Customer-centric Success: Following Best Buy’s Example

By Allan Pulga

Get to know your customers. Find out which ones make you the most money because focusing service and products on their needs will lead to growing sales and rising profits. But doing this means empowering your salespeople like never before. Just ask the folks at Best Buy.

Two years ago, in May 2004, retail electronics giant Best Buy started rolling out its new “Customer Centricity Transformation.” Investing roughly $50 million towards the effort in 2005 alone, the company was making a considerable gamble.

Under the direction of CEO Brad Anderson, Best Buy tested its customer-centric initiative at 32 lab stores in several markets in 2003. From the experiment, the company determined which customers made them the most money, segmented them carefully, and realigned stores and employees to cater to them – thus encouraging such favoured shoppers to return and spend more money.

Now, the $30-billion-a-year company carries out this strategy in its 780 superstores across the U.S. and Canada.

The gamble paid off. Last week, Richfield, Minnesota-based Best Buy announced its first quarter earnings rose 38 per cent to $234 million, driven by new store openings (a whopping 117 new stores in the last 12 months), a 14 per cent rise in sales and expanding profit margins.

“We believe sales trends remain strong, and management remains very upbeat about its Customer Centricity initiatives and favourable industry trends,” said Lehman Brothers analyst Alan Rifkin, as quoted in an RTTNews article last week.

So how did Best Buy’s “Customer Centricity Transformation” work? The basis of the program was to identify five initial customer segments representing a) significant growth opportunities, and b) the most profitable customers they currently serve.

Here’s where Best Buy’s salespeople come in. Store staff was trained to recognize and think about the needs of these five valuable customer types:

• The affluent professional who wants the best technology and entertainment experience this customer demands excellent service.
• The focused, active, younger male customer who wants the latest technology and entertainment.
• The family man who wants technology that improves his life – the practical adopter of technology and entertainment.
• The busy suburban mom who wants to enrich her children’s lives with technology and entertainment.
• The small business customer who can use Best Buy’s product solutions and services to enhance the profitability of his/her business.

Addressing the needs of these target customers became the duty of each of Best Buy’s in-store employees – the company essentially put its fate in the hands of its ground level workers. Focus shifted from selling products to meeting particular customer needs.

“Becoming a customer-centric organization requires that we take full advantage of the talent and creativity of every Best Buy employee working in our stores across the country,” said Mike Keskey, president of U.S. Best Buy Stores, in a press release announcing the ‘transformation’ back in 2004.

“Our employees are energized because they have both the responsibility and the accountability to make decisions and drive innovation based on their knowledge of the customer,” he added. “They behave like owner/operators and really understand the customer and financial impact of their decisions.”

“Our goal is to transform Best Buy into a customer-driven, talent-powered enterprise that is focused on enhancing our customers’ enjoyment of technology,” said Brad Anderson.

A 2005 UBS analyst report applauded Best Buy’s customer-centric strategy, noting that employee empowerment is central to its success: “Best Buy empowers its store-level employees – those closest to its customers – to tweak merchandising, store signage, store layout and so on to best appeal to [particular customers].”

The report described how at a Pasadena store, employees reconfigured the layout to better appeal to suburban moms, moving small appliances down onto a low rack along the store’s main walkway, rather than leaving them stocked on higher shelves among the major appliances. “Sales of small appliances skyrocketed into double-digit gains from moderately negative,” said the report.

In the same store, employees created displays to showcase refrigerators, stoves and washers and dryers in home-like settings along the perimeter of the appliance department, putting a children’s play area in the centre. Customers could shop and entertain their kids at the same time.

“We believe that if we succeed in linking (customer-centric) capabilities, we will clearly differentiate Best Buy from our competitors,” said Anderson, commenting on first quarter gains in 2005.

In their book, Return on Customer: Creating Maximum Value From Your Scarcest Resource, authors Don Peppers and Martha Rogers point to the main objective in Best Buy’s successful customer centricity plan: empathy.

“The key to Best Buy’s financial success… is its ability to see things from the customer’s perspective.”