Best Buy's Brilliant Bouncer
By Duff McDonald, 

January 2005 Issue

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All customers are not created equal. So declares Columbia Business School professor Larry Selden, coauthor of the book Angel Customers and Demon Customers, in which he argues that shoppers can be segmented into two general types: "angels," who buy high-margin goods at full price, and "demons," who can chew up profits by bargain hunting, returning purchases, and tying up customer service reps. Smart retailers, Selden says, cater to the angels, find ways to reform the demons -- and then watch profits take off.

Best Buy (BBY) CEO Brad Anderson is a believer. A couple of years ago, Selden convinced Anderson that the consumer electronics giant wasn't as profitable as it could be. So Anderson hired Selden to redesign 32 Best Buy stores around four angelic archetypes: "Buzz," the young male gizmo fanatic; "Jill," a busy soccer mom who shops for appliances; "Barry," an affluent entertainment lover; and "Ray," the budget-conscious family man. To deter demons, Best Buy cut back promotions and charged restocking fees for returns.

Last year the stores showed increases in sales, profits, and "close rates" -- the percentage of shoppers who make a purchase. Anderson is now retooling 68 more stores, and analysts predict a 16 percent rise in Best Buy's net income for 2005.