Best Buy Presentation - Robert Paul Ellentuck

7/29/2019 Best Buy Presentation - Robert Paul Ellentuck

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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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Audra - can we do a four square on KeyCompetitors reduces slides

Amazon Missing?


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(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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(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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(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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(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


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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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


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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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

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Best Buy Presentation - Robert Paul Ellentuck