Case Study 8-003

March 2008

Engineering the Experience for Best Buy’s Magnolia Brand By Susan Fournier and Joshua Kampel

In December 2000, Best Buy acquired a 13–store west coast retailer of high end audio and video products, Magnolia Hi-Fi Inc., for $87M. This purchase set Best Buy on a growth through acquisition path (see Exhibit 1) and began to build the portfolio of brands that the $27.3 billion Minnesota-based company would use to reach and service various segments of the market. Per Best Buy’s highly publicized Customer Centricity Program, the brand allowed the company access to the “Barry’s” and “Jill’s” of the world, two highly promising target segments.1 2

Best Buy’s Magnolia acquisition was part of a broader strategy for success in an increasingly polarized and competitive retailing market. A trend in home improvement and office supplies retailing involved the elimination of specialized Mom and Pop stores by large big box retailers that could offer better prices and a wider selection. This same trend had hit the consumer electronics (CE) category where products were becoming commoditized and margins were shrinking. The trend posed both an opportunity and a threat to Best Buy.

The CE landscape was truly changing. Specialty stores that once controlled the market now found themselves in competition with mass merchandisers offering the benefits of low prices and one-stop shopping. In 2007, although Best Buy continued to hold the #1 CE retailer spot with an 18% share, Wal-Mart ranked a solid second, claiming a 14% share, mostly in the commodity CE sector.3 Pharmacies, too, had recently joined the game, providing impulse opportunities for bargain-priced electronics. Marking an incredible shift in distribution strategies, CVS took the 49th rank position in TWICE magazine’s 2007 Top 200 Consumer Electronics Retailers list. With stiff competition from companies like Wal-Mart and Target, and the coincident growth of on-line merchants like Amazon.com, smaller independents were unable to

                                                            1 “Best Buy to Tailor Different Stores to Types of Customers,” Associated Press, May 19, 2004 2 Anita Elberse, John Gourville, and Das Narayandas (2005), Angels and Devils: Best Buy’s New Customer Approach,” HBS Case No. 506-007, Boston: Harvard Business School Publishing 3 Alan Wolf, “Best Buy, Wal-Mart Grew CE Share in Q3,” TWICE Magazine, October 26, 2007

  

compete on price point. And a large, healthy segment of the population seemed quite willing to make trade-offs between service and price.

Best Buy knew that the self-service, warehouse style “big box” format didn’t cater to all CE customers. Internal company research showed that about 1/3 of Best Buy store visitors left dissatisfied, in part because the store’s broad focus did not meet individual needs.4 With continued technological innovation in the category, some consumers were putting more emphasis on service and support and less on the technical aspects of products. While most electronics were easy to use, their interaction required specific knowledge that few possessed. Per Best Buy’s segmentation research, the “Barry’s” and “Jill’s” of the world (see Exhibits 2 and 3) appreciated the augmented CE product: knowledgeable sales staff, higher levels of service, a more personal and experiential shopping experience. The growth of alternate formats put undeniable pressure on specialty retailers, like Magnolia, to deliver the increased value expected from a boutique store.

The changing dynamics of CE retail were further magnified by one of the biggest consumer electronic events in recent times: the introduction of the plasma TV. The 1997 introduction of flat panel television by Pioneer and the high definition (HDTV) format stimulated revenue growth within the CE category. Still, with increasing competition from low margin channels, the average price of flat panel TVs fell by 40% between 2002 and 2006. Specialty retailers responded with attempts to supplement burgeoning sales with higher-margin complementary items and services. The strategy was to capture additional margin by selling “solutions” rather than just “products.”

To remain the leading electronics retailer in the U.S., Best Buy had to sell more high-margin products and sell more to existing customers by developing a better understanding of customer requirements and lavishing them with attention, service, and know-how. Adding more stores was no longer a strong growth option as penetration was reaching the saturation point. Enter the Magnolia brand.

From the time of the acquisition through 2007, Best Buy sought to leverage the Magnolia brand and business model by deploying Magnolia Home Theater within 300+ select Best Buy locations.5 The store-within-a-store format, while maximizing traffic and offering a variety of operational and marketing efficiencies, also introduced various brand challenges that management had yet to confront.

A Brief History of Best Buy

Best Buy began as a single high quality audio electronics store under the name Sound of Music in 1966 in St. Paul, Minnesota. By 1983, Sound of Music had grown to 8 stores and changed it’s name to Best Buy: a play on words concerning a sale of damaged inventory the company was forced into in the wake of a tornado in the flagship store. To compensate for eroding margins in the maturing audio market and broaden its audiophile customer base, Best Buy opened its first super store with an expanded product line including audio and video equipment, cameras, microwaves, and large appliances. Best Buy went public in 1985 and in 1989 introduced the “grab and go,” warehouse-style store that soon became a mainstay in electronics retailing. Continued organic growth placed Best Buy as North America’s second largest consumer electronics retailer in 1993 and on Fortune’s list of the 500 Largest American corporations in 1995.

                                                            4 Ken Cottrill, “Best Buy’s Customer Facing Supply Chain,” Harvard Business Review, December 2005 5 Alan Wolf, “Best Buy Lays Out Its Best-Laid Plans” TWICE Magazine, April 18, 2005

  

Best Buy turned to an acquisition strategy to fuel further expansion at the turn of the millennium. With the acquisition of Magnolia Hi-Fi Inc. (2000), Canada-based electronics retail chain Future Shop (2001), Audiovisions and Pacific Sales (2005), and Jiangsu Five Star Appliance stores in China (2006), Best Buy now operated 1,170 stores in the US, Canada, and China offering a wide variety of branded video games, mobile phones, computers, car electronics, movies, music, digital cameras and camcorders, and appliances. In 2002, Best Buy expanded beyond traditional CE retail for the first time and added Geek Squad to its House of Brands to provide service support for PC and Audio/Video customers. The company repeated this strategy in the first quarter of 2007 with the acquisition of Pacific Sales Kitchen and Bath Center, a high-end home improvement products retailer with fourteen locations in California. Pacific Sales Kitchen and Bath excelled in working with home builders to put the latest technologies into consumers’ kitchens and baths. In 2007, Best Buy was a $35B retailer with a global portfolio of brands; the reigning top retailer of consumer electronics in North America.6 Per the company’s 2007 Annual Report, Best Buy remained committed to growth and innovation:

Best Buy employees strive to provide customers around the world with superior experiences by responding to their unique needs and aspirations. This commitment to growth and customers has driven strong, consistent earnings growth. Retail is a business that requires constant innovation, new ideas, new ways to delight our customers, and new ways to work together. To meet the unique product and service needs of our customers, our stores and operating models are being transformed to shift our focus from being product-centric to customer-centric: a move that poises Best Buy to truly offer the entertainment and technology solutions that meet our customers' needs, end-to-end.7

Best Buy’s Retailing Strategy

Analysts attributed much of Best Buy’s success to its skillful merchandising and retailing (See Exhibits 4 and 5). With its 23-foot high ceilings and over 40,000 square feet of retail space, Best Buy stores contained a broad selection of name brand products in four categories: consumer electronics (38% of total revenue in FY05), home office (34% of revenue), entertainment software (22%), and appliances (6%).8 Nearly 33% of the total merchandise offered at Best Buy came from five suppliers—Sony, Hewlett-Packard, Toshiba, eMachines, and Samsung—granting the company scale purchasing advantages.9

Best Buy products were merchandised by category giving the customer the ability to compare products sided by side; merchandising and displays were eye-catching and innovative. Departments, labeled by signage suspended from the ceiling, offered a variety of brands spanning a wide range of price points (See Exhibit 6). Using a warehouse-style retailing format, Best Buy provided most inventory so that after selecting a product, customers could bring it directly to the cash register without interacting with a sales associate. The self service environment provided benefits to convenience-driven shoppers and those who knew exactly what they wanted, while also delivering directly to the company’s bottom line.

                                                            6 Best Buy Annual Report 2007 7 www.bestbuynewscenter.com 8 Rajiv Lal, Carin-Isabel Knoop, amd Irina Tarsis, “Best Buy Co., Inc: Customer-Centricity, “ HBS Case No. 9-506-055, Harvard Business School Publishing 9 www.BestBuy.com

  

In fiscal 2000, Best Buy established their first online shopping site, BestBuy.com. The clicks-and-mortar strategy was designed to empower consumers to research and purchase products seamlessly, either online or in the retail stores. The BestBuy.com online shopping site offered expanded assortments in all principal product groups. According to the company’s 2007 Annual Report, “Revenue from online operations increased 36% in fiscal 2007 and added to the overall comparable store sales increase captured that year.”

In 2005, as part of the CEO’s mission to make the company “more customer driven,” Best Buy executed an aggressive rollout of 144 new “centricity” stores: revamped retail formats designed to offer targeted value propositions to one or two distinct target segments (refer to Exhibits 2 and 3). The new format was a departure from Best Buy’s winning retail formula and required adjustments in Best Buy’s operating model, talent pool, and organization. Best Buy revenue growth, which jumped more than $10 billion to $35.9 billion in 2007, underscored the on-target success of the company's new strategy. During the first years of roll-out, Customer Centricity stores outperformed their regular counterparts on such metrics as gross margin, comparable-store sales and sales per square foot.10 In fiscal 2007, based on the segmented stores’ operating results as well as positive customer feedback, Best Buy completed the transition of all remaining Best Buy stores to the Customer Centricity model. John Thompson, senior VP and general manager of BestBuy.com, commented on the outlook for continued out-performance: “While growth has been enormous and earnings enviable, the job of learning how to cater to today's customers is far from over and also far from easy. We still have a way to go in mastering customer centricity. It is a vision the company acknowledges holds much more potential than it we have come close to achieving at this time.”

The highly-trained and motivated sales force known inside Best Buy as “The Blue Shirts” provided another competitive advantage within the retailing environment. A central idea behind the company’s centricity strategy was for sales associates to become the customer’s “smart friend” who could provide “complete solutions.”11 This required salespeople who could get inside the target consumer’s psyche, demystify relevant but complex electronic products for them, and convince consumers of the benefits of bundling hardware, software, and accessories. Blue Shirts were monitored and measured every hour the stores were opened, and rewarded accordingly. Associates often received on-the-spot restaurant vouchers for superior performance, and could buy company stock at discount prices.

Magnolia Hi-Fi

In 1954, Len Tweten opened Magnolia Stationers and Camera Shop in the Magnolia district of Seattle. As the years passed, Len's love of music and his enthusiasm for the new field of high fidelity grew. By the mid-Sixties Len’s transition to an audio specialty business was complete and the business was renamed Magnolia Hi-Fi. The company thrived as a result of its hard-earned reputation for high quality products at fair prices, backed by a consistent and highly-personalized dedication to complete customer satisfaction.12

When acquired by Best Buy in 2000, Seattle-based Magnolia operated thirteen very high-end specialty stores in Washington, Oregon, and California and generated more than $100 million in annual revenues from the sale of audio, video, and home theater products and services. Best Buy hoped to leverage Magnolia's experience as a high-end retailer catering to early adopters and technology innovators, thus                                                             10 Alan Wolf (2005), “Best Buy Lays Out Its Best-Laid Plans,” TWICE, April 18,Vol. 20, Issue 9, p. 20 11 Michael Copeland, “Best Buy’s Selling Machine,” Business 2.0, July 1, 2004 12 www.magnoliahifi.com

  

gaining a strategy for maximizing sales early in the product life cycle when profits were at their peak. The Magnolia acquisition would also provide Best Buy with access to an upscale merchandise mix that was previously denied to Best Buy. The fact that Magnolia focused on high-end audio and video products also allowed it to cater to consumers who largely would not shop at Best Buy stores even if there were one in the area. Whereas retailers often picked up other chains as a real estate play with the intention of refitting stores as namesake units, Best Buy was looking to have multiple formats under several different names throughout the marketplace. By acquiring and retaining the Magnolia name, the company believed it could operate two distinct formats serving two separate and lucrative populations side-by-side.13 Len’s son Jim Tweten was kept on as CEO of the new Best Buy subsidiary.

Between 2000 and 2005, Best Buy opened 20 free-standing Magnolia Audio Video stores in California, Washington, and Oregon. The stores averaged 9,700 square feet of retail space.14 While Magnolia stores occupied less than 1% of Best Buy total retail square footage, they generated average revenue of about $8.0 million per store in fiscal year 2007, up from $6.9 million in 2006.15 Magnolia Audio Video stores were typically managed by a store manager, and audio/video sales manager, and if the store included mobile products, a mobile electronics sales manager. Depending on the store’s volume and product offerings, staffing included six to eight commissioned sales personnel and one to three hourly personnel. Corporate management for Magnolia Audio Video centrally controlled advertising, merchandise purchasing and pricing, as well as inventory policies.

In 2006, the company shifted its strategy, closed six underperforming stand-alone stores, and introduced Magnolia Home Theater as a part of the Best Buy retail experience. Best Buy CEO Anderson recalled that he and Jim Tweten had observed customers walking back and forth between a Magnolia and a Best Buy store positioned about 200 yards apart. Anderson thought it would make sense to join the stores: “We tested the idea and the results just hit the ball out of the park right away.”16 Over the ensuing three years, Best Buy opened over 300 Magnolia Home Theatres in high potential “Barry” stores across the U.S. According to the company’s 2007 Annual Report, “the stores-within-a-store leveraged Best Buy’s customer traffic to educate consumers regarding the latest offerings and premium brands along with custom installations. This approach resonated with consumers and catapulted Best Buy to #1 among high-end consumer electronics retailers in the country.” In CY 2007, Magnolia generated $160 million in top-line revenue. The company planned to open an additional 50 stores-within-a-store in fiscal year 2008.

The typical 7,000 square foot Magnolia Home Theater store-within-a-store offered two product groups—consumer electronics and home office equipment. The stores retained many of the design and service elements of the free standing Magnolia Audio Video locations: lower ceilings, ambient lighting, and earthy colors simulated the home viewing environment (See Exhibit 7). Jim Tweten described Magnolia’s merchandise mix: “Best Buy’s highest priced product is typically the low-end product at Magnolia. Where Best Buy leaves off, we begin. We do not participate in the commodity end of the business.”17 Products were grouped into three categories: low, middle and high-end (See Exhibit 8). Entry-level systems ranged from $1,500 to $2,500, and the majority of sales were in the mid-range, where speakers stared at $1,000 per pair. Higher-end products included $10,000 amplifiers, $3,500 speaker cables, German-made televisions, and hand-built Italian speakers made with cured woods and granite bases. Most products

                                                            13 Anonymous (2001), “Forward-thinking Strategy Lays Groundwork for Longevity,” DSN Retailing Today, Vol. 40, Issue 1A, p. 28,31 14 A World of Opportunity, Best Buy Fiscal 2007 Annual Report 15 Ibid. 16 Lal et. al., p. 6 17 Laura Heller (2001), “Magnolia Fills Out Best Buy Family,” Discount Store News, 40 (7), p.5.

  

were displayed as part of a complete solution, in many cases set up with furniture and other home accessories to represent living rooms and dens. A meeting room that was used to go over blueprints and product choices for custom jobs reportedly made “Microsoft’s boardroom look like a fourth grade classroom.”18 Custom installation projects could cost upwards of $0.5M including labor and $100,000 in home theatre equipment. Installations made up about 15% of Magnolia sales and comprised the fastest growing part of the business according to Tweten.19

Magnolia customers were not sold equipment: the goal was to have them walk out the door with complete audio/video solutions, including a television, complimentary audio, installation service, and an extended service warranty. Although consultative selling was handled by a dedicated and commissioned sales and support staff in the stand-alone Magnolia Audio Video locations, Magnolia Home Theatre stores leveraged Blue Shirt support staff as part of the company’s shift to a customer centricity strategy in 2005. Select Magnolia products were also accessible through Best Buy’s e-commerce website to maximize sales (See Exhibit 9).

In August 2007, Best Buy announced that it would address increasing demand for home entertainment design options by offering lifestyle design company Maria Yee's contemporary home media furniture in seventy Best Buy Magnolia Home Theater stores in New York and Los Angeles. Drawing on the Best Buy customer centricity philosophy, Maria Yee designed the EcoLuxury(TM) furniture line exclusively for Best Buy. According to Yee, the three-item line of technologically-advanced, easy to use, and environmentally-responsible contemporary furniture featured the form and function desired by today's home theater consumer. A Magnolia Home Theater customer herself, Yee visited numerous Magnolia locations, and spent hours documenting the wants and needs of customers. She then married her design expertise with the technical features Magnolia customers said they wanted but could not find in available market options. "As more and more people have invested in new high-definition and flat panel televisions, Best Buy has seen a significant increase in demand for furniture to accompany and properly showcase these high-end purchases," said Mike Mohan, vice president of consumer electronics at Best Buy. "Our customers are looking for complete end-to-end product solutions for their home entertaining needs and the Maria Yee furniture line is an ideal fit that matches trend-setting product design with technology and function to bring out the best in HDTV and sound systems."20

The Geek Squad

Geek Squad Inc. was founded by Robert Stephens in 1994 while he was a student at the University of Minnesota. Geek Squad comprised an independent group of service technicians brought together to provide computer tech support services in Minneapolis and later, Chicago and Los Angeles. In 2000, Best Buy contracted with Geek Squad to revamp its in-store computer repair service, which was handled through regional repair centers at the time and stood as a source of nagging dissatisfaction with the firm. Happy with its results, Best Buy acquired The Geek Squad in 2003 to provide 24-hour computer-related services for residential and commercial Best Buy clients. The Geek Squad was well-situated to address Best Buy’s BB4B small business customer segment, a target for incremental growth.

The Geek Squad worked both in-store and on-site in customer’s homes or businesses, and also provided 24-hour telephone support. Geek Squad “agents” wore a standardized uniform of white, short-sleeved

                                                            18 ibid 19 ibid 20 Anonymous, “Best Buy To Offer Maria Yee EcoLuxury(TM) Furniture Line for Magnolia Home Theater Customers,” Business Wire, August 1, 2007.

  

shirt, clip-on black tie, black skirt or pants, and a special agent’s badge. Counter-intelligence agents were based in Best Buy stores while special agents traveled out to small businesses and consumers’ homes. Double agents, of course, did both, and covert agents handled issues over the phone. Agents drove Geekmobiles, turbo-charged Volkswagen Bugs. (See Exhibit 10)

By 2007, Best Buy employed over 10,000 Geek Squad Agents. Agents were available in every U.S. and Canadian store. The Geek Squad helped customers find optimal product configurations for their needs, explained the benefits of technology offerings, and provided computer network installation service, server maintenance, and computer troubleshooting support.

In 2007, as part of the company’s objective to make Geek Squad the premier national technology repair, support and installation service provider brand, Best Buy opened sixteen stand-alone 1,500-3,000 square foot Geek Squad offices in major market in U.S. and Canada. According to Chain Store News, who granted the concern a “Retail Store of the Year” Award, “The multifunctional space utilized a design that captured the essence of the Geek Squad brand, bringing a user-friendliness and approachability to the often daunting world of computer problems. The environment was clean, simple, and well-organized, marked by seamless integration of areas for service, sales, repair, and training. Crisp white floors, walls and ceilings conveyed an atmosphere of precision, expertise, and utilitarianism, while salespeople costumed in geek clothing added tongue-in-cheek drama to the experience.”21

In 2007, Geek Squad officially added Magnolia Home Theater Installation teams as well as Best Buy Mobile Installers to create a unified “Total Services” offering assembled under the Geek Squad brand. In line with the re-branding, Magnolia Home Theater installers switched from their blue uniforms to grey and orange shirts with black pants. All "Magnolia Home Theater Installation" branding was also replaced by "Geek Squad Installer Units" branding at this time. Under the Geek Squad brand, all services previously offered by Magnolia Home Theatre were still available, though the appointment setting process was changed. Magnolia clients now contacted 1-800-Geeksquad for all home theater services. Employee reactions to the change were mixed.22

The State of the Magnolia Brand

Despite the promises of its strategies and plans, CY 2008 was proving to be a tough year for consumer electronics retailing and Best Buy. On February 16, 2008, the company slashed its profit and revenue forecasts for fiscal 2008, warning that a weak economy would mean fewer sales of flat-screen televisions, MP3 players and video games. "The macro-economic environment grew more challenging after the holidays," interim Chief Financial Officer Jim Muehlbauer said in a statement. "Our post-holiday results were not what we originally expected." Best Buy stock has dropped 16 percent since December 2007. The economic slump seemed to catch the company off guard. Buoyed by a strong third quarter, in which profits jumped 52 percent, the company in December raised its annual profit forecast and suggested 2008 would be another strong year. "We're basically very optimistic about the long-term future because so many elements of what we're bringing to market seem to be working at this stage," Chief Executive Brad Anderson told the Star Tribune at the time. "We're very bullish on where the year will finish. Even more so ... we think the horizon for the company the following year is very good." But January proved to be a soft month as consumers favored discounted items instead of the higher-priced merchandise Best Buy had

                                                            21 Anonymous, “Retail Stores of the Year,” Chain Store Age, February 2006, 82 (2), p.71 22 www.wikipedia.com

  

hoped they would buy, analysts said.23 Still, the company claimed that continued market share growth supported plans for approximately 140 new stores in fiscal 2009, and consideration of a national expansion plan for the Magnolia subsidiary. “We can build the $160 million subsidiary into a $1 billion dollar business over five years,” said CEO Jim Tweten. “The plan would call for a new business and branding model; a transformation of the chain from its current retail model. You’ve got to change from the typical brick-and-mortar model or you’re dead.”24

Engineering the Store Experience

As Best Buy management pondered strategies for creating and capturing more value through Magnolia, attention turned to the experience created for the brand at retail. Best Buy’s competencies in retailing had centrally contributed to the company’s historical performance, and the firm was noted for its many innovations in merchandising along the way. Still, questions lingered as to whether the experience for the Magnolia brand had been optimized, particularly given the dual brand interactions surrounding the store-within-a-store format that had been chosen for the brand.

The broader marketing community was very interested in retail experience design and its increasing role in brand strategy. According to Mark Gobé, Founder, Chairman and CEO at branding and design firm Desgrippes Gobé, “Retail is becoming a lot more emotional. Traditionally, retailers talked only about their products. Now it is about creating stories around the retail brand that connect with people beyond merchandizing and designer names.” Paco Underhill, well-known design consultant and CEO of Envirosell, noted several design trends in U.S. retail: more sophisticated use of lighting, more intimate retail spaces, and the creation of ambiance through sensory enhancements including the innovative use of smell. The Nova Scotia Liquor Corp., for example, greeted browsing shoppers with Pina Colada scents in the cordial aisles, baking bread smells in the wine sector, cigar scents in the spirits section, and mowed grass in the beer aisle. According to Simon Graj of design firm Graj + Gustavsen, retail was “getting softer and friendlier, more conducive to living rather than just shopping.”25 By all counts, the retail store was no longer simply a commercial medium for product distribution. Retail was a destination in its own right; an environment central to the articulation of the brand. Says Graj, “The store is where I, as a consumer, have the ultimate experience from a more global point of view. Then when I see the brand in advertising or on the web, the recall is back to the store because my experience there was on all levels more fulfilling. Ten or 15 years ago, advertising would have led that charge. But now the store is the 3-D billboard for the brand.”26

Starbucks, Abercrombie, and the Apple Store, among others, offered well-known examples of brands that leveraged the retail experience as a source of relevant and valued brand differentiation (See Exhibit 11). The Abercrombie flagship “employed selective lighting and wood fixtures to create a club-like atmosphere in which products became visual go-go dancers, in keeping with the brand’s theme of a cool lifestyle.”27 Under Armour’s new space in Annapolis, Maryland also leveraged highly selective lighting and textures to create a highly sensory theatrical experience for the athletic performance brand. Shoppers made their way through an “ominous-looking passageway into a textured store complete with stadium concrete, cold

                                                            23 Thomas Lee, McLatchy-Tribune Business News, February 6, 2008 24 Alan Wolf (2007), “Magnolia A/V Preparing for National Expansion,” TWICE, August 6, 22 (16), p.1 25 Ibid, p.26 26 Ibid, p.26 27 Ibid, p.26

  

metal railings tricked out with weight-lifting grips, and a shockingly-bright wall of backlit footwear.”28 In Manhattan, Apple’s three-story translucent cube-shaped shop jutted onto Fifth Avenue to provide a beckoning playground for adults.29 The hip, new age design aesthetic continued in the store where products were displayed on tempered glass and wood structures. A signature of high profile Apple stores was the spiral glass staircase which led to a demo theatre. Merchandise was organized by context instead of product type: for example, digital cameras, photo printers, and iPhoto software were set up together. The 46-foot Genius Bar served as the heart and soul of the store, according to Senior VP of Retail Ron Johnson. The Genius Bar operated on a reservation system, allowing customers to grab support appointments up to 48 hours in advance. New stores also featured a new section called The Studio (a Genius Bar-like setting where customers could meet with “creatives” and receive help on personal projects) and an iPod Bar to accommodate increasing numbers of iPod customers at the Genius Bar. Apple sales staff all had business cards in lieu of name tags, and wore iPods on their belts at all times. Visitors were encouraged not only to buy but also to browse; terminals scattered throughout the store provided internet access for surfing. Stores also offered on-site repair for all Apple products.

Experience Engineering Tools

Marketing’s deeper appreciation of retail design stemmed from the broader realization that product or services brands always came with an experience—be they good, bad or indifferent. In this Experience Economy, as Pine and Gilmour30 dubbed it, the brand was a performance brought to life through the various interactions customers had with it. Numerous “clues” or signals of varying importance were embedded in these brand performances, and these messages told a story about the brand. According to Carbone, the thought leader who launched the experience engineering movement in brand marketing, the quality of the brand experience lay squarely in how effectively the company designed, orchestrated, and managed its clues: in all their facets and from beginning to end.31 There were three kinds of clues that needed to be managed.32 Functional clues concerned the technical performance and quality of the product/service offering (e.g., does the Fairmont Hotel key open the door; does the room TV work; is the room service order correct?); humanic clues involved the behaviors and appearances of service providers (e.g., the tone of voice of the salesperson; his level of enthusiasm, body language, neatness, appropriate dress; did he really mean it when he said, "Have a nice day"?); mechanic clues concerned sensory tangibles associated with the offering (e.g., the wide aisles and numerous check out stations at Target). Things like facility design, equipment, furnishings, displays, signs, colors, textures, sounds, lighting, and the array of human interactions engaged in the sales visit fundamentally influenced first impressions and expectations; they communicated to customers without a single word being spoken. Some clues were especially important as customers relied on them, implicitly or explicitly, in making choices and forming brand evaluations. Through an experience audit, management could determine the received experience of the brand and compare this to a target motif: What did the consumer see, hear, smell, touch, and feel? Were the clues in the environment telling the right kind of brand story? Was the corpus of evidence leaving the desired emotional imprints about the brand? Were all clues consistent and cohesive, or was the brand story inconsistent and disjointed? Carbone’s firm offered many tools for systematically

                                                            28 Ibid, p.26 29 Eric Newman, “Retail Design for 2008: Thinking Outside the Big Box,” Brandweek, December 17, 2007, p.26 30 Joseph Pine and James Gilmour (1999), The Experience Economy 31 Leonard Berry and Lewis Carbone (2007), “Build Loyalty through Experience Management,” Quality Progress, September, 26-32 32 Leonard Berry, Eileen Wall, and Lewis Carbone (2006), “Managing Service Experience Clues,” Academy of Management Perspectives, Spring.

  

successfully auditing and then purposively and systematically designing and orchestrating the experiences through a Blueprint that would register targeted, quality feelings, emotions, and perceptions about the brand (See Exhibit 12). Experience architects might recommend eliminating negative service clues or moving them to the commodity zone, or they might insert highly differentiated clues to build brand preference. “The best service companies manage the emotional components of the customer experience with as much rigor as they bring to the functional components,” Carbone says. “Bottom line, it is all about how you make them feel.”

The Mayo Clinic, arguably the most powerful brand in healthcare, provides a poignant example of building the brand through experience management principles.33 By very carefully managing a set of visual and experiential clues, signals, and other evidences of caring, competency, and integrity, Mayo told a consistent and compelling brand story: at Mayo Clinic, the patient always comes first. “Clues in the People” were reinforced through hiring, training, leadership development, and service reward protocols. Physician actions signaled the patient-first focus: “My doctor calls me at home to check on how I am doing;” “My doctor waited to tell me personally about the results of my colonoscopy because he remembered that my husband died from bowel cancer.” Everywhere were visual clues about the institution’s core values. The physical environment contained open, welcoming spaces with soft, natural light and walls of windows looking onto gardens. Public spaces, exam rooms, patient rooms, and labs were designed to relieve stress, offer a place of refuge, create positive distractions, convey caring and respect, symbolize competence, minimize the impression of crowding or impersonalization, facilitate way-finding, and accommodate families. Hospital noise, a pervasive stressor, was reduced through padded medical chart holders, lower decibel cardiac alarms, dimmed lights in the nursing units to encourage quiet, and no overhead paging after 9 p.m. The cancer center was placed in the main lobby to remove stigma by making the center more visible. The experience motif, according to the design architect was “to make patients feel a little bit better before they saw their doctors.”

Best Buy management was confident in the promise of a thorough experience audit of the Magnolia brand. How should Best Buy systematically and purposively design and orchestrate the signals and context clues generated by Magnolia products, services, and environment to deliver maximum value to the firm?

                                                            33 Adapted from Leonard Berry and Neeli Bendapudi (2003), “Clueing In Customers,” Harvard Business Review, February.

  

Exhibit 1: Best Buy’s Growth Strategy

  

Exhibit 2: Best Buy’s Customer Centricity Approach: Priority Segments

Segment Name Description* Representative Photo Barry The affluent professional who

wants the best technology and entertainment experience and who demands excellent service.

Buzz The focused, active, younger male customer who wants the latest technology and entertainment.

Ray The family man who wants technology that improves his life – the practical adopter of technology and entertainment.

Jill The busy suburban mom who wants to enrich her children’s lives with technology and entertainment.

BB4B The small business customer who can use Best Buy’s product solutions and services to enhance the profitability of his or her business.

*Source: Best Buy Press Release, “Best Buy Accelerates Customer Centricity Transformation, May 3, 2004

  

Exhibit 3: Meet “Barry” and “Jill” Best Buy’s High Promise Customer Segments 

 

BARRY JILL Customer Psyche

Male Age 31+ Top 10% household income Typically married

Affluent suburban mom Kids under age 18 Household income top 30% Family the most important thing in her life CEO of the household Incredibly busy with all of the tasks on her “to-do” list Likes to share ideas with other moms

Needs Time Maximizer • Strives to balance career and family, needs to carve out time for family and friends • Has more money than time; despises wasting either • Wants convenient, hassle-free experience • Needs end-to-end service in one place

Practicality• More price conscious since they aren’t contributing; relish the game of price shopping • Make my experience as practical as possible.

Respect and Trust • Accustomed to respect and trust, and expects it • Expects family to get the same treatment, if not

better, than he does • His wife is key influencer—if she is happy, Barry

is happy. • Considers networking and relationship building

important. A trusted friend, colleague, mechanic, and so on, are his resources because they are shortcuts to getting things done.

Help me find ways to enrich my children Toddler Jills (5 or under): • Help kids discover the world • Satisfaction of being a mother defined through milestones children achieve Elementary Jills (6–8): • “But Why Mom?”; assist in child’s growth • Looking for things that make kid time fun Tween Jills (9–12): • “Taxi-Mama”; enable child to achieve in all aspects • Kids getting excited about technology Teenager Jills (13–17): • “Movin’ On”; coping with kids’ independence • Kids are key users and introducers of entertainment and technology in the household

The Best Stuff • An achiever and proud of his accomplishments. • Seeks to be important in the eyes of others. • Wants others to recognize him as the best. • Believes he deserves the best. • Quality and value are important; prefers

“premium-grade” products and services because increased quality saves time and hassles.

• Informed about advances in technology. Not afraid to try the latest and greatest. Tends to be an early adopter. If benefits are clear, he will buy.

Help me find ways to unleash my creativity

Respect me and my needs

Source: Rajiv Lal, Carin-Isabel Knoop, amd Irina Tarsis, (2006), “Best Buy Co., Inc: Customer-Centricity,”

HBS Case No. 9-506-055, Harvard Business School Publishing

  

Exhibit 4: Best Buy Photos 

       

 

   

Source: Casewriter

  

Exhibit 5: Best Buy Merchandising

 

 

 

 

 

 

 

 

 

      

Source: Casewriter

  

Exhibit 6: Sampling of Best Buy Hone Theatre Offerings 

 

Manufacturer Description Model Price

Hitachi Ultravision 50” 1080i Plasma HDTV P505601 $1,799.99

Insignia 50” 720P Plasma TV NS-PDP50 $1,299.99

Insignia 42” 720P Plasma TV NS-PDP42 $ 809.99

Insignia 26” 720P LCD TV NS-LCD26 $ 424.99

Insignia 19” 720P LCD HDTV NS-LCD19 $ 249.99

LG 50” 1080P Plasma TV 50PY3D $2,799.99

Panasonic 58” 1080P Plasma HDTV TH-58PZ700U $4,499.99

Panasonic 42” 1080P Plasma TV TH-42PZ77U $1,799.99

Pioneer Kuro 50” 1080P Plasma TV PDP-5010FD $3,999.99

Samsung 46” 1080P LCD TV LNT4661F $1,899.99

Dynex 37” LCD TV DX-LCD37 $ 749.99

Harmon Kardon Home Theater Receiver AVR-347 $ 809.99

Yamaha Home Theater Receiver RX-V661 $ 514.99

Insignia Home Theater Receiver NS-R5100 $ 154.99

Sony Home Theater Receiver STR-DE197 $ 199.99

Philips DVD Player DVP3140/37 $ 41.99

Insignia DVD Player NS-DVD1 $ 29.99

Panasonic Blu-Ray Disc Player DMP-BD30K $ 499.99

Samsung Blu-Ray Disc Player BD-P1400/X $ 399.99

 

  

Exhibit 7: Magnolia Home Theatre Photos 

 

 

 

 

 

 

 

 

 

 

 

           

  

Exhibit 8: Sampling of Magnolia Home Theatre Offerings 

 

Exclusive Product Lines (Carried by Magnolia but not by Best Buy):

Martin Logan: High End Speakers

Pioneer Elite: Pioneer’s top of the line TV’s and other home theater hardware

Mirage: High End Speakers

Monster M-Series: High End Cables

Manufacturer Description Model Price

Hitachi Univision Director’s Series

60” 1080P Plasma HDTV P60X901 $6,999.99

LG 60” 1080P Plasma HDTV 60PY3D $4,999.98

Mitsubishi Diamond

1080P LCD HDTV LT52244 $3,799.98

Pioneer Elite 50” 1080P Plasma TV PRO110FD $5,999.98

Pioneer Elite 60” 1080P Plasma TV PRO150FD $7,499.98

Samsung 40” 1080P LCD TV LNT4081 $2,499.99

Samsung 46” 1080P LCD TV LNT4681 $3,499.99

Panasonic 50” 1080P Plasma HDTV TH50P2750 $3,499.98

Pioneer Elite Home Theater Receiver VSX-91THX $ 999.98

Denon Home Theater Receiver AVR-4308CI $2,499.98

Yamaha Home Theater Receiver RX-V1800BL $1,199.98

Denon DVD Player DVD-1740 $ 169.98

Pioneer Elite DVD Player DV-48AV $ 229.98

Pioneer Elite Blu-Ray Disc Player BDP-95FD $ 999.98

Denon Blu-Ray Disc Player DVD-2500BTCI $ 999.99

 

  

Exhibit 9: Magnolia/Best Buy E-Commerce Websites

 

 

  

Exhibit 10: The Geek Squad 

 

      

 

  

Exhibit 11: Award-Winning Apple Retail Experience Design  

v

 

  

  

Exhibit 12:

Learn Create Do Tools from Carbone’s Experience Engineering Discipline 

Experience Engineering and “Evidence Management”: An organized, explicit approach to presenting customers with consistent, coherent evidence of the brand promise.

The Experience Audit: Learning activity dedicated to understanding the brand experience as currently delivered to consumers. Comprises experience mapping, clue scanning, and determination of the experience gap.

The Experience Map: Identification of the most important elements or components of the brand experience, the core touch points that deliver the brand, and their comprehensive structure. The experience map provides the componential structure of the brand experience chain.

The Clue Scan: Identification of the various humanic, functional, and mechanic clues operative in each of the identified experience touchpoints, along with specification of the inferences consumers draw about the brand or the brand’s values from each of these clues. The Clue Scan is executed through Mystery Shopping and ethnographic immersions that allow people to walk in the customer’s shoes. Through the Clue Scan, management offers summary diagnostic reflections regarding how the clues enhance or detract from the brand’s emotional experience.

Clue Inferences about Brand/Brand Values Brand Story Effect on Experience

1.

2.

3.

The Experience Motif: The net feelings or emotional take-away that managers want to create through the different stages of interaction with the brand, typically expressed in three words. The motif becomes the foundation for integrating, unifying, and reconciling all elements of the experience. The succinct expression keeps the idea focused so that it can be used in the design, development, and management of experience clues. For Doylestown Hospital Wellness Center, the motif is understood, strengthened, and renewed.

The Experience Gap: Differences between the operative experience for the brand and managers’ desired emotional experiences, as expressed in the experience motif. The Experience Gap helps qualify the competency of the organization as brand experience engineer, and sets direction for reparative strategies and actions.

The Experience Blueprint: Provides a plan and executable guidelines for reengineering the brand experience in line with the stated mission. Identifies and describes the clues, their functions, and how they will be created and maintained; provides a summary of the business analyses of each proposed clue.