Best Buy to tout plan

Developer of new sales initiative explains its use

BY SCOTT CARLSON

Pioneer Press

As Best Buy Co. convenes its annual meeting today at its Richfield headquarters, one business consultant will have a big imprint on the affair without even showing up.

Best Buy executives will brief shareholders on a cutting-edge, customer-focused initiative they are rolling out across the chain's 619 U.S. stores. "Customer centricity'' would transform retailing for the nation's largest purveyor of consumer electronics.

The inspirational force behind the program is Larry Selden, a business professor emeritus from Columbia University in New York.

Selden first introduced Best Buy senior managers to the approach in a leadership talk two years ago at the company's headquarters. He then hooked on as a consultant to help the company design and implement the program at 33 test stores.

"Larry has a bracingly different point of view,'' said Best Buy chief executive Brad Anderson, adding the business professor has made a cogent case that a company's financial success is intimately tied to what it really knows about its customers.

Before, Best Buy focused much of its research and marketing on product categories. Now, a key component under the new retailing pitch: Best Buy is identifying different customer segments, researching their lifestyles and their shopping needs.

The program also gives store employees greater freedom to tailor products, services and packages to meet those needs.

"The heart and soul (of Selden's viewpoint) is you have to go much deeper'' in researching and understanding the customers' lifestyles, Anderson said. "We have to get into why people are doing things,'' he added.

Yet Best Buy has tapped the brakes on its rollout plans for customer centricity, saying it's fine-tuning the program. Last week, Best Buy executives said they plan to put the program in place at 70 to 75 California stores this fall. The company had said earlier it planned spend some $50 million to convert 110 stores in five states by year's end.

Best Buy's initiative is crucial to its efforts to fend off companies like discount giant Wal-Mart, Dell Computer and other rising electronics retailers, the company has said. Although it's posting strong earnings gains now, discounters and direct retailers are looking to carve out a growing niche of the key products that have fueled those gains, including digital cameras and high-end televisions.

Best Buy sales topped $24 billion last year, more than twice traditional electronic retailing rival Circuit City's total. But electronics accounted for 9 percent of Wal-Mart's discount store sales last year — or nearly $16 billion. At direct marketer Dell, sales passed $41 billion.

While many companies have adopted bits and pieces of customer centricity, Best Buy is among the first retailers to put all the parts together, Selden said.

Those parts are: defining customer segments, identifying attractive shopping propositions for those customer groups and having well-trained employees to serve the various customer segments. The ultimate goal for the company: Reap exceptional sales and profits.

"No other large-scale retailer like Best Buy is embracing it holistically,'' Selden said.

Said Anderson: "I think other retailers will be looking to see what we are doing.''

For his part, Selden said his ideas about customer-focused business have been evolving over the past 20 years. As a consultant for a wide array of businesses, from banks and credit card companies to convenience stores, Selden discovered that a majority of many companies' profits come from a relatively small percentage of their customers.

Another thing Selden discovered: Many companies gathered geographic and demographic information about their customers but rarely could connect that information with the success or failure of their marketing campaigns. "I observed companies spending massive amounts on marketing with no apparent idea of what kind of return they were getting,'' Selden said.

Since those discoveries, Selden has pushed his corporate clients to drill down to better know their customers, then hold managers and employees accountable for truly serving them. "Once you do that, the whole world changes,'' said Selden, co-author of the 2003 business book titled "Angel Customers & Demon Customers.''

Selden noted, for example, that Royal Bank of Canada has embraced "customer centricity'' in its entirety and has seen a boost in its business.

In Best Buy's case, Anderson said he realized his company needed to re-examine its core business and growth strategy following the company's failure with its acquisition of music retailer Musicland Corp., which it dumped last year.

Said Selden of Anderson: "I admire him for being innovative. It takes a courageous leader to do what is required for the best interests of the customers and employees and shareholders.''