Tuesday, August 25, 2009

A case for change: How to fix The Best Buy Appliance Business

What are the major opportunities for our appliance business at Best Buy? How can we correct these issues moving forward to grow the business and give customers the experience they deserve?

Opportunity #1: Customers don’t associate Best Buy with Appliances

Solution #1: In-store Events (Hoover Tent, Dyson Demo, pro-chef, etc)

One of the ways that we can drive traffic and awareness through our existing appliance departments with very minimal amounts of change to our business would be to host in-store events in our appliance departments. Many of our vendors can facilitate demos or in-store events.

Hoover has a tent they can bring to our stores. They will set up a section of laminate wood flooring and demonstrate how their products work. This demo is great for a few reasons: it is free vendor provided labor, it drives traffic through our appliance department, and there is typically a severe spike in sales that day (3-10 times the normal business for a day).

Dyson has area rugs that can be brought to our stores by vendors. We can use these Dyson rugs to have our associates demo the products to show off all of the features and benefits of these amazing machines.

We can bring in local chefs and have them do demonstrations on actual ranges in the store. This demo takes a little more to setup, but is a great way to bring in the community especially in areas where we have new stores. We can use our BBFB contacts to bring in chefs from local restaurants to prepare food in a demo kitchen. One of the big reasons the local restaurants will want to help out, this is free advertising for them. We reap the benefits of driving more traffic through the department while making a local connection to our communities.

Above three small demos were mentioned, and only in the case of the latter do we have to spend any of our capital on the setup. We should reach out to our vendors and see what they can do in terms of sponsoring some of these events as well. As an example: at the 2008 Appliance Summit in Boston, Sara Moulton a celebrity chef, put on a presentation for Best Buy. The principal sponsor was KitchenAid. Our vendors are willing to provide funding for training for our employees; it isn’t a stretch to ask them to contribute to educating the customer in this same manor.

Solution #2: Buyer’s Guide/Catalog

Years ago we switched over to a customer centric model in our stores, where we distance ourselves from price and talk about features and benefits. Our weekly ad has not changed in the same way. The ad is a vehicle for driving traffic into the store, and should probably remain similar to the current form, but we should consider adding a buyers guide to our current ad line up. Take a page per department, and highlight some of the reasons why the products mentioned in the ad would be a good for a customer. Bringing TRUST and a customer centric attitude to our ads would be a great way to differentiate Best Buy further from our competition, and it would also set up the experience a customer is going to have in the store.

Another option would be to have a stand-alone Catalog. A monthly or quarterly catalog would be another great method of educating our customers around benefits of the product, instead of just the price that we offer.

These global solutions are directly related to creating awareness of appliances, if we are educating our customers about the features and benefits of what we offer, and place a larger spot light on appliances, we can educate more of our customers to what we have to offer as a company and as a brand.

Solution #3: Greater presence felt in store (Move appliances to the front of the stores)

One more drastic measure would be to move the appliance departments to the front or the center of the stores. Having appliances presented as a center department will drive more traffic through the appliance department, and customer awareness will improve.

Customers, for the most part, already know we have TVs, Computers, Cameras, Video Games. With departments they don’t always know we carry, such as appliances, customer awareness is key. Many customers report to our sales associates that they have purchased their appliances recently (elsewhere) and didn’t even know we carried appliances until their visit today (usually a week or two after the purchase is made). Typically they come in for something in an adjacent department, and notice our appliance department. This is a big loss for our company. If we are using 2,000-8,000 sq ft of floor in our stores for a product that a large percent of the population doesn’t know we carry, are we wasting 5 million sq ft of retail floor space across the country? Major appliances carry a decent product margin, along with solutions this can be a large vehicle for growth, look at what Lowes has done with Appliances.

Solution #4: Better Advertisement of Appliance Department

Currently the ad for appliances is on average 2 pages. They are typically buried in the ad 1-2 pages from the back cover. Very rarely are the appliances ever mixed in with other product. Last year during our back to school drive time: Lowes ran two ads a week, with mini-fridges and microwaves on their front cover, the middle of the ad, and on the back cover. During those ads, we ran back to school ads with computers, TVs, and video games.

We struggle as a company to show customers why Best Buy in our ads, and as a direct result our customers don’t know what we have to offer. If a customer doesn’t have a reason to come into the store, they will never talk to our associates and never be informed why Best Buy!

Solution #5: Win the Weekend flyers

Off and on we have used flyers as an in-store hand out for customers. Usually these flyers are used to highlight an otherwise unadvertised sale in PC or Home Theater. We could turn these into a national ad, distributed the same way as our current standard Sunday ad. Each week on Wednesday customers would receive a 3 or 4-day ad that would start on Wednesday or Thursday (we would have to test which has the greatest impact). This Win the Weekend flyer can be used a solution to many opportunities such as: Strong Sales Ads from our competition, Slow Sales Week, Poor replenishment on Sunday ad items, and most important to our Appliance department -> to educate our customers as to WHY BEST BUY!

We can use this win the weekend flyer as a tool to inform customers that we carry appliances, what Geek Squad Black Tie Protection does, how Reward Zone silver works, or anything else that we feel as a company that our customers don’t know enough about.

Opportunity #2: Our company’s exclusive brand: Inglis

Solution #1: Inglis VS Kenmore - How does Inglis win

Inglis is a brand that makes up the low end of our price point, which is great for our price-focused customers, but isn’t a great solution VS Kenmore. The issue comes when a customer is comparing our store to Sears and they want a Kenmore, we don’t always have a solution.

If we had a middle price point and/or premium private label the impact would be huge. First, we would have a direct competitor to Kenmore. That would give us a good solution, and would give us the ability to use the same strategy Sears has used for a long time "Kenmore is sold exclusively at" Second, customers buy appliances they have had good luck with in the past, and don’t typically buy brands they have had a problem with. If they buy a low end Inglis product, knowing that it is a Best Buy private label, they may think poorly of Best Buy as well as Inglis a direct result.

What about dropping Inglis and moving to Insignia. Then we could use whatever manufacturer came up with the best machine at the lowest cost, use a brand we have been developing for years, and have customers seeking out our brand.

Solution #2: Fixing the current No Brand recognition issue.

What is the point of having an exclusive brand that no one has every heard of. If we are going to have our own brand, or one that Whirlpool makes exclusively for us, shouldn’t our customers know that it exists?

As part of our contract with Whirlpool, they should be responsible for marketing this line of product to the general public. Before customers pick a store is the time to win with a unique brand, as most customers shop less than two stores, and we are not currently one of the top two (as far as market share). This will allow us to draw more customers into the store, who may have gone elsewhere.

Opportunity #3: Women!

Solution #1: Maria is the CFO of her household! Respect her.

Women make or influence up to 80% of purchases made of all consumer goods, according to most reports. If women are making the decisions in our stores, especially in appliances, why aren’t we more appealing to women? Currently, Best Buy as a company doesn’t seem to struggle bringing men into our stores, and is typically thought of as a store for men the way that Khols, Target, and Lowes are recognized as stores geared to appeal to women. The question is how do we win our female customers over to our side? I advise that we take a good hard look at the data points from our female-centric Denver store.

Solution #2: Gain more insight!

One of the biggest things we should and normally always do before any major transition is gain more insights from our customers and employees. The ones most willing to give insights are going to be among our best customers, the ones who we have built the most rapport with.

Reach out to our customers in the Reward Zone Silver program. Lets ask them what they would like to see. Lets get out there and talk to customers who are leaving Lowes and Sears stores, ask them why they are shopping at these stores. Lets take a look at how Target and Lowes were able to rebrand their stores in the last 10 years to capitalize on a group of people that retail seems to have been shunning since the beginning.

Solution #3: Run an aggressive Ad Campaign.

Lets get proactive: Lets use the data others have collected and find out what our target audience watches, reads, and listens to. Run an ad campaign that informs our customer that we carry appliances, and why Best Buy. We can use product placement in television shows and movies to draw attention to appliances in Best Buy, which also drives Best Buy brand awareness as well. Imagine if you heard 1 customer a week in Home Theater saying they didn’t know we carried TVs, why do we allow it in appliances?

Take a look at the top two appliance retailers in terms of market share. Sears #1, Continues to advertise everywhere that they sell appliances. Lowes #2 does the same. During certain times of the year it is hard to miss the ads these run specifically around appliances. Sears has been the biggest appliance retailer for nearly forever, and Lowes is quickly closing ground between the two. How are we competing in this race, what are we doing to win?

Opportunity #4: Small appliances, do we sell these?

Solution #1: Move traffic Appliances @ greater volume

K-mart and Walmart each carry large quantities of each SKU in several categories Microwaves, toasters, and blenders. They put these on pallets, endcaps, and in-line with massive numbers. If you go to a local K-mart or Walmart you will find more of any of these things than you will in an entire district's inventory.

Many of these small appliances are grab and go/impulse items. We typically hide these away on shelves in our appliance departments, but since we don't drive much traffic through these departments we lose out.

We should start building carts to go in the raceways, building 4 foot sections near the front lanes, building endcaps in high traffic areas (even far from the appliance department). This will drive more sales of these items, and give the customer a hint that we also sell the major appliances as well.

Solution #2: Greater Store & Ad Presence

If we give small appliances better displays in stores such as the Breville vignettes that are in some stores we might be able to attract more customers. Also if we had solutions for the small appliances, such as extra pieces for the Kitchen Aid Mixers, we would also be able to gain more customers.

Currently very few of our small appliances are actually found in the ad. I can't remember the last time I found an iron or blender in our ad. If we gave small appliances a full page every now and again, we would be able to drive more traffic through our appliance department.

Solution #3: Mirror Williams-Sonoma

What if instead of just normal traffic appliances we had more of a Williams-Sonoma department attached to our appliance department in our Upscale Suburban stores. This would give us a huge advantage over Sears and Lowes in our major appliances. This would also give our customers more reasons to visit our stores.

Opportunity #5: Relationships with Builders, Contractors, Realtors, and Landlords.

Solution #1: Builder's Reward Zone

Customers in these fields can and do buy multiple appliances every month! Realtors can influence the decision of where to buy an appliance. Realtors who flip houses typically furnish houses with appliances. Let's reward those customers who buy appliances the most. Why not have a Reward Zone for customers who buy large volumes in appliances? For every $5000 that you spend in appliances on you Builder's Reward Zone pays you back at $500. A solid 10% discount on everything they buy from us. This gives customers who are buying a lot of appliances through us a reason to shop here, and shop here again in a month (when they get their certificates).

Solution #2: Product to rival project card

Best Buy Card is a great product that rivals the project card (from Lowes), but are we marketing this card to those who are buying $10k-$50k in major appliances every year? This is a great product for those who are flipping a house and are on a tight budget waiting for a house to sell, no worries, just pick up the appliances and only pay 1% a month until it does then pay it all off with no penalty.

Opportunity #6: Not so great Delivery options

Solution #1: Same Day/Next Day delivery - Free

Customers with a broken appliance want everything to be back to normal as soon as possible. Ask yourself, "How long can I go without my fridge?" Obviously there are some logistics issues with getting this done. Lowes uses a subcontractor and still guarantees this as a Next day service for free. This is a great promotion, we should look into who they are using, because if they can do it, why can't we?

Solution #2: Advanced Delivery/Install

For our customers with a non-standard setup (odd dryer vent, weird washer connections, etc.) we should have personal that can come out and assess the situation to make sure the customer is taken care of. This way we have a solution for our customers with older homes or where the area isn't up to code.

Opportunity #7: Price shoppers

Solution #1: Appliance Complete Solution Packages

When customers come into our appliance department and get the complete solution we should reward them with a package discount. This will help drive better attachment of solutions to the main product sale, just as it did in Home Theater (HD advantage).

There would be three levels:

Accessories + Geek Squad Black Tie Protection = Level 1

Level 1 + Installation = Level 2

Level 2 + BBY card or RZMC = Level 3

At each level we would give the customer an additional boost to their current reward zone offer. Double, Triple, or Quadruple the points. Depending on the level.

Solution #2: Spiffs and vendor kick backs – for the customer

It is well known that Lowes and Sears employees are on commission. The vendor's also have spiffs on most products, and during certain drive times there are better brand specific spiffs. Why don't we have these on our appliances aimed at the customer? If a Whirlpool Cabrio at Lowes has a spiff of $65 shouldn't our price on that item be $65 less than Lowes, while we point the price difference comes from the fact that we aren't on commission and we pass that savings along to the customer?

Solution #3: Highlight the price match policy!

Every customer that is shopping between several stores should know that Best Buy will match the price of any appliance store in the area. Obviously we have a lot of competitive differentiators, other than price, but for some customers it all begins and ends with a price.

Opportunity #8: Branding

Solution #1: Pacific Sales

We currently own a couple of appliance brand, Pacific Sales and Five Star. Currently Pacific Sales is only in California and Five Star (as far as I can tell) doesn't operate in the US. We should build appliances into a brand that is sought out, much like Geek Squad.

Magnolia VS Geek Squad: As a brand one fails to get noticed by most customers, and the other has better mind share than it's parent's brand, why? It all comes down to the marketing. The Geek Squad brand has had some of the best marketing that Best Buy as a company has ever done. If we take this same approach for our appliances we could have another huge win on our hands.

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