Best Buy Co., Inc. Customer-Centricity

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  • Topic: Best Buy, Brad Anderson, Geek Squad
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Best Buy Co., Inc. Customer-Centricity
Background:

The consumer electronics giant, Best Buy, was first established in 1966 with a single location and a staff of three in St. Paul, Minnesota, selling audio equipment targeted at 18-25 year old males. Initially Sound of Music/Best Buy grew through acquisition, expanding to nine locations in the Twin Cities area by 1978. The name, Best Buy, and expanded product line, ranging from audio and video equipment to large appliances, were a result of a “best buy” sale of damaged inventory at bargain prices in 1981. In the mid-1980s, Best Buy launched superstores similar to those of their main competitor, Circuit City and expanded by 15 stores between 1985-86. In 1989, Best Buy launched itself as a self-service, value-store staffed with a salaried sales force to provide a no-pressure shopping experience. This approach resulted in Best Buy becoming the second largest electronics retailer. By 1995, Best Buy was opening an average of 35 new stores annually and in 2000, the retailer responded to the market by launching BestBuy.com.

Best Buy attributes some of their success to their SOP, standard operating platform, which is a 200 page “how to” manual for nearly every feasible store situation ranging from product sales and service to inventory management. The purpose of the SOP was to train the sales force and promote uniformity across the organization. In addition to the SOP, Best Buy’s skillful merchandising and marketing, along with their sales force (“Blue Shirts”) are credited with the success of the retailer. Blue Shirts received extensive training and enjoyed a unique and rewarding corporate culture, with part-time associates making $8.00 per hour and full-time employees earning $20.00. Sales associates often received public recognition for strong performance in addition to immediate rewards such as restaurant vouchers. Supervisors were also incentivized based on annual department and store performance. Starting store managers in mid-size stores were compensated with salaries between $50,000 and $150,000. The success resulting from these practices did not go unnoticed by competitors such as Wal-Mart and Dell, who imitated many of Best Buy’s strategies and stole well trained Blue Shirts.

Best Buy continued their growth by opening new stores and through the acquisition of various competitors through the U.S. and reaching into Canada, with the acquisition of Future Shop Ltd. in 2002. By November 1995, Best Buy operated 796 Best Buy stores plus 20 Magnolia Audio Video stores in the U.S. and 162 Best Buy owned stores in Canada (978 stores, not including Geek Squad outlets). In contrast, Circuit City operated over 600 stores in the U.S. and Canada around the same time, however, Best Buy managed to double the sales per square foot of their main competitor. With nearly 1600 stores between the two main players in the electronics market, the market is nearing saturation and growth will have to be achieved by a means other than new store openings. Best Buy’s pre-centricity model was easy for competitors to imitate and encroach on Best Buy’s market share. Best buy borrowed the superstore concept from Circuit City and Circuit City mirrored Best Buy’s staffing model and merchandising decisions. Low prices and a wide selection are hardly inimitable characteristics. While wide selection and expansive product offerings at discount prices (due to volume purchases) may be difficult for new entrants to copy, it is a minor/temporary barrier to entry with the introduction of the internet.

Best Buy’s CEO, Brad Anderson, joined the company in 1973 when he joined the staff of three at the then single, Sound of Music, location. A music buff addicted to sales, with his long tenure with company and in the industry seems like the logical choice to lead the company to even greater success as CEO. Prior to becoming CEO in 2002, Anderson had spent 11 years as President and COO of Best Buy. Like most...
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