Best Buy Business Lesson: Customers First

ADVERTISEMENT

We all know the retail adage about the customer always being right. But meeting customer expectations requires a certain amount of guesswork: You can only cater to their demands if you can predict beforehand what those needs might be.

In the case of electronics giants Best Buy (Stock Quote: BBY) and Circuit City, customer satisfaction is a key difference that's keeping one company steady while the other one falters.

Do you understand your clients well enough to keep them from the competition?

No matter what you're selling, it's not the greatest time to be a retailer. Electronics have weathered the downtown reasonably well, thanks to steady demand for video-game systems such as Nintendo's Wii and families investing in high-definition TVs in preparation for the upcoming digital conversion.

Still, analysts are carefully watching electronics chains Best Buy and Circuit City as bellwethers for consumer spending, especially leading up to the crucial holiday shopping season.

For now, Best Buy appears to be winning this particular race. Circuit City this week announced it would be closing 155 stores in the U.S. and cutting its workforce by almost 20%. With the company talking openly about restructuring, it may even consider filing for bankruptcy in the coming months.

While Best Buy has pulled back its growth strategy in response to the current economy, it's faring well compared to its main rival. So how did Best Buy set itself apart? And how can your small business do the same?

"The major difference is execution," says Tiffany Co, a retail analyst at Fitch Ratings. "They developed and implemented a customer centricity program, and they executed it really well in the past couple of years. That's helped widen the gap between the two companies."

Both companies have deep roots in the electronics business; Circuit City began as Ward's, a Virginia television store that opened in 1949, while Best Buy was founded in 1966. But as computers and cell phones grew steadily more complicated, Best Buy was the first to realize that shoppers didn't just want the latest technology -- they needed help using what they bought.

"Best Buy saw that they should offer not only products, but solutions," Co says. By offering installation services and Geek Squad technicians, the company assured wary customers that they'd actually be able to use their complicated new gadgets.

Best Buy also conducted extensive research on different customer segments, then trained sales people to cater to those specific needs. When it comes to cell phones, for example, a busy mom who's buying a basic model for her middle-school-age daughter will have different questions and priorities than a 20-something techie who's after the latest cool features in his or her new phone. By training sales people accordingly, Best Buy has a better shot at making both of those sales.

Best Buy is also working to customize its stores demographically. "They're looking closely at each market, and opening test stores to see what customers want in that market," says Co. For example, a current test store in Chicago, in a diverse neighborhood close to a university, has a wider-than-usual selection of laptops and stocks Spanish and Asian-language movies.

"They're taking the right steps," says Co, "really looking at their inventory and aligning it with customer needs."

Circuit City simply hasn't done as good a job at meeting shoppers' expectations. In addition, the fact that the company's sales staff work on commission may erode shoppers' trust. Best Buy salespeople, who are paid salaries, have no vested interest in whether a shopper buys the most expensive TV or not.

Overall, says Co, electronics as a category has held up relatively well compared to apparel and home goods over the past year. But sales of big-ticket items have slowed, and Best Buy certainly won't be celebrating when it looks over its year-end financial statements.

But by focusing relentlessly on customers, Best Buy has weathered the economic crisis relatively well. If you can win shoppers' loyalty now, they'll be back when money isn't quite so tight, ready to spend.

Show Comments

Back to Top