Consumer Segmentation At Best Buy
Monday,May,2008 ,05:09 PM Filed in: Change
Super Focus
Best Buy's Angels & Devils Strategy
In an economy where consumer spending is down and credit is tightening, many retailers are looking for any customers they can get. Not so with Best Buy. When it comes to customers, Best Buy sees angels and devils. Less than five years ago, the company broke with the mass marketing tradition and focused on customer segmentation and relationship marketing to leverage its resources on the most important consumers.
And the results prove the strategy! While many electronics retailers have shuttered their stores (e.g. Tweeter and CompUSA) and others, like Circuit City, struggle to survive, Best Buy continues to set records. In Fall of 2007, Best Buy recorded it's 5th record quarter. In Q1 2008, it again topped Wall Street's expectations and suggested that the second half of the year will be even stronger. The company continues to steal market share from Circuit City and Wal-Mart.
Gary Balter of Credit Suisse attributes Best Buy's continued success to its "relationship marketing to further separate them from the mass market retailers."
At the heart of Best Buy's relationship marketing strategy is its database analysis. They have discovered that of the 1.5 million consumers who visit a Best Buy store everyday (daily cume) a vast majority of the profits come from a small group of very important customers - they call these core customers, the Angels. The Devils represent a larger group of customers who are more focused on returns, discounting, browsing and not buying, and eating up associates time to get educated, then purchasing elsewhere.
Instead of using the traditional approach of mass retailing to simply drive people into the store, Best Buy's marketing strategy focuses, indentifies and builds relationships with the Angels through one-to-one strategies. To do that, Best Buy has further segmented the Angels into 5 groups: Jill's, Barry's, Buzz's, Ray's, and Mr. Storefront. Barry is an affluent tech enthusiast; Jill, a busy suburban mom; Buzz, a young gadget fiend; Ray, a price-conscious family guy; and Mr. Storefront owns a small business.
Using these segments, the company fits the "format" of the store to the predominant segment of "hot zips" in the store's geography. A recent Fortune article illustrated how Best Buy's researchers comb through geo-demographic data to determine whether a particular location should be tailored to, say, Ray or Buzz. Nearly 40 aim at Barry -- in them you'll find a separate department of home-theater systems, expert salesmen, and specialists in mobile electronics. Jill stores feature personal shopping assistants (PSAs) who know how to steer a homemaker to the right digital camera for her family. Buzz stores have broad assortments of video games.
Learning for radio
Studies of PPM panelists demonstrate a similar story for radio. PPM shows that a small, but powerful group of heavy radio consumers drive the majority of a stations AQH. Identifying those "prime" listeners and building a relationship with them is critical to success in PPM. Like Best Buy has discovered, this focus-on-the-few people who matter the most, seems counter intuitive to the conventional industry practices of just building any kind of cume, but those companies that embrace this practice will find that they will survive the downdrafts better and thrive more when times are good.
Best Buy's Angels & Devils Strategy
In an economy where consumer spending is down and credit is tightening, many retailers are looking for any customers they can get. Not so with Best Buy. When it comes to customers, Best Buy sees angels and devils. Less than five years ago, the company broke with the mass marketing tradition and focused on customer segmentation and relationship marketing to leverage its resources on the most important consumers.
And the results prove the strategy! While many electronics retailers have shuttered their stores (e.g. Tweeter and CompUSA) and others, like Circuit City, struggle to survive, Best Buy continues to set records. In Fall of 2007, Best Buy recorded it's 5th record quarter. In Q1 2008, it again topped Wall Street's expectations and suggested that the second half of the year will be even stronger. The company continues to steal market share from Circuit City and Wal-Mart.
Gary Balter of Credit Suisse attributes Best Buy's continued success to its "relationship marketing to further separate them from the mass market retailers."
At the heart of Best Buy's relationship marketing strategy is its database analysis. They have discovered that of the 1.5 million consumers who visit a Best Buy store everyday (daily cume) a vast majority of the profits come from a small group of very important customers - they call these core customers, the Angels. The Devils represent a larger group of customers who are more focused on returns, discounting, browsing and not buying, and eating up associates time to get educated, then purchasing elsewhere.
Instead of using the traditional approach of mass retailing to simply drive people into the store, Best Buy's marketing strategy focuses, indentifies and builds relationships with the Angels through one-to-one strategies. To do that, Best Buy has further segmented the Angels into 5 groups: Jill's, Barry's, Buzz's, Ray's, and Mr. Storefront. Barry is an affluent tech enthusiast; Jill, a busy suburban mom; Buzz, a young gadget fiend; Ray, a price-conscious family guy; and Mr. Storefront owns a small business.
Using these segments, the company fits the "format" of the store to the predominant segment of "hot zips" in the store's geography. A recent Fortune article illustrated how Best Buy's researchers comb through geo-demographic data to determine whether a particular location should be tailored to, say, Ray or Buzz. Nearly 40 aim at Barry -- in them you'll find a separate department of home-theater systems, expert salesmen, and specialists in mobile electronics. Jill stores feature personal shopping assistants (PSAs) who know how to steer a homemaker to the right digital camera for her family. Buzz stores have broad assortments of video games.
Learning for radio
Studies of PPM panelists demonstrate a similar story for radio. PPM shows that a small, but powerful group of heavy radio consumers drive the majority of a stations AQH. Identifying those "prime" listeners and building a relationship with them is critical to success in PPM. Like Best Buy has discovered, this focus-on-the-few people who matter the most, seems counter intuitive to the conventional industry practices of just building any kind of cume, but those companies that embrace this practice will find that they will survive the downdrafts better and thrive more when times are good.
