Do you really know who your customer is?

What does a company do when the business model that has worked perfectly well till now, starts to run into trouble. Take the case of Best Buy, the largest consumer electronics retailer in the US. The selling mantra for them used to be “pile it high, watch it fly.”

All this worked well, till of course Wal-Mart came along and entered the consumer electronics segment. “Wal-Mart…was threatening to break that model wide open.

Known for its low-priced merchandising, the world’s largest retailer had used its significant economies of scale to make an aggressive push into Best Buy’s territory. By 2004, Wal-Mart was generating $17 billion in electronics revenue. And although it had captured the number two spot in the US consumer electronics market, Wal-Mart was not the only threat on the retail horizon.

Online retailers such as Amazon and Dell had also pushed into this market,” writes Ranjay Gulati in Reorganise for Resilience - Putting Customer at the Center of Your Business. Gulati is the Jaime and Josefina Chua Tiampo Professor of Business Administration at Harvard Business School.

The Wal-Mart assault had the executives at Best Buy worried. As Gulati writes “In this fiercely competitive climate, Best Buy was worried about remaining profitable and retaining its leadership position. Becoming a low-cost leader like Wal-Mart was not a realistic strategy. Best Buy produced nothing, so product innovation was also out of the question.

Even if it had been an option, ease of imitation and low-cost competition from around the globe would likely have decreased margins even further.” Despite this situation Best Buy kept growing. “Best Buy enjoyed double-digit growth in sales and total return for the first seven years of the decade. Indeed, in third quarter of 2008, Best Buy’s earnings per share, while drastically reduced, nonetheless exceeded analysts’ expectation by an average of 46%,” writes Gulati.

So what did the company do to keep growing in a sector which wasn’t really going anywhere? They tried to find out who their customers really were?

The company identified five groups: tech-fanatics, home theater connoisseurs, family men, busy moms and small-business customers. A little more digging came up with a rather astonishing finding. “Women…purchased 55% of all consumer electronics and also influenced approximately 75% of all such purchases.

Yet most retailers, including Best Buy, had historically tailored their marketing and store concepts around the interests and purchasing patterns of male consumers,” writes Gulati. And the reason for that was very simple: “Many senior managers were men, their understanding of female buying behaviour was not normally as extensive as their understanding of male consumers.”

So the question was what did the women want? “Busy moms had said they were put off by the loud music, sharply contrasting colours, and complex layouts characteristic of most Best Buy stores,” writes Gulati. With this feedback, Best Buy worked around this by designing stores with softer colours and more open stores.
Also women bought electronics differently. They bought products in clusters and not one thing at a time, as men tend to do.

They are not gadget freaks like men are. Best Buy had personnel specialising by departments, but what they needed was generalists, who could work across products. This led to the introduction of personal shopping assistants “Specially trained consultants, who offered busy moms one-on-one-service and guidance.”

This was different from the way Best Buy had always worked. As Gulati writes “In contrast to Best Buy’s traditional sales associates, who worked only within a single department, personal shopping assistants were trained to accompany customers throughout their visit and assist them with their purchase decisions on any product.

Customers could use these assistants on a drop-in-basis, but they could also set up specific appointment times, an added convenience.”

These steps helped Best Buy to counter the Wal-Mart wave, which could have buried it.