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Tuesday, November 09, 2004

Analyzing Customers, Best Buy Decides Not All Are Welcome -Part II

In Part 1, we noted that Retailer Aims to Outsmart Dogged Bargain-Hunters And Coddle Big Spenders Looking for 'Barrys' and 'Jills.'Best Buy Co., is embracing a heretical notion for a retailer. It wants to separate the "angels" among his 1.5 million daily customers from the "devils". Excerpts continued:

The group discovered it could distinguish the angels from the devils, and that 20% of Best Buy's customers accounted for the bulk of profits.Best Buy concluded that its most desirable customers fell into five distinct groups: upper-income men, suburban mothers, small-business owners, young family men, and technology enthusiasts. Mr. Anderson decided that each store should analyze the demographics of its local market, then focus on two of these groups and stock merchandise accordingly. Best Buy began working on ways to deter the customers who drove profits down. It couldn't bar them from its stores. But this summer it began taking steps to put a stop to their most damaging practices. It began enforcing a restocking fee of 15% of the purchase price on returned merchandise. To discourage customers who return items with the intention of repurchasing them at an "open-box" discount, it is experimenting with reselling them over the Internet, so the goods don't reappear in the store where they were originally purchased

Best Buy concluded that its most desirable customers fell into five distinct groups: upper-income men, suburban mothers, small-business owners, young family men, and technology enthusiasts. Mr. Anderson decided that each store should analyze the demographics of its local market, then focus on two of these groups and stock merchandise accordingly. Best Buy began working on ways to deter the customers who drove profits down. It couldn't bar them from its stores. But this summer it began taking steps to put a stop to their most damaging practices. It began enforcing a restocking fee of 15% of the purchase price on returned merchandise. To discourage customers who return items with the intention of repurchasing them at an "open-box" discount, it is experimenting with reselling them over the Internet, so the goods don't reappear in the store where they were originally purchased.

In July, Best Buy cut ties to FatWallet.com, an online "affiliate" that had collected referral fees for delivering customers to Best Buy's Web site.
Shunning customers can be a delicate business. He maintains that Best Buy will first try to turn its bad customers into profitable ones by inducing them to buy warranties or more profitable services. "In most cases, customers wouldn't recognize the options we've tried so far," he says.
Store clerks receive hours of training in identifying desirable customers according to their shopping preferences and behavior. High-income men, referred to internally as Barrys, tend to be enthusiasts of action movies and cameras. Suburban moms, called Jills, are busy but usually willing to talk about helping their families. Male technology enthusiasts, nicknamed Buzzes, are early adopters, interested in buying and showing off the latest gadgets. Staffers use quick interviews to pigeonhole shoppers. A customer who says his family has a regular "movie night," for example, is pegged a prime candidate for home-theater equipment. Shoppers with large families are steered toward larger appliances and time-saving products. The company hopes to lure the Barrys and Jills by helping them save time with services like a "personal shopper" to help them hunt for unusual items, alert them to sales on preferred items, and coordinate service calls.

Mr. Anderson says early results indicate that the pilot stores "are clobbering" the conventional stores. Through the quarter ended Aug. 28, sales gains posted by pilot stores were double those of traditional stores. In October, the company began converting another 70 stores. Best Buy intends to customize the remainder of its stores over the next three years. As it does, it will lose the economies and efficiencies of look-alike stores. With each variation, it could become more difficult to keep the right items in stock, a critical issue in a business where a shortage of a hot-selling big-screen TV can wreak havoc on sales and customer goodwill.Overhead costs at the pilot stores have run one to two percentage points higher than traditional stores. Sales specialists cost more, as do periodic design changes. Mr. Anderson says the average cost per store should fall as stores share winning ideas for targeting customers.

Indeed proactive and bold initiatives, returning back to investing in discerning shopkeepers in an age where retail shops are beginning to be seen as electronic gymnasiums. Proof that superior technology, agile processes and trained executives are the key to success - even in 21st century.

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