Myuran  Kanga  I2  

 1  Meyers-­‐Levy,  Joan  and  Rui  (Juliet)  Zhu,  “Psychological  Impact  of  Ceiling  Height  in  Retail  Spaces,”  InformeDesign,  Accessed:  March  15,  2014,  http://www.informedesign.org/Rs_detail.aspx?rsId=3387.  

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INDIVIDUAL  ASSIGNMENT  3:  Can  Retail  Stores  Survive  in  the  Face  of  Internet  Competitors?  Purchasing  a  Home  Entertainment  System  at  Best  Buy  vs.  Amazon.com  

 

As  a  technology  savvy  society,  we  expect  our  Home  Entertainment  Systems  to  provide  the  best  sensory  and  emotional   experience   possible.   Here   I   have   compared   the   change   in   shopping   experiences  within   the   past  decade  from  the  typical  ‘showroom’  stores  such  as  Best  Buy  to  Internet  venues  such  as  Amazon.com.      

Best   Buy   –   Traditional   Service   Outputs:   Face-­‐to-­‐face   human   interaction,   feature   and   typical   operation  demonstrations,   discussions   with   customer   representatives   relating   to   product   pros   and   cons,   personal  customer   representative   preferences/opinions/recommendations,   showroom   setup   experience,   personal  attention   and   customized   advice,   immediate   product   purchase   and   inventory   availability,   guided   shopping  experience,  and  technical  features  explained  and  shown  in  laymen’s  terms.  Non-­‐traditional  Service  Outputs:  Further   than   simple   product   purchases,   customers   seek   unique   service   outputs   that   retailers   may   not  traditionally   target.   Venues   to   interact   with   other   people,   share   in   the   wow-­‐factor   and   hype   related   to  experiencing  new  technology,  opportunity  to  speak  with  other  customers  on  their  opinions  and  experiences,  observe  other  customers  operating  technology  to  form  opinions  about  the  products’  overall  user  experience  and   satisfaction,   provide   a   venue   to   share   time   with   friends   and   family   –   an   informal   location   on  weekends/evenings  to  spend  on  leisurely  shopping  trips.    

Experience:  From  the  time  a  customer  drives   into  a  Best  Buy  parking   lot,   they  enter  an  atmosphere  where  little  effort  is  required  to  attain  products.  Parking  lots  guide  customers  to  spaces  and  allow  them  to  enter  the  facility   quickly   and   through   short   distances.   The   parking   lots   themselves   provide   guidance   for   leaving  shopping   carts,   provide   trashcans   for   customer   convenience,   and  even  provide  powerful   lights   for   evening  shopping.   Once   inside   the   store,   the   first   feature   customers   will   note   is   the   friendly   smile   and   emotional  connection  from  the  door  greeter.  Next,  they  notice  the  vast  size  of  the  facility.  Not  only  does  the  breadth  and  depth   of   the   facility   provide   a   showroom   expanse,   the   ceiling   is   also   intentionally   positioned   very   high   to  provide  the  feeling  of  freedom  and  openness1.  Customers  also  hear  music  playing  over  the  intercom  system  with  the  bustling  rumble  of  other  shoppers  as  part  of  the  interactive  experience.  Shiny  plastic  wrapping  and  the  smell  of  new  merchandise  signal  high-­‐technology  expectations.  The  home  theater  department  offers  vivid  TV  displays  with   crisp   images  and  a  wide   range  of  display   color   capabilities.  Not  only  do   customers  get   to  hear   the   sound  clarity   from   the  sound  systems,  but   they  also   feel   the   thump   from   the  bass   in   their  bodies.  Customers   can   feel   and   visually   inspect   the   thin   TV   displays   while   wearing   3D   glasses.   Viewing   images  popping  out  at  customers  enhances  the  sensory  and  emotional  effect.  Holding  remote  controls  in  their  hands  and  sitting  in  recliners  allows  customers  to  feel  the  weight  and  ergonomic  aspect  of  similar  systems  in  their  own   living  rooms.  Once  selections  are  made,   customers  are  guided   towards   registers  where   they  smell   the  buttery  aroma  of  popcorn  or  other  promotional  items  designed  to  attract  customers’  as  they  exit  the  store.          

Disadvantages:  Added  cost  to  transport  purchases  or  must  transport  on  your  own,  selection  and  variety  of  products  is  limited,  higher  prices  and  taxes,  travel  inconvenience,  and  time  inefficiency.    

Amazon.com   –  Traditional   Service   Outputs:   Fast   and   efficient   purchases,   24   hour   buying   service,   direct  delivery  to  residence,  wide  product  selections,  access  to  easily  accessible  reviews  and  warranty  information,  accessory/option  recommendations,  secure  payment  methods,  lowest  prices,  easy  access  to  products  when  ‘I  know   what   I   want,’   and   simple   product   comparison   tools.  Non-­‐traditional   Service   Outputs:   World-­‐wide  shopping   access,   facilitate   “bored   shopper   syndrome”   by   providing   related   interesting   products   or   similar  offerings   on-­‐demand,   searching   feature   to   find   unique   items,   suggested/targeted  merchandise   advertising  based  on  interests  and  habits,  and  eco-­‐friendly  transactions  with  electronic  receipts  and  no  plastic  bags.    

Experience:   The   Internet   shopping   experience   provides   customers   with   a   unique   approach   to   acquiring  technology.   Customers   can  more   carefully   compare   technical   specifications   for   displays,   sound   technology,  etc.  side  by  side.  They  are  provided  with  the  options  of  shopping  while  enjoying  the  tastes  and  smells  of  food  at  home  or  even  while  watching  their   favorite  TV  show.  Amazon  presents  customers  with  detailed  product  pictures  of  users  demonstrating   the  equipment   in   their  homes  and  arranges   them   in  an  appealing  manner.  Videos   and   accompanying   sounds   are   also   presented   to   help   demonstrate   product   features   or   show  customers   how   users   typically   operate   equipment.   Emotionally,   customers   can   connect   their   buying  experience  by  sharing  their  findings  with  friends  and  family  through  social  media,  email,  or  mobile  devices.    

Disadvantages:  Delay  in  receiving  products  due  to  shipment,  difficult  for  non-­‐technical  buyers  to  understand  technology,  hard  to  compare  visual/auditory  differences  between  systems,  no  hands-­‐on  demoing  capability,  buying  requires  more  thought  and  effort  than  guided  store  approach,  and  no  face-­‐to-­‐face  human  interaction.    

MAR6930  –  Business  to  Business  Marketing  –  Individual  Assignment  3  

 

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Net  Promoter  Score  (NPS)  Methodology    Background:  The  ‘ultimate  question’  as  Fred  Reichheld  describes  it,  is  used  to  survey  individuals  on  a  firm’s  customer  relationship  loyalty.  The  method  implies  a  philosophy  that  firms  must  convert  more  customers  into  promoters   and   fewer   into   detractors   to   grow.   From   the   customer’s   eyes,   the   NPS   quantifies   long-­‐term  consumer   value   by   taking   the   difference   between   ‘assets’   and   ‘liabilities.’   Customers   are   sorted   into   three  categories:   promoters   who   are   loyal   &   enthusiastic,   passives   who   are   satisfied   but   unenthusiastic,   and  detractors  who  are  unhappy  &  stuck  in  relationships.  Survey  questions  are  posed  to  participants  requesting  the   likelihood  of   recommending  a   firm   to   friends  or   colleagues  with   a   scale  of   increasing   recommendation  from  0-­‐10.  Responses  from  0-­‐6  are  categorized  as  detractors,  7-­‐8s  as  passives,  and  9-­‐10s  as  promoters.  The  NPS   score   is   calculated   by   subtracting   the   percentage   of   detractors   from   promoters.   Organizations   should  challenge  themselves  by  reviewing  Reichheld’s  NPS  score  to  manage  customer  relationship  improvements.    

Questions:   The   following   questions   were   used   to   solicit   NPS   scores   for   Best   Buy   and   Amazon.com.   Six  individuals  participated  in  the  study  including  myself.  1)  On  a  scale  of  0-­‐10  with  10  being  extremely  likely  and  0  being  not  at  all   likely,  what  is  the  likelihood  that  you  would  recommend  Best  Buy  as  a  source  for  a  Home  Entertainment  System  to  a   friend  or  colleague?  Follow-­‐up  question:  Why  have  you  provided  this   likelihood  score  for  Best  Buy?  2)  What  is  the  likelihood  that  you  would  recommend  Amazon.com  as  a  source  for  a  Home  Entertainment  System  to  a   friend  or  colleague?  Follow-­‐up  question:  Why  have  you  provided  this   likelihood  score  for  Amazon.com?  The  score  results  and  responses  are  shown  in  the  following  table.    

Survey  Results  -­‐  Likelihood  to  Recommend  Firms  as  Home  Entertainment  System  Sources     Best  Buy   Amazon.com  

Respondent   Score   Why?   Score   Why?  Myuran  (me)   5   High  prices   9   Best  price,  Speed  Chad   8   See  product   6   Skeptical  of  online  purchases  

Larry   7   Specialized  products   5   Shipping  cost  w/out  membership  

Chrystal   2   Too  expensive   7   Lowest  prices  

Marla   9   Convenient  for  small  towns   4   Bad  service  experience  

Roushan   7   Like  as  a  showroom,  Expensive   8   Cheaper,  Quick,  Best  support    

  Detractors:  2   Passives:  3   Promoters:  1   Detractors:  3   Passives:  2   Promoters:  1  Percentages:   33.33%   50%   16.67%   50%   33.33%   16.67%  

 

Final  NPS  Scores:    𝐵𝑒𝑠𝑡  𝐵𝑢𝑦!𝑠  𝑁𝑃𝑆 = 𝑃𝑟𝑜𝑚𝑜𝑡𝑒𝑟𝑠 − 𝐷𝑒𝑡𝑟𝑎𝑐𝑡𝑜𝑟𝑠  

𝐵𝑒𝑠𝑡  𝐵𝑢𝑦!𝑠  𝑁𝑃𝑆 = 16.67% − 33.33%  𝑩𝒆𝒔𝒕  𝑩𝒖𝒚!𝒔  𝑵𝑷𝑺 = −𝟏𝟔.𝟔𝟕%  

𝐴𝑚𝑎𝑧𝑜𝑛. 𝑐𝑜𝑚′𝑠  𝑁𝑃𝑆 = 𝑃𝑟𝑜𝑚𝑜𝑡𝑒𝑟𝑠 − 𝐷𝑒𝑡𝑟𝑎𝑐𝑡𝑜𝑟𝑠  𝐴𝑚𝑎𝑧𝑜𝑛. 𝑐𝑜𝑚!𝑠  𝑁𝑃𝑆 = 16.67% − 50%  𝑨𝒎𝒂𝒛𝒐𝒏. 𝒄𝒐𝒎′𝒔  𝑵𝑷𝑺 = −𝟑𝟑.𝟑𝟑%  

 

Analyzing  Scores  and  Comparing  Firms:  The  survey  results  were  converted  to  Net  Promoter  Scores  for  each  firm.  The  comments   from  participants,  along  with   the  NPS  values  can  be   interpreted  to  analyze  each   firm’s  customer  relationship  state.  Amazon.com’s  lower  NPS  can  be  explained  by  the  fact  that  Internet  purchasing  venues  are  still  new  to  some   individuals.  These  people  will   remain  skeptical  until   they  build  a   relationship  similar  to  the  one  they  share  with  companies  like  Best  Buy.  People  are  sensitive  to  ‘bad  profits’  and  look  for  instances  where  new  and  unfamiliar  companies  break  the  trust  required   for  strong  customer  relationships.  Requiring  membership  fees  (which  were  recently  increased  by  Amazon.com)  just  to  gain  access  to  privileges  and  imposing  excessive  shipping  costs  for  everyone  else  causes  customers  to  feel  like  they  are  being  deceived  or  alienated.  Best  Buy’s  slightly  negative  NPS  may  be  due  to  the  fact  that  Internet  retailers  are  beginning  to  gain   ground   in   the   market   and   taking   loyal   customers   from   the   firm.   Internet   companies   buy   products  directly  from  manufacturers  at  wholesale  prices  and  create  huge  product  price  discrepancies  in  the  market.  This  is  the  major  problem  that  traditional  retailers  must  overcome.  The  margins  have  become  so  small  that  retailers  cannot  compete.  If  this  trend  continues,  Best  Buy’s  NPS  will  continue  to  decline  over  time.      

Retail  Stores  Can  Survive  in  the  Face  of  Internet  Competitors  Traditional   retailers   like  Best  Buy  can  survive   in   the   face  of   Internet   competitors  by   leveraging   the  unique  service  outputs   that   they   currently   fulfill.   People   frequently   visit  Best  Buy  because   they  know   they  will   be  guided  through  purchasing  decisions  with  any  questions  or  concerns  answered  onsite.  These  customers  want  the  ‘consumer  experience’  environment.  People  will  always  seek  face-­‐to-­‐face  human  interaction.  There  is  no  substitute   for   the   sensory   demonstrations   provided   by   Best   Buy’s   ‘showroom’   experience.   The   strategy   of  gaining  trust  and  growing  customer  relationships  with  credibility,  character,  and  respect  will  allow  retailers  to  maintain  customer  loyalty  and  value  in  the  long  run.