James E. Dion

Is your store “customer-centric”? What does being customer-centric even mean? Obviously, most soccer or running stores would say that they were focused on the customer, and would point out that without customers,
their store would not exist. And they are right. However, simply being
there, opening the store, stocking some shoes and equipment, and
having staff to collect the money, is not the same as being customer-centric. Being customer-centric means that everything we do—from the shoes, socks, and clothing that we carry, to the environment that we place them in and the staff that we have to serve those customers—is centered on and about customers and their experience in our store. There is a huge difference between simplyserving a customer and centering on a customer’s specific needsand satisfaction.

Students of Your

Customers Customer-centric stores are “students of their customers,” which means that they literally “
go to school” to learn as much as they can about their customers’ needs, wishes, dreams, hopes,
wants, and desires. Every customer is different. A customer-centric retailer recognizes this fact, and
also recognizes that it cannot create a different environment for each individual customer. This means
that it has to find a way to group similar customers together, and create solutions and environments for those groups. We call this customer segmentation. When we segment our customers, we identify
clusters of customers that have similar needs, wants, demographics (age, sex, education, sport, and
so on) and create environments, policies, services, and product groups especially for the customers in each segment.

The Best Buy Experiment

A good example of a major retailer who has adopted this approach is Best Buy. About two years ago,
Best Buy determined that it could not continue to operate on price as its major strategy and message
to its customer. Brad Anderson, its chief executive officer (CEO), stated “if we do nothing, Wal-Mart will surpass us by the simple fact that they open more stores than we do each year. There is no point in
trying to compete on price.” (emphasis added) With that statement in mind, Best Buy launched its customer-centric strategy. During 2005, Best Buy spread its customer-centric message to selected
North American stores (110 in all), and allocated over $50 million (USD) in capital expenditures to
those stores. The initiative was two-pronged: getting customers to buy what was already in stock; and asking them what products they would like to see the company offer. The 32 stores piloting the initiative
in 2004 showed 7 percent sales gains over other US-based Best Buy stores, while their “conversion
rates” (the percentage of shoppers making a purchase) improved by 6 percent over these same stores. Although selling, general, and administrative (SG&A) costs (including nonrecurring and investment
costs) rose considerably the pilot program still delivered profits for the thirty-two stores over non-participating stores. These test stores also represented a mix of high- and under-performing operations. Best Buy identified key customer segments in five areas of its customer-centric program: affluent professionals seeking the best technology experience (internally identified as “swinging single professionals”); younger males wanting cutting-edge technology and entertainment (“gadgeteers”);
fathers looking for technology to improve their lifestyle (“cherry pickers”); mothers seeking technology to enrich their children's lives (“affluent soccer moms”); and small-business people using technology to improve their bottom lines (“small business”). Part of the strategy included giving employees closest to
the customer some of the more important decision-making responsibilities. In addition, Best Buy store associates received customer-centricity training to be able to really deliver the promise at the store level.

The way that the stores are adapted to each segment is interesting. For the soccer mom, the stores
feature brightly colored signage, play areas for children, educational toys, and in-wall appliance
displays, and provide personal shopping assistants. For the swinging single, the stores place greater emphasis on higher-end and more cutting-edge consumer electronics, and feature separate rooms
with full home entertainment rooms and enhanced audio-visual product assistance. For the cherry
picker, the stores focus on technophiles on a budget, and offer the most promotions and incentives,
and the best financing packages. For the gadgeteer, the stores are geared toward teens and twenty somethings, and emphasize cell phones, music and movies, home theater, gaming, and mobile audio. And for small businesses, the stores are signed “Best Buy for Business,” and have an expanded
computer section and a stronger “geek squad” (Best Buy’s in-home/office technology assistance team) presence, as well as central help islands staffed by associates wearing blue-collared shirts (as opposed
to knitted golf shirts).

“People come to specialty stores because they are looking for some service or selection that they can't
get from the mass market,” Anderson said. He went on to say that “for those reasons, Best Buy intends
to invest more heavily in customer service, and position itself as a solutions provider for consumers of
high-tech entertainment products. Best Buy’s customer service initiatives will mean a more decentralized structure for the business. We are moving power from Minneapolis [US] to wherever the engagement is with the customer. Instead of Minneapolis telling the store what to do, it would be the store asking what
it can do in assisting its customers.”

Internally, Best Buy has also worked extensively on its customer database. The company wanted to
identify who its best customers are, as well as who are the customers that are costing them money by abusing their customer service policies. The name that they gave to their best customers was “angels,” and their problem customers were called “devils.” This terminology is not for the public, however: it is
only used internally! The goal is to get more angels and to stop selling and serving devils.

Initially, the customer-centric strategy in the stores paid off, as Wall Street praised the new focus by the company. The company posted an incredible 85 percent profit gain in its fiscal first quarter in 2005— a
gain Best Buy attributed, in part, to its customer-centricity initiative. In the first quarter, sales increases
at stores converted to the new model were more than double the increases at Best Buy’s regular stores.
But in December 2005, shares plunged 12 percent after Best Buy said its third-quarter profit would fall
well short of Wall Street expectations because of higher costs. Anderson said in an interview in
December that the company’s “customer-centricity” initiative has proved more expensive than
anticipated, and Best Buy might have to eliminate staff to help control costs. “Right now, the evidence suggests that we overspent” on customer-centricity, Anderson said. “We have to make adjustments.”
But he also says that Best Buy’s commitment to customer-centricity has not lessened at all. “Customer-centricity at its core is ... identifying a customer that you want to serve better,” he said. “In some stores,
it's working great.”