Poor financial performance is a shock to the system; it rumbles marketing plans and shakes the innovation strategy and pipeline. Best Buy retail and web sales fell 2.4% versus last year and shareholders have lost more than half of their value over the past five years. The company is now in the throws of reinventing how it goes to market as fast as it can.
This is more than another story of shrinking retail. It is a cautionary tale of what happens when the customer and the market change faster than the business. Much of the decline at Best Buy is attributed to drops in TV and laptop sales due to the phenomenon known as “showrooming’, where people come in to the store to shop the product but buy the item elsewhere for a better price. This trend has been escalating for the past several years and Best Buy should have acted sooner to counteract the impact on its franchise.
Brands that have a highly transactional relationship with customers, like Best Buy, are more at risk than brands with a deeper emotional connection. Remember Circuit City? Men have a stronger relationship with Best Buy than women, but for both genders the relationship is based on earning each sale primarily on price and distribution. Examples of other brands that have a highly transactional relationship with consumers are HP, Heinz and ToysRUs.
The ease of mobile and online price comparisons has fundamentally changed the relationship between the retailer and the customer. Best Buy needed to be more prescient and forecast the effect of this shopping behavior on their future in order to act sooner and stay ahead of the customer.
Apple retail is a stark contrast to Best Buy. Apple engages people through a relationship with the brand not solely through product features and price displayed on white plastic shelf tags. Connection to the customer is something Apple understands deeply and Best Buy can learn a great deal from the relationship that Apple has built with its devout followers.
There is no doubt many people within the walls of Best Buy were worried about the impact of this evolving shopper behavior. Best Buy has historically been a very innovative company and connected to advances in technology in meaningful ways to bring the right mix of product to their stores. Now they will need to lean on their innovation competency to rapidly transition to a new strategy and carve out their place as a leading electronics retailer.
They have already announced plans to open 100 mobile retail outlets with a small store footprint by 2013 and a cost-reduction target of $800 million over the next three years. Let’s hope this new future for Best Buy includes a shift to creating deeper emotional connections with customers.
imagecredit: wickedthoughts & moapicture
Donna Sturgess is the President and Co-founder of Buyology Inc and former Global Head of Innovation for GlaxoSmithKline. Her latest book is Eyeballs Out: How To Step Into Another World, Discover New Ideas, and Make Your Business Thrive.