September 2006 - The Customer Connection

Best Buy Vice Chairman and CEO Bradbury H. Anderson helps transform this Fortune 100 company from a typical retailer of consumer electronics into a thriving customer-centric business.

By Vitisia Paynich (Photos by George Byron Griffiths)

When Brad Anderson walks down the aisles of a Best Buy store, he’s not just looking to see how sales are faring, he’s observing the line-level employees who serve as the conduit connecting customers with robust technology and entertainment products. As vice chairman and CEO of the 12th largest retailer in North America, according to Stores Magazine’s “2006 Top 100 Retailers” list, Anderson sees the employees as key to the company’s long-term growth.

“Our core point of view is that we believe our employees have an enormous amount of capacity [and] it’s the responsibility of the organization to help them find and unleash it,” notes Anderson. “And, we believe that we will win or lose in the marketplace, depending on how effectively we unlock that human capacity of the folks who work for us.”

That ability to take the unique skill sets of Best Buy employees and harness that talent to connect customers with today’s top-brand consumer electronics and appliances has helped this Minneapolis-based retailer garner over $30.8 billion in revenue. To date, the company has more than 960 retail stores throughout the U.S., Canada and China, with a workforce comprised of more than 116,000 associates.

Electronic Retailer spoke with Anderson to discuss the company’s customer-centric environment, product and service offerings, and how Best Buy remains steadfast in its pursuit of global expansion.

Best Buy Vice Chairman and CEO Brad Anderson shares a lighthearted moment with store employees.

Anderson, who has been with the Best Buy organization for nearly 34 years, says it is a vastly different company from when he started. “[In that day], we were a tiny company selling to a very small number of audio specialists and customers,” he explains. Anderson, a lifelong audiophile, started his career at Best Buy right on the sales floor. Through his experience as a sales associate, he developed a strong grasp for the needs of the consumer simply by learning to ask the right questions. Eventually, he became store manager.

Over a span of seven years, Anderson cultivated his retail operations, and soon sparked the attention of Best Buy founder Dick Schulze. Impressed with Anderson’s abilities, Schulze appointed him as vice president in 1981, and then to executive vice president five years later. He continued to rise up in the Best Buy organization in key executive positions, including a promotion to president and COO in April 1991. Ten years later, he was named as vice chairman and stepped into the CEO post in June 2002.

Although today, Anderson is a far cry from his days as a salesperson on the store floor, he believes his sales experience was invaluable, which has had a profound impact on his role as CEO.

Anderson says today’s customer-centric operating model has grown out of his own personal experience with starting in the store. He believes the basis of the Best Buy formula is “being able to use the ideas and the things that I learned to be successful and believing that the rest of our employees are also capable of adding that kind of value. So, one of the first things we try to do is help the employee find [his or her] own unique strengths. And second, try to tap into those strengths in a way that provides value for our customers.” This can materialize in the form of faster and better quality customer service.

In the ’80s, Anderson says Best Buy essentially marketed itself as a company bringing the best products that it could find to stock its store shelves and make available to customers. “Today,” he notes, “we’ve got the responsibility to do much more than that. We’ve got to get solutions into the customer’s hand. And in some cases, if they’re not there in the market, we have to be a participant in inventing the solutions. So, that’s a big part of the whole concept of customer centricity connected to this talented workforce-which is quite different from what we were doing say, 10 years ago.”

The robustness of today’s technology is another reason Anderson contends there’s more of a demand for bringing solutions to the masses. Although he admits that the younger generation has a different mindset when it comes to technology, especially because they are growing up in an era of MP3 players, high definition televisions and satellite radios. However, the older demographic still finds it difficult, and somewhat intimidating, to engage some of the newer technological advances coming to market. That’s precisely why Anderson believes Best Buy employees, trained in specialized areas like digital products can be the missing link to the customer’s overall shopping experience.

The company spreads the message of customer centricity through its multichannel marketing efforts, especially on television, radio, print and online.

Following its customer-centric credo, Best Buy teamed with the Geek Squad to provide customers with 24-hour computer support, as well as installation service. The success of Geek Squad is perhaps not only attributed to a demand for this niche market but also to the company’s branded quirkiness and humor that remain consistent in its DRTV, DR radio and online marketing campaign.

For example, TV spots feature “Dragnet-inspired” agents pulling up to the home of a helpless computer customer with a dire technical emergency. The appeal is not so much due to the tech geeks themselves but in their mode of transportation-a Volkswagen Beetle modified to resemble a police squad car. These “Geekmobiles” over the years have become synonymous with the Geek Squad brand, not to mention serve as an effective mobile billboard for 1-800 GEEK SQUAD.

While Geek Squad is a testament to effective brand marketing, Anderson believes it represents much more in Best Buy’s long-term investment. “In Geek Squad, we see a real good example of a part of the organization built around people’s passion,” he affirms. “Most of the folks who get to be a Geek Squad agent start because they’re really fascinated by what the current generation technology is capable of doing and want to go deeper than a superficial look at the product. So they’re actually involved in figuring out how the product works and figuring out how it connects to people’s lives.”

In 2006, Best Buy expanded its Geek Squad service offering to include 12,000 agents.

Customers can visit the Best Buy website to make purchases, seek installation services or find online promotions.

One of the most visible examples of Best Buy’s efforts in recognizing its most loyal customers is through the Reward Zone. In July 2003, the retailer pulled out all the stops by taking a traditional direct marketing approach towards the promotion of its loyalty rewards program-beginning with a 5 million-piece direct mailing. The Best Buy marketing/advertising team complemented its marketing campaign with TV spots and a $25,000 daily giveaway throughout a 35-day period.

What makes this program different from others is its $9.99 annual membership fee. Those who sign up are issued a Reward Zone card in which they can earn 100 points for almost every dollar they spend in a Best Buy store or online. Once they reach 15,000 points, members receive a $5 reward certificate redeemable at any Best Buy store. The increments of the certificates increase, as members earn even more points-for example, 60,000 points can yield a $20 discount.

Further, the program offers the company deep insight into the buying habits of its Reward Zone customers, as well as a clearer picture of their wants and needs in the area of products and services. This has helped the retailer to tailor its marketing efforts, such as VIP events or special promotions, and alert them through direct mailings or via an opt-in e-newsletter.

Best Buy has reaped its own rewards since launching the loyalty program nearly three years ago. In fact, Reward Zone membership grew more than 50 percent to 7.2 million this year.

Global expansion remains high on the Best Buy agenda, especially in China. In April 2006, Best Buy revealed plans to open its first Best Buy-branded store in Shanghai. Further, the company announced that it would occupy four floors of Jiang Shan Building in the Xu Jia Hui commercial area of Shanghai, which is the city’s premier shopping district. The store is scheduled to open later this year.

Anderson says, “We’re real excited about China. It’s probably one of the most thrilling places in the world you can visit, because there is so much energy there. And, we’re finding that the employees who [we] hire in China have a great desire to accomplish a lot in their lives, and there’s certainly a high level of optimism.” This shared sanguinity stems from the rapid growth that has been occurring in many areas of the country.

In May 2006, the company announced that it acquired major interest in Jiangsu Five Star Appliance Co. Ltd. (Five Star), the fourth largest appliance and consumer electronics retailer in China. The transaction has given Best Buy a defining presence in the region through Five Star’s 136 stores located throughout eight of China’s 34 provinces.

Best Buy attributes its rise in fiscal year 2006 revenue to a 4.9 percent sales gain, 103 new store openings and a continued shift toward higher ticket items.

What does Anderson consider to be the top three issues affecting retailers today? He contends, “The competitive advantage of any retailer-especially in an industry as complex as this one-is the unlocking of human capital.”

Thus, he believes the first issue to address is: How good is the organization at figuring out how to do that effectively? The second issue to confront is: What kind of structures do you put in place that can sustain that unleashed human capital?

“In other words, how do you get your rewards to connect up with what you’re trying to do in the marketplace?” he asks. The third issue, according to Anderson, is the obstacle of embracing increased complexity and more complicated customer needs, especially when it comes to educating customers on the latest products and services.

He adds, “We know next year that the challenges we are going to be faced with by our customers will be more complex than the ones we’re facing this year. Therefore, how do you organically build an organization that can swallow that complexity and fit the solutions on a natural basis?”

As the Best Buy team continues to foster growth in the areas of workforce and business expansion, Anderson is also keeping his eye on the way technology is evolving the consumer landscape. This past January, the chief executive officer perused the aisles of the 2006 Consumer Electronics Show (CES) to check out the latest product offerings.

He says there seemed to be a lot of products that would benefit from an integrated use or a kind of shared platform called personal networking, where the devices that a consumer might use at work, home and in a car are customized to that individual’s particular needs and those same devices could engage each other.

“I think we’re on the edge of [something] that will have profound implications on the way we live our lives, and it has all sorts of exciting possibilities connected to it. Best Buy hopes to be one of the pioneers in that space.”

Top 25 Retailers for 2006
Rank Company Headquarters
2005 Revenues (in millions)
1. Wal-Mart Bentonville, Ark.
2. Home Depot Atlanta
3. Kroger Cincinnati
4. Sears Holdings Hoffman Estates, Ill.
5. Costco Issaquah, Wash.
6. Target Minneapolis
7. Lowe’s Mooresville, N.C.
8. Walgreens Deerfield, Ill.
9. Albertsons Boise, Idaho
10. Safeway Pleasanton, Calif.
11. CVS Woonsocket, R.I.
12. Best Buy Minneapolis
13. Ahold USA Quincy, Mass.
14. Federated Dept. Stores Cincinnati
15. Publix Lakeland, Fla.
16. JCPenney Plano, Texas
17. Rite Aid Camp Hill, Pa.
18. Delhaize America Salisbury, N.C.
19. Staples Framingham, Mass.
20. TJX Framingham, Mass.
21. Gap San Francisco
22. Office Depot Delray Beach, Fla.
23. Kohl’s Menomonee Falls, Wis.
24. 7-Eleven* Dallas
25. Meijer* Grand Rapids, Mich.
Source: 2006 Top 100 Retailers, Stores Magazine (* = estimate)

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