Best Buy gives a face to customer-centricity

DSN Retailing Today, May 17, 2004 by Laura Heller

NATIONWIDE DSNRT REPORT--As big-box retailers grow bigger and the task of finding qualified associates becomes harder, one of the first things to suffer is a chain's ability provide consistently strong customer service. To address this issue--and to fend off critics--many chains have placed customer service atop their published list of priorities, a tactic that doesn't always manifest itself in substantive change.

Now one chain, Minneapolis-based Best Buy Co., the nation's leading consumer electronics retailer, is taking its customer initiative to a whole new level. During a two-day analyst meeting in Los Angeles earlier this month, Best Buy unveiled the details of its customer centricity program, including its origins, progression and results.

The program, which is meant to propel the company forward in terms of sales and differentiation, has been described by Best Buy ceo Brad Anderson as "revolutionary." The company began testing the program in 32 stores last fall, which are already reporting comp-store sales 7% above the chain average, along with an increase in gross margin, average ticket size and close rates.

Based on a concept developed by Larry Selden, professor of finance and economics at Columbia University Graduate School of Business, customer centricity is meant to help Best Buy get a greater share of market from existing customers, and acquire currently undervalued and highly lucrative new customers by first defining them, identifying locations that serve them and empowering store employees to execute the program.

To this end, the retailer has segmented its customers into four groups, each with a corresponding name.

"Ray" represents Best Buy's existing customer base, a middle- to upper middle-income married man who is on a budget and also shops at discount department stores. For Ray, the retailer is offering a wider variety of financing options at favorable terms.

"Buzz" is the young, tech-savvy early adopter who already shops Best Buy for games and entertainment software, but might go someplace else for advanced technology. Buzz wants, and with customer centricity he gets, a livelier more interactive store. "Buzz is an important future customer," said Al Lenzmeier, president and coo. "We hope Buzz grows up to be Barry."

"Barry" is an affluent professional who typically comes to Best Buy for entertainment software but frequents higher-end specialty stores for his hardware needs. For Barry, Best Buy has built a home entertainment showroom, added higher-end products not typically found at its stores, enhanced home services to include same-day installation and dressed employees in shirts and ties. Specialists in the home theater area have business cards and direct lines.

Jill, the suburban soccer mom, may have already been shopping Best Buy for entertainment as well as household needs and items for her kids. To claim a higher share of her dollars, the chain reworked coloring in the stores, reduced the volume, put products important to her--such as digital imaging, up front--instituted play areas for kids and has personal shopping assistants.

Each store that follows the customer centricity format will focus mainly on one of the four customer types. For example, a suburban store may be a Jill-centric store, while a more urban unit might be a Barry or Buzz store.

The retailer is also going after the small business market, estimated at $58 billion, of which it currently holds a 4% market share. "Best Buy for Business" identifies small business opportunities within each trading area, features merchandising sets and products to this group, and promotes its Geek Squad services as an IT resource for the small business. Employees in this area also wear shirts and ties, have business cards and are available for personalized service.

And service is really what will determine centricity's success. The initiative hinges on the company's ability to empower store-level employees, including part-timers, and early results have been impressive. Each morning, staff participates in a detailed analysis of the prior day's results, including sales, close rates, average selling price, units sold and total return on invested capital.

"What's NOPAT?" asked a store manager. "Net operating profit after taxes!" responded employees, sounding more like MBAs than part-time hourly wage earners. Without implementing a commissioned pay structure, performance incentives afford employees the opportunity to make up to twice as much as before. Analysts touring the store with DSN Retailing Today likened the atmosphere to that of Southwest Airlines and other companies identified as best-in-class employers.

And in the test stores, decentralizing some merchandising decisions and giving staff the tools to perform up to and beyond expectations is yielding results. At the Westminster, Cal., store near Huntington Beach, revenue has increased 150% over the control stores, while ROIC jumped 130%. Comp-store sales are up 30% and margin increased by two basis points.