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After the Customer Analysis, Then What?

Customer-centricity: Best Buy's secret weapon.

David StodderCustomer segmentation doesn't always lead to increased profitability. How do you put knowledge of your customers into revenue-generating action? One good example to follow is Best Buy — its revenue is growing while that of competitors such as Circuit City stagnate. Best Buy attributes much of its success to an innovative customer-centric focus.

Step one of Best Buy's new approach, introduced last year, involved the head office identifying five segments and core motivations for the 1.5 million customers who walk into Best Buy stores daily. The company believes these groups represent significant growth opportunities and include some of its most high-spending customers:

  • Affluent professionals who demand excellent service
  • Focused, active, younger male customers who want the latest technology
  • Family men who want better, yet practical home entertainment
  • Suburban moms who want to enrich their children's lives
  • Small-business owners who want to improve profitability.

Step two involved figuring out how best to reach these target groups. Instead of dictating strategies from on high, Best Buy picked 32 "lab" stores from around the country and gave them the autonomy to develop strategies. This approach required innovation at the store level and general managers fine-tuning the company's broad-brush thinking to meet the needs of local customers. To a company that had relied on a cookie-cutter approach of making all stores identical, this was a radical change — but it paid off.

Case in point: In a bid to reach small-business customers, one store put together a product package that offered a complete solution for real estate agents. The store configured the products to work together, relieving the customer of the integration burden. Sales were brisk. The company now seeks out niches of small-business owners for its complete business solutions.

Some stores put together expanded home theater zones that brought all the equipment together rather than forcing customers to wander through the store and assemble the components. And if the customer wants home installation service, Best Buy will now do that, too. Though not new or unique, these approaches and regional and local autonomy are being embraced by the most successful box retailers.

Having recently worked with Best Buy, I think customer centricity tells only half the story. The company's newfound employee centricity deserves equal credit because it has forged a profitable collaboration between back-office analysts and front-line employees.

This welcome benefit to the program has increased employee motivation and reduced staff turnover. General managers relish the opportunity to be more entrepreneurial, and they discuss metrics such as return on invested capital with staff. Some of the most energized managers I've met in a long time were the general managers at one of the company's lab stores.

Some lab stores have reported sales increases up to 30 percent greater than the averages for other stores. Manufacturers are starting to seek Best Buy's advice on industry trends, because no other company seems to have its finger so firmly on the pulse of the customer. Even venture capitalists are beginning to ask for the company's opinions on new products.

Best Buy rolled out the customer-centricity concept to 70 more stores last October. Each store manager was asked to look at local demographics and then focus on growing sales among two of the five broad customer segments. Store-level actions could involve variations in product offerings, customer service, promotions and store design. Fourth-quarter results for 2004 show the revamped stores experienced larger sales increases than the conventional stores.

As Best Buy demonstrates, high-level analysis from the head office can, in at least some cases, realize its full potential when it's given to front-line employees who have daily, direct contact with customers. This collaboration helps fine-tune how analysis is applied. The company's revenue per square foot is at an all-time high, which the company attributes to teamwork between retail and corporate employees.

Don Tapscott is the author of 10 books about technology and society, including (with David Ticoll) The Naked Corporation: How the Age of Transparency Will Revolutionize Business (Free Press, 2003). You can reach him at www.AgeofTransparency.com.

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