Best Buy's Customer-centric Innovation 3

In 2004, Best Buy initiated its customer-centric innovation. This initiative

quickly became one of the best practices for customer-centric innovation in the

market, especially in retail industry.

The key factor leading to Best Buy's customer-centric innovation would be

the company's vision that is stated "Making life fun and easy". This vision is

supported by values among which "Show respect, humility, and integrity" and

"Unleash the power of our people" had the greatest impact on the initiative. To

show respect to its customers, the company decided to use the concept of

"customer in charge" in 1989. The idea behind this concept was "customer do

not want to be sold, they want to buy" and customer-centric approach perfectly

fitted this concept. Moreover, in 1989, Best Buy began to put their sales forces on

salary instead of paying commission. This change created a need for sustaining

the sales force's productivity. As the customer-centric innovation encouraged

Best Buy's people to contribute more to the company, it helped Best Buy unleash

its people's creativity to serve customers better.

Another reason for Best Buy's customer-centric innovation is that it met

the company's demand for sustaining and increasing the company's position in

the marketplace. One of Best Buy's weaknesses was its dependence on North

America market. The event of Sept 11th 2001 "sapped demand across the

industry" and thus "sent Best Buy's stock plunging". In addition, other competitors

such as Wal-Mart and Cosco increased their electronics offerings and improved

their market. Meanwhile, Best Buy faced pressure from Wall Street to make a
Running head: An Analysis on Best Buy's Customer-centric Innovation 4

20% annual growth rate. Because of the market saturation, the company had to

seek for solution to maximize its revenue and customer-centric approach

appeared to be the best choice.

The successes that Best Buy gained during the innovation indicated that

customer-centric innovation is one successful approach to Pareto's rule. At Best

Buy, customer-centricity bases on careful market segmentation and detailed

analysis on buying patterns of each segment. Before implementing the approach,

the company had noticed that "31% of customers drive 80% of the company's

revenue". Best Buy also pointed out the five different segments those drive the

majority of its revenues. These segments were named Barry, Jill, Buzz, Ray and

Mr. Storefront. Based on this analysis, Best Buy redesigned its stores and re-

allocated its resources to meet the demands of key segments in the location of

the stores.

However, customer centricity does not necessarily mean redesigning

entire stores to appeal to certain narrow segments. As of its definition, customer

centricity refers to "an approach to doing business in which a company focuses

on creating a positive consumer experience at the point of sale and post-sale".

Therefore, this concept focuses on the key factor that underlies marketing

activities: customer satisfaction. Best Buy redesigned their stores to serve its

target customers better. However, the critical factor for its success is its improved

talent system that helped recognize and reward employees for their unique talent

rather than the redesigned stores.

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Instead of investing millions dollars in redesigning entire stores, Best Buy

could have done differently to be customer-centric. For example, Best Buy could

spare some space at each store for technical consulting purpose. If customers

are technical people, they will not drop by this space to seek for advice. If one

customer needs help with their problems, the technical consultants will show

them possible solutions and give recommendations. This technical space would

be equipped with models and simulation applications that make the

recommended solution visible and understandable to the customers. By doing

this, Best Buy could have considerably saved redesigning costs for the whole

store while improving customer experience.

Customer centricity is an innovative approach to marketing. It is necessary

for businesses to create competitive advantage over their competitors. Because

it is market-driven, the approach itself is not too risky. However, the way Best

Buy implemented this approach in reality may show certain risks. Specifically,

redesigning its stores to appeal to certain narrow market segments may put the

company at some risks as follows:

- The company may lose customers for its competitors when the

demographic description of an area changes. Because each store is

designed to appeal to the certain segments in the area, if these segments

get smaller while others get bigger, the store will lose customers.

- Huge amount of money may be spent for redesigning to catch up

with demographic change to attract the profitable segments. Unless the

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company is willing to give up a number of customers to its competitors, it

will have to spent lots of money updating the store design to fit the new

demographic description of the area.

As demographic description is subject to change, Best Buy's customer-

centric approach may cause some possible problems. First, this approach may

lead to the inflexibility in staff allocation. For example, the customer assistants at

a store designed for Jill and Buzz will focus on their Jills and Buzzes rather than

other customers. In certain cases or on certain occasions, the increase in

number of other customers such as Barry, Ray or small business will cause the

temporary personnel shortage.

Second, the problem would be the low customer satisfaction. Because of

the customer-centric approach, each store gives much focus on predetermined

customers and hence low satisfaction is very likely to happen. At the present,

CustomerServiceScoreBoard.com ranks Best Buy's customer service 133 out of

315 companies. This rank is remarked "disappointing" because there are much

more complaints than positive feedbacks. Unless Best Buy quickly takes

appropriately corrective action to improve the implementation of its strategy, this

practice will result in other impacts on the company's operations.

In an article titled "Customer-centric Markets Are a Must", C.D. Hobbs

wrote, "Customer-centricity is a philosophy that can guide a company to

success". Best Buy has been the outstanding practitioner who put this philosophy

into actions to sustain and increase the company's position in the retail market.
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Even though the efforts has paid off and the company has tended to expand this

innovation to all the store system, Best Buy's approach to this philosophy has

shown some risks and problems that the needs corrective actions of the

company to improve the effectiveness of implementation.

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Reference:

Best Buy - Customer Ratings and Comments (n.d.). In Customer Service Score

Board. Retrieved from http://www.CustomerServiceScoreboard.com

Boyle, M. (2006). Best Buy's Giant Gamble. Fortune. Retrieved from

http://money.cnn.com

Customer-centric (n.d.). In Business Dictionary. Retrieved from

http://www.businessdictionary.com/definition/customer-centric.html

Datamonitor (2008). Best Buy Co, Inc. Retrieved from Retrieved from Business

Source Premier database.

Fair Isaac Corporation (2009). Best Buy Plugs into the Power of Customer

Centricity. Retrieved from http://www.fico.com

Hobbs, C. D. (2002). Customer-centric Markets Are a Must. Power Economics,

Vol. 6 Issue 6, p. 12. Retrieved from Business Source Premier database

Smith, S. (2004). Best Buy Gives Details on 'Customer Centricity'. TWICE.

Retrieved from http://www.twice.com

Stopper, B. (2006). Best Buy: Customer-centric innovation. HR. Human

Resource Planning, Vol. 29, Issue 3, pp. 34-37