Best Buy Case Study: Baldridge Award Criteria
How does any company survive in today’s global market, whether they are large, small or indifferent? Today’s global market place has truly become an enigma, or should i say, “a puzzle within a puzzle, within a puzzle”; however, there have been a precious few that have helped to guide japan, corporate america, corporate canada and now corporate global (the rest of europe, asia and the third world countries) into a place of success and entrepreneurial enlightenment. Very knowledgeable people like deming, crosby and juran have successfully brought countries out from the “dark ages” into the “new world” of business.
The purpose of this case study will be to examine how best buy and future shop will react after being subjected to the two strategic principals of customer-centricity and segmentation. After carefully examining these companies, observations will be made as to whether these principals were successful or the exercise was defunct. Future shop (located in vancouver, british columbia, canada) was the largest consumer electronics stores in canada, and was started in 1982. They retailed equipment like; computers, stereos, tv’s, large kitchen appliances etc.
Best Buy Case Study: Baldridge Award Criteria Essay Example
During 2001, the company had acquired 100 box stores, 7,100 employees and sales of $1. 3 billion, (funding universe, 2004). In 2001, future shop was sold to best buy for the sum of $580,000,000. 00 (cbc news, business, 2001). Best buy co. , inc. , located in richfield, minnesota, usa, founded in 1966, and renamed (best buy) 1983, is the largest consumer electronics stores in the united states (best buy corporate homepage, 2014). At present, best buy staffs 180,000 employees, in 1,000 stores, and has accumulated $45,085 billion in sales; during 2013 (best buy annual report, 2013).
Customer-centricity strategy vs. Traditional strategy of great service customer-centricity strategy of great service what is the meaning of the word “customer”? The random house webster’s college dictionary defines it as a person who purchases goods or services from another buyer or patron. In japan, the word for “customer” is okyakusama, meaning “honourable guest,” which has such a dignified way of acknowledging a customer. Next, what is the meaning of customer-centricity? The businessdictionary.Com, defines this strategy in the following terms “creating a positive consumer experience at the point of sale and post-sale. A customer-centric approach can add value to a company by enabling it to differentiate itself from competitors who do not offer the same experience” (businessdictionary. Com, 2014). In 2010, the harvard business review had this interesting take on the definition; “becoming customer-centric means looking at an enterprise from the outside-in rather than the inside-out—that is, through the lens of the customer rather than the producer.
It’s about understanding what problems customers face in their lives and then providing mutually advantageous solutions” (gulati, 2010). Most companies say that they are doing everything that the above definition describes and yet in this shrinking global market, so many of them are falling by the wayside. How can that be? Perhaps instead of being customer-centric they are product-centric. Product-centric will be defined and discussed in the next part under “traditional strategy of great service.” an excellent business model of a company that is customer-centric is that of best buy and it is for this reason that they have survived and enjoyed a couple of good years in tumultuous times in the consumer-electronic marketplace, while companies like circuit city have been blown away like chaff in the wind (gulati, 2010). However, there is more to corporate success than just being customer-centric that will breed great victories; a corporation hoping to have any degree of continuous success, must pay close attention to what the masters of quality control teach.
The reason why attention is being focused on this point, is because in 2012, best buy suffered a net loss of $1,314 billion and in 2013 it was a little bit better with loses of $430 million according to the annual report of 2013 (ussec, form 10-k, 2013). On quick observation, one can notice that there is a constant turnover of senior executives as well as a rapid turnover of regular staff (webster, cordeiro, bancroft, 2007). Without further investigation though, it is difficult to know if this is because of low wages, poor performance or a frustrated work environment.
After all, these same results are not being perceived in the general corporate community in asia. So, what is going on? In 2007, (after customer-centricity was already introduced) the department managers (in the best buy store number 343) wrote a report to the general manager explaining how costly their 7% yearly staff turnover was to their sales (webster, cordeiro, bancroft, 2007). Through interviews, they conducted on the staff that were leaving (just before they left), they found that the staff left for the following reasons (webster, cordeiro, bancroft, 2007): unmet job expectations
Lack of coaching and feedback perceived lack of career growth opportunity feeling devalued and unrecognized stress and burnout due to overwork and life/work imbalance loss of trust and confidence in senior leaders now, with young employees, they are always full of exuberance and the feeling that the grass is always greener on the other side; however, that is seldom true and because of their actions, they end up costing the company thousands of dollars in training costs.
Is this really their fault though, because to be truly customer-centric, the company must also be aware of the needs of its employees as they are the very ones to deliver that positive attitude to the customer in the end? It will always be an up-hill battle for huge mega corporations like best buy, when the majority of their staff members are young employees who sometimes have the book knowledge, but lack real life experience of older staff members and are only paid a minimum wage.
It is for this reason that approaching them about the philosophies of deming, crosby, and juran will be difficult to teach when they only stay for such a short time and don’t really appreciate yet the importance of how much it cost for their training and how important it is to be devoted to the company for the long term. Another excellent business model of a company being customer-centric is that of robert f. J. Gleadall, during the late 1970’s and early 1980’s.
Gleadall’s experience in business stretched over a period of forty years and during the late 1970’s and 1980’s he owned a small carpet cleaning business called admiral steamclean inc. One of the interesting things about this company was that previously he was able to design, build and patent a unique and efficient piece of cleaning equipment that put his company miles ahead of his competition. He was able to clean industrial carpet areas with one person that normally would have taken at least four other people to do; however, that was only part of the experience.
What made gleadall more successful than every other cleaning company was the way he dealt with his customers and employees. Gleadall, being a very religious person realized that the most important quality to possess in business when dealing with customers or employees is that of trust. Being honest and trustworthy with other people was far more important than making huge profits and in the end was the most valuable intangible asset he possessed. This was even more valuable than the new equipment that he patented.
The first thing that gleadall would do when canvasing for new customers, was to segment his customers in three different categories (best paying clients, clients that pay as high a rate but wouldn’t clean as often, and those that perhaps didn’t pay as much but were referred to the company by his regular customers). By placing them in these different groups, he was able to eliminate customers that were too difficult to handle and were not profitable.
In the end this last group would account for approximately 75% of the total market; however, by utilizing only 25% of the market, this would be more than enough to make his company very successful. The next thing gleadall did was to control the level of quality that either he or any other company would have to do to make the customer happy with the service. The next action that would be initiated was the so-called “clean-strip”. The clean-strip was a method of ensuring that whoever was to clean the carpets were guaranteed to give the customer an excellent cleaning job.
Gleadall realized early in his career that what customers feared most was being ripped-off by unreliable cleaners posing as professionals. So what he would do when giving an estimate, would be to take that extra bit of time to set up his equipment and give the customer a free sample of his work or the clean-strip. What was so unique and powerful about this clean-strip was that if the carpets were really dirty and difficult to clean, (resulting in a much high rate for cleaning that area), than the competition was forced to clean the carpets for that rate.
If the competition was trying to give the customer a low ball on their estimate, than they would be unable to complete the job for that price and that job would end up coming back to gleadall’s company for cleaning. Because gleadall took the time to show the customer just how beautiful and clean (the cleaning-strip carpets would generally have an incredible contrast, almost looking new) the carpets could look, this demonstrated the level of quality that he was willing to offer for a fair price and proved that he was both honest and trustworthy.
In this case, gleadall was rewarded after cleaning the first store in each chain (future shop, red robin, sports check, sport expert and dozens of other large companies), by automatically receiving the rest of the stores. This proved that being trusted an honest in the eyes of your customer is the most powerful action one can take in business. When asked how much money he spent each year on advertising, his reply was “not one red cent. ” when asked what his average net profit was at the end of the year, he replied “in excess of $120k”.
When asked why he didn’t expand, his reply was “why should i, after all, i had all i needed without any headaches worrying about employees doing their jobs right and i was happy doing what i was doing” (gleadall, 2014) gleadall understood long before it became popular, about deming’s fifth deadly disease “use of visible figures”. He understood how one small action of goodwill (clean-strip) could mushroom into tens of thousands of dollars over the period of ten, twenty or even thirty years by being more concerned with the needs of the customer over profits.
He also understood how damaging it was to neglect the needs of a customer and the result of losing all that potential income but more importantly his honour. By putting the customers’ needs first, gleadall was able to enjoy a very strong and loyal relationship with his customers. So why is it that a small, tiny company as gleadall’s was so successful and other huge mega corporations are falling by the way side? The same reason why japan and other asian countries are being successful and why most of the corporations in the west are being weighed, measured, and found wanting.
There is more to the equation than just being customer-centric. This is only one part of what is needed for success. The rest of deming’s fourteen points must also be initiated and this is very difficult if not impossible for corporations in the west. For centuries, the social fabric of japanese society has been a very well disciplined and honourable people that constantly functions as a group or a team. This is why it was so easy for deming to initiate his philosophies after world war two and why it was not easily embraced by the united states in the late 1940’s and 1950’s.
The social fabric of the west constantly tries to function with a “me first” attitude and in some extreme cases think that it is cool to mimic the idea of “a sucker is born each day”. They fail to realize that the customer is as a precious jewel that must be cherished and well protected at all times. If an infinitesimal company like that of gleadall’s admiral steamclean inc. , could make this effort and be successful, than there is no reason why all of the huge corporations in this land couldn’t do the same thing. Traditional strategy of great service
What is the traditional strategy of great service? It would be considered product-centric. What does product-centric mean? The par group had a very interesting way of describing this old traditional way of dealing with customers; “success from using the product-centric method is dependent on maximizing the number of customers? Buying and using the product while increasing efficiency to maximize product revenue and profits (herrington, 2011). There is very little variance in the uses of the product and the business itself.
On the other hand, a customer centric approach maximizes the customers? Revenue and profit. In this model, variance is the norm and each customers engagement is unique” (herrington, 2011). Next, in figure: 1, page 9, the difference between customer-centricity and product-centricity can be explained. For the success of any corporate entity, two conditions must be met. First, the customer’s needs must be satisfied and second, there must be a customer who wants the need (peppers, rogers, 2013). However, when looking at figure; 1, the horizontal line representing product
Centricity, illustrates how the interest is primarily in developing profits before the needs of the customer and that the market share is a function of consumers reached. This approach assumes that these are one-time customers and really doesn’t acknowledge any level of loyalty with the consumer. Whereas, the vertical line representing customer centricity demonstrates the more customer needs are met the greater the share of customers. Segmentation if someone were to ask you, what segmentation meant in business, what would you say?
The businessdirectory. Com defines it this way: “the process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics. Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment. Few companies are big enough to supply the needs of an entire market; most must breakdown the total demand into segments and choose those that the company is best equipped to handle” (businessdictionary. Com, 2014). According to business dictionary. Com, there are four basic factors that affect market segmentation, which are (businessdictionary. Com, 2014): clear identification of the segment. Measurability of its effective size. Its accessibility through promotional efforts. Its appropriateness to the policies and resources of the company. In addition to that, the businessdictionary. Com, also brings attention to the four basic market segmentation-strategies which are as follows (businessdictionary.
Com, 2014): behavioral, demographic, psychographic, and geographical differences. When businesses are trying so hard to survive in this tough global market, it only makes good common sense to breakdown the most lucrative parts of their industry that they can easily handle and separate them from the bad ones that pay little to nothing. One good example of this is where best buy sat down and thought very hard on the areas of their business that were doing well from those that were duds.
This segmentation identified the following: barry, jill, buzz, ray, and a person they called mr. Storefront. By streamlining their business this way, they were able to break the business down in the most efficient way that took care of every type of customer that they catered. Some may ask the question, “is segmentation just another form of discrimination”? The answer to this is a “definite no”, and the reason for that is that it is the responsibility of every business to make a profit; in fact, some might even go as far to say that is a sin not to make a profit.
Concerning best buy, the company would give special training to all of their employees in order that they meet the entire needs of these customers, which are broken down as follows (cravens, piercy, 2012): jill—the “soccer mom,” who is the main shopper for the family, but often avoids electronics stores, well-educated and confident, wants to enrich her children’s lives with technology, yet intimidated by technology and jargon barry—the wealthy professional man, who demands the latest technology and best service buzz—the young “tech enthusiast,” who wants technology and entertainment ray—the family man, who wants technology that improves his and his family’s life mr. Storefront—the small business customer who can use best buy’s product solutions and services. Since best buy started making these changes to targeted stores, they have noticed a substantial increase in revenues. Best buy’s, understanding of granularity and how to break a market down to very specialized areas, in order to cater to a far more sophisticate customer base, has allowed them to develop a much closer bond with their customers. Customizing stores
It is very hard to complete this task properly without a more intimate relationship (like that of an employee) with the store in order to extract pertinent information that isn’t readily available to the public. However, there is one thing that this study would do if it had the power. That one thing is something that another very successful canadian store initiated decades ago. The name of that store is canadian tire corporation. Away back in the fifties or sixties the company offered share ownership to its employees with the idea that an employee that owns a part of the business will work harder if they have a piece of the pie. It’s true that thousands of companies are offering similar plans but what they are offering is only a tiny piece compared to what the ceo’s are receiving. That is not what is being suggested here.
Young people are the ones being attracted to these jobs that are offering very modest income and minimal desire in wanting to make a career of working at best buy. The objective is to attract intelligent young people who can finish their education at this company and have something like a common voting share that truly represents part ownership in the company and is a part of their weekly wages, when people hear, about a ceo’s seven figure salaries, and pension packages, that would make the queen of england envious, then they get discouraged and angry. They get so frustrated especially when the average canadian can hardly make ends meet at the end of each week. After the “boomer generation” leaves this this world, not much will be left for our children’s generation.
Therefore, for this reason it is also very important to make it so that employment is the way it used to be in the forties and fifties where employees worked their whole life for a company and reaped the benefits when they got older and had a retirement that would truly sustain them in their senior years. For example, if instead of giving these exorbitant wages to the ceo’s, this portion of that income would be shared equally with the rest of the employees of the company in the form of common voting shares that can only be cashed in or sold after ten years of service. This way a dividend can be disbursed to all of the staff members at normal intervals. By doing this, the staff will truly feel like they have a strong ownership in the company and would go out of their way to protect the company, by being innovative and constantly try to improve and make the company stronger.
Never underestimate the will of the human spirit when properly motivated. Significant training courses, that will be mandatory for all staff members, so that they can truly advance in the company. Setting up a thirty or forty year guaranteed pension plan in which both the employee and the company equally pay into. Strong health benefits for all employees that will cover dental, and glasses as well as the normal health plan. This may all seem very expensive, however, by investing in the employee in this manner, huge benefits will be passed onto the customer when the staff all work together like a team and feel like they are part of a second family.
This will develop loyal employees that will stay with the company for thirty or forty years so that they can all willingly learn and take to heart the philosophies of deming, juran and crosby. These principals are not impossible to initiate, as they are presently being done in europe. Finally, the very last thing that could be done, is to drop the business model of the huge box style retail store and go to a much smaller store with a more defined product line. It is believed that this box style business model has seen its day and is experiencing what economist refer to as “the law of diminishing returns” (scott, samuelson, 1971), where one can only put so much into something that it begins to diminish. For example, let’s assume that we have a pail of wet monkey hair and we continue to add wet monkey hair to the pail.
As it begins to reach the top, the monkey hair has no were else to go and because of that, the wet and sticky monkey hair begins to overflow. By this time there are five bald monkeys running around looking for their wet monkey hair. All joking aside, this business model has seen its day and now the pendulum must start swinging the other way. Many consumers like the shopping experience where they can go to separate stores instead of just one store. Therefore, the vast group of consumers who do not have the time to shop in the traditional way, will be magnetically drawn toward the vast internet shopping that will be done online and best buy will enjoy the profits received from their website. Best buy vs. Future shop
Once again best buys strategy is to use segmentation and divide their interest into angles and devils”. Instead of using the traditional approach of mass retailing by herding their customers in the store like a herd of buffalo, they opt to use a strategy that focuses on identifying and building strong relationships with their angles. Who are the angles? They are the further segmented group referred to as barry, jill, buzz, ray, and a person they called mr. Storefront (goodratings strategic services, 2008). Who are the devils? Those people come into the store, extract as much information about products as possible, then go, and buy the products elsewhere. In other words, their strategic focus and business model is on customer-centricity.
On the other hand, future shop focuses on the business model of being product centric. This means that they push as many people into the store as possible without being concerned about the individual customer. They are only concerned about profits and the bottom line. Now the interesting thing is that they both create revenue and profits; however, one creates a watering well that they can constantly go back for water, but the other one must constantly go back to dig a whole new watering well to get water. The question is what strategy would you focus on? Conclusion the evidence is in on customer centricity and segmentation and the results are profound in a positive way.
All of the examples in this case study have demonstrated a very high level of encouragement to businesses both large and small, that can act as effective tools for future survival; however, as can be seen by the recent losses from best buys annual return (2013), that something is still lacking. Without the opportunity to initiate an independent audit and a thorough study of each store these vital facts will be lost to us reading this report. However, if this organization is not strictly following the principals set out by deming, juran and crosby, than it might be devoured by the corporate carnivores like walmart. The lesson to be learned here, is that business can never take for granted the consumers that we cater to, as these are the ones putting food on our tables.