RUMOR RUMOR RUMOR
Because this is still in rumor status I have moved this to an internal page.
If you are a Best Buy employee You can view it on Watercooler through this path: Home » My Company » Best Buy - Innovation, Generating Value and Saving Money » Innovation and Growth Ideas » Best Buy acquires Radio Shack (rumor)
I would like to say again that this is just a rumor and that I am a line-level employee with no knowledge of what Best Buy corporate is doing in this matter.
This update was just an exercise for my brain and a way to express my thoughts to a company that I love. Because it could be taken the wrong way I have moved these thoughts to a place that can still fulfill my goals without any of the negatives that are possible.
Have fun,
-Mike
Wednesday, March 31, 2010
Friday, March 5, 2010
Talent Development + Validation
Lets try something new:
As always let me know what you think, please keep in mind that this one is off the cuff and I only prepared a very limited set of notes, (4 sentence fragments to remind myself of the inspiration) it was very different for me to do it this way and I am sure that i didn't go into as much detail or depth that I do when I write it out. I am very interested to know what others think about this video (not attempting to do this in a vacuum.) Regardless, I am going to try this out a few more times (I have to get more comfortable in front of a camera), hope you enjoyed.
As always let me know what you think, please keep in mind that this one is off the cuff and I only prepared a very limited set of notes, (4 sentence fragments to remind myself of the inspiration) it was very different for me to do it this way and I am sure that i didn't go into as much detail or depth that I do when I write it out. I am very interested to know what others think about this video (not attempting to do this in a vacuum.) Regardless, I am going to try this out a few more times (I have to get more comfortable in front of a camera), hope you enjoyed.
Tuesday, February 23, 2010
Reduce Velocity – Increase Margin (slow down and do it right)
What if we are going after our objectives the wrong way? What if during this past holiday season we pursued the wrong path by embracing the high velocity strategy? The answer to becoming a more customer centered company that is also more profitable cannot be found by increasing velocity. Conventional retail and Best Buy are not congruent. Wal-mart is the king of conventional retail; let’s let them keep that smoldering battlefield and move on to something that actually serves the customer.
Shrinking Product Margin – (the land of diminishing returns)
I will start off with a bit of math, the point of this exercise should become clear, but I will explain below.
If the average selling price (ASP) of an item is $1000 this year with 30% product margin ($300). The next year its ASP has dropped to $800, but the cost remains the same, the margin drops to 12.5% ($100). The next year its ASP drops to $600, but the cost has dropped a bit as well, and the margin only falls to 6% ($36).
If we sell $100,000 worth of this item the first year, $110,000 the second year, and $121,000 the third year, we have shown a 10% comp year over year which is a great gain in revenue. The problem with this gain in revenue is that the first year we make $30,000 in margin, the second year we make $13,875, and the third year we make $7260.
In this example we would have to sell nearly $250,000 the second year to actually grow, and the third year this number moves over $500,000.
The point is that there are products in our stores that are following a trend similar to this, and if we don’t find a way to stem the tide of margin erosion we will not be able to keep our doors open. Keep reading I will try to find a way out of this.
Competition (Wal-Mart, Target, Lowes, Sears, HHGreg, ABT, Amazon, the list goes on and on and on)
When you ask anyone who are competitors are it typically turns to other retailers, whether they are brick and mortar or online. The list is too long to accurately recreate here, but it suffices to say there are a ton of other businesses fighting for the same customers.
Do we want to compete? Ask yourself if a Wal-mart experience is the type that we even want to compete with. Wander around a vacuous space, hoping to find whatever it is that you came in for (try to remember after trekking for miles throughout the store), asking someone for help (if you can find someone) only to ask yourself if the answer they gave was really correct or just something they made up (depending on the training they have received around the products/services they offer and what that person’s idea of helping is.)
The easy answer is that hopefully we don’t compete with these retailers; we offer customers a better experience that doesn’t even come close to paralleling the scenario outlined above. The unfortunate truth however is that we do offer this experience for a great deal of our customers, especially during the holidays, especially when we increase the velocity.
The logic being that if an associate sells 20 of any given item in an hour vs. selling 2 of that same item in an hour, which is going to be the better customer experience? Which interactions are more likely to leave a customer in a position to take advantage of all of our competitive differentiators? It isn’t very likely going to happen in any one of those 3 minute back to back to back rapid fire interactions that leave the employee racing to the next customer and each customer getting either a canned presentation or just a few basic needs taken care of instead of the complete solution.
The other downside to this activity is that many of our associates are starting their path with our company during the holidays. Those who we train this way as a starting point with the company then retain many of these habits when we move onto the rest of the year. This means that we have to try to train out bad habit that we have instilled as we needed to speed up to handle the increased velocity.
Let other retailers handle the velocity, and let’s become something better
To simply state the case for change: If we continue down this path where we are competing against other retailers by selling product and relying on Home Theater and PC revenue streams to provide an outlet for growth we will not be able to continue being in business.
Here is my view on how we not only survive as a company, but drive growth and expansion through the foreseeable future just by refocusing our efforts and utilizing what we already have working for us.
Products & Services
There are products in our stores that still carry large product margins typically found in Appliances, Car Fi, and Best Buy Mobile. The issue we have now is that we use most of our marketing towards drawing traffic in Computers, Home Theater, and Media (cd/dvds). The question I ask here, would you rather have a customer spend $500 on a transaction and generate $50 in or $500 to generate $100 or better yet $0-250 spent by the customer generating $100s in profit? Yes this is just hypothetical, and an easy choice when it is put this way, but the point remains that put simply we are picking the first option, and $50 may be setting the bar to high.
If we put a focus on departments that sell profitable product instead of ones that sell profitable attachments we could increase margin growth regardless of the revenue lost. I realize that we are a public company and that revenue seems to be one of the biggest indicators of success, but I beg the question, isn’t profit a better measure of success than the total dollar amount that you bring in?
If attaching Geek Squad services is a profitable venture, wouldn’t it be more profitable to sell services on products purchased elsewhere? In this vein, we don’t have to warehouse it, sell it, etc. We just take care of it after the fact. If we advertised services instead of the product, sending the message that no matter where you buy your products Geek Squad will be here for you to Mount it, Optimize it, or protect it. If the product is in our system, why can’t we offer Geek Squad Black Tie Protection, even if it was purchased somewhere else (perhaps a functionality check is necessary first, but there should be a system for this).
NPV/DSUB
NPV and DSUBs, Best Buy Mobile comes to mind again, but so does Home Theater, Gaming, Digital Imaging, Computers, MP3s, Car Fi, and even Appliances in terms of the departments that can offer a D-Sub to a customer and sell products that we don’t have to warehouse or even deliver. There are so many products in the store that we can give to a customer and ring out in our store, that take up very little space in the logistics system. These include service from Smilebox, Napster, iTunes, CinemaNow, DirecTv, Comcast, AT&T, MediaCoMM, HughesNet… The list goes on and on.
These are all items that are essentially free (by comparison to other products) for us, and may have a great impact on our bottom line. The issue is that we have a very low offer rate around these services. If we focused on these parts of our business, if we change our culture in a way that we are actively attaching these services to our customers solutions, we can increase productivity, margin, and make the customers’ experience better all at the same time.
Vendor Show
Perhaps one replacement for our media department that could give us a huge potential to WOW customers along with driving the business, would be to host a vendor show in the front of the store. This would change out once a month (to keep it fresh), different vendors would have interactive displays that would show customers the latest and greatest of everything they have to offer through their technology. During different times in the week we could have our employees or vendor reps actually staff these stations and give presentations and demonstrations of the newest technology (like going to a CES). We could use these to show people how all of the products we offer in the store can work together, and use it as a starting point to talk about having Geek Squad come to their house to either give a consultation or to come out and make it work for them.
Shrinking Product Margin – (the land of diminishing returns)
I will start off with a bit of math, the point of this exercise should become clear, but I will explain below.
If the average selling price (ASP) of an item is $1000 this year with 30% product margin ($300). The next year its ASP has dropped to $800, but the cost remains the same, the margin drops to 12.5% ($100). The next year its ASP drops to $600, but the cost has dropped a bit as well, and the margin only falls to 6% ($36).
If we sell $100,000 worth of this item the first year, $110,000 the second year, and $121,000 the third year, we have shown a 10% comp year over year which is a great gain in revenue. The problem with this gain in revenue is that the first year we make $30,000 in margin, the second year we make $13,875, and the third year we make $7260.
In this example we would have to sell nearly $250,000 the second year to actually grow, and the third year this number moves over $500,000.
The point is that there are products in our stores that are following a trend similar to this, and if we don’t find a way to stem the tide of margin erosion we will not be able to keep our doors open. Keep reading I will try to find a way out of this.
Competition (Wal-Mart, Target, Lowes, Sears, HHGreg, ABT, Amazon, the list goes on and on and on)
When you ask anyone who are competitors are it typically turns to other retailers, whether they are brick and mortar or online. The list is too long to accurately recreate here, but it suffices to say there are a ton of other businesses fighting for the same customers.
Do we want to compete? Ask yourself if a Wal-mart experience is the type that we even want to compete with. Wander around a vacuous space, hoping to find whatever it is that you came in for (try to remember after trekking for miles throughout the store), asking someone for help (if you can find someone) only to ask yourself if the answer they gave was really correct or just something they made up (depending on the training they have received around the products/services they offer and what that person’s idea of helping is.)
The easy answer is that hopefully we don’t compete with these retailers; we offer customers a better experience that doesn’t even come close to paralleling the scenario outlined above. The unfortunate truth however is that we do offer this experience for a great deal of our customers, especially during the holidays, especially when we increase the velocity.
The logic being that if an associate sells 20 of any given item in an hour vs. selling 2 of that same item in an hour, which is going to be the better customer experience? Which interactions are more likely to leave a customer in a position to take advantage of all of our competitive differentiators? It isn’t very likely going to happen in any one of those 3 minute back to back to back rapid fire interactions that leave the employee racing to the next customer and each customer getting either a canned presentation or just a few basic needs taken care of instead of the complete solution.
The other downside to this activity is that many of our associates are starting their path with our company during the holidays. Those who we train this way as a starting point with the company then retain many of these habits when we move onto the rest of the year. This means that we have to try to train out bad habit that we have instilled as we needed to speed up to handle the increased velocity.
Let other retailers handle the velocity, and let’s become something better
To simply state the case for change: If we continue down this path where we are competing against other retailers by selling product and relying on Home Theater and PC revenue streams to provide an outlet for growth we will not be able to continue being in business.
Here is my view on how we not only survive as a company, but drive growth and expansion through the foreseeable future just by refocusing our efforts and utilizing what we already have working for us.
Products & Services
There are products in our stores that still carry large product margins typically found in Appliances, Car Fi, and Best Buy Mobile. The issue we have now is that we use most of our marketing towards drawing traffic in Computers, Home Theater, and Media (cd/dvds). The question I ask here, would you rather have a customer spend $500 on a transaction and generate $50 in or $500 to generate $100 or better yet $0-250 spent by the customer generating $100s in profit? Yes this is just hypothetical, and an easy choice when it is put this way, but the point remains that put simply we are picking the first option, and $50 may be setting the bar to high.
If we put a focus on departments that sell profitable product instead of ones that sell profitable attachments we could increase margin growth regardless of the revenue lost. I realize that we are a public company and that revenue seems to be one of the biggest indicators of success, but I beg the question, isn’t profit a better measure of success than the total dollar amount that you bring in?
If attaching Geek Squad services is a profitable venture, wouldn’t it be more profitable to sell services on products purchased elsewhere? In this vein, we don’t have to warehouse it, sell it, etc. We just take care of it after the fact. If we advertised services instead of the product, sending the message that no matter where you buy your products Geek Squad will be here for you to Mount it, Optimize it, or protect it. If the product is in our system, why can’t we offer Geek Squad Black Tie Protection, even if it was purchased somewhere else (perhaps a functionality check is necessary first, but there should be a system for this).
NPV/DSUB
NPV and DSUBs, Best Buy Mobile comes to mind again, but so does Home Theater, Gaming, Digital Imaging, Computers, MP3s, Car Fi, and even Appliances in terms of the departments that can offer a D-Sub to a customer and sell products that we don’t have to warehouse or even deliver. There are so many products in the store that we can give to a customer and ring out in our store, that take up very little space in the logistics system. These include service from Smilebox, Napster, iTunes, CinemaNow, DirecTv, Comcast, AT&T, MediaCoMM, HughesNet… The list goes on and on.
These are all items that are essentially free (by comparison to other products) for us, and may have a great impact on our bottom line. The issue is that we have a very low offer rate around these services. If we focused on these parts of our business, if we change our culture in a way that we are actively attaching these services to our customers solutions, we can increase productivity, margin, and make the customers’ experience better all at the same time.
Vendor Show
Perhaps one replacement for our media department that could give us a huge potential to WOW customers along with driving the business, would be to host a vendor show in the front of the store. This would change out once a month (to keep it fresh), different vendors would have interactive displays that would show customers the latest and greatest of everything they have to offer through their technology. During different times in the week we could have our employees or vendor reps actually staff these stations and give presentations and demonstrations of the newest technology (like going to a CES). We could use these to show people how all of the products we offer in the store can work together, and use it as a starting point to talk about having Geek Squad come to their house to either give a consultation or to come out and make it work for them.
Thursday, January 21, 2010
BBY Warehouse
Today’s update is going to dive into my ideas for a new concept of a Best Buy store. This concept would change the floor plan around to expand the warehouse portion to cover about 80-90% of the building. Customers would still have access to Blue Shirts, a Geek Squad precinct, and customer kiosks. The point of this design is to lower costs, maximize customer experience, and prepare for the digital content laden future.
Let’s look at the lowered costs first. One of the reasons that online retailers Amazon.com are able to offer very low prices is because of their lack of overhead (i.e. retail locations). This concept allows for fewer employees working in the building by putting a large focus on BestBuy.com pickup and via kiosk sales. We would also configure the warehouse portion of this concept to mimic our current DC/DDC facilities, to ensure that we can pull product quickly. By doing this we better utilize the floor space we are provided thus reducing the impact of rent/mortgage on the price of the individual product.
Next, let’s examine the customer experience. In the customer accessible portion of the store we would have displays like in a normal store, but these would be 10% of the normal number. The biggest change in merchandising would be the use of 3D displays on our kiosks to demonstrate the products that are not on display. Another change would be a consultation area where customers sit down with an expert to discuss what they want to be able to do and then we build the solution they will need to accomplish that goal.
In the future where downloaded content is a more consistent means for customers acquiring media products, there will be several products that we will either no longer sell, or will be sold in a very diminished quantity (i.e. CDs, DVDs, Video Games). This concept prepares for that eventuality by creating a store with a low dependence on “browseable” media for customer traffic.
Keep in mind that this concept isn’t meant as a direct replacement of our current store, but as a modular add-on to the other stores in a district. It’s position in a district should be near as many stores as possible, but at the same time as far from the current DC/DDC as well. This concept will allow for more inventory on-hand, along with supplementing our supply chain as a warehouse hub. Depending on its placement this concept store would be able to bolster other stores’ inventories by using systems like OMS for customer pick-ups.
This concept store would also be a delivery hub, doing deliveries of large TVs, appliances, and BestBuy.com orders depending on the size of the location. For instance, if we test this concept with an existing DDC, it would continue to perform all of its current roles and add customer service. Which based on customer feedback could help the DDC quite considerably with the way they handle customer calls, but that is for a different blog update.
In closing this concept would allow for a brick and mortar store to compete more directly with the pricing of an online retailer. We could offer a discount for products purchased in this store as a direct reflection of the money we have saved by moving to this model, without creating an actual business plan I wouldn’t be able to speak to the actual number of that discount, but it would be in the range of 10-20% off of the normal price. This could be a huge motivator for our customers to shop in this store.
As normal I would like to hear some feedback on this, please let me know what you think in the comments section.
Let’s look at the lowered costs first. One of the reasons that online retailers Amazon.com are able to offer very low prices is because of their lack of overhead (i.e. retail locations). This concept allows for fewer employees working in the building by putting a large focus on BestBuy.com pickup and via kiosk sales. We would also configure the warehouse portion of this concept to mimic our current DC/DDC facilities, to ensure that we can pull product quickly. By doing this we better utilize the floor space we are provided thus reducing the impact of rent/mortgage on the price of the individual product.
Next, let’s examine the customer experience. In the customer accessible portion of the store we would have displays like in a normal store, but these would be 10% of the normal number. The biggest change in merchandising would be the use of 3D displays on our kiosks to demonstrate the products that are not on display. Another change would be a consultation area where customers sit down with an expert to discuss what they want to be able to do and then we build the solution they will need to accomplish that goal.
In the future where downloaded content is a more consistent means for customers acquiring media products, there will be several products that we will either no longer sell, or will be sold in a very diminished quantity (i.e. CDs, DVDs, Video Games). This concept prepares for that eventuality by creating a store with a low dependence on “browseable” media for customer traffic.
Keep in mind that this concept isn’t meant as a direct replacement of our current store, but as a modular add-on to the other stores in a district. It’s position in a district should be near as many stores as possible, but at the same time as far from the current DC/DDC as well. This concept will allow for more inventory on-hand, along with supplementing our supply chain as a warehouse hub. Depending on its placement this concept store would be able to bolster other stores’ inventories by using systems like OMS for customer pick-ups.
This concept store would also be a delivery hub, doing deliveries of large TVs, appliances, and BestBuy.com orders depending on the size of the location. For instance, if we test this concept with an existing DDC, it would continue to perform all of its current roles and add customer service. Which based on customer feedback could help the DDC quite considerably with the way they handle customer calls, but that is for a different blog update.
In closing this concept would allow for a brick and mortar store to compete more directly with the pricing of an online retailer. We could offer a discount for products purchased in this store as a direct reflection of the money we have saved by moving to this model, without creating an actual business plan I wouldn’t be able to speak to the actual number of that discount, but it would be in the range of 10-20% off of the normal price. This could be a huge motivator for our customers to shop in this store.
As normal I would like to hear some feedback on this, please let me know what you think in the comments section.
Wednesday, January 13, 2010
Twelpforce Episode 2: Attack of the clones
Twelpforce has been a great test so far, and in the future it will be an even greater tool Best Buy can use to help its customers realize happiness. This is my take on what Twelpforce 1.0 could look like, more of a prediction than a true suggestion. I am sure that many of these ideas have already been discussed, but I have been thinking about it for the past couple of days and wanted to write about it, so here we go.
Customer service tools
Many tools are already in the average Blue Shirt’s hands to take care of common to advanced customer issues. The future twelper will use more of these tools to hand customer issues in the same way that any rep 2 or a 1-888-Best-Buy call center employee currently does. This will provide a faster way to handle customer issues, along with increasing productivity for the call center load. Imagine an army of call center employees all taking phone calls and at the same time being able to take care of 1-10 customers through the web. This takes place in a world that merges Twelpforce with the remote support Geek Squad agent idea, and provides a very quick and easy experience for our customer.
More ways to send/receive messages
Another big change that I see happening is moving outward from Twitter. We will take advantage of over ways to communicate with our customers; this includes communicating with customers through SMS, Google talk, Google wave, Facebook, Xbox Live, and BestBuy.com. In the future this will be one way that we can eliminate the barriers like distance, time, and service that have between us and taking care of our customers.
Process Sales
Another patch that I could see following is one where twelpers are able to process sales through whichever method they have established contact with the customer. Of course there are a great many pieces of security we would have to put into place first to ensure that we are not setting up an easy way for customers to be duped and defrauded. Other than that this could be an easy transition from just educating customers around products they may enjoy to actually facilitating the sale of that product. This way the customer can get exactly what they had talked about without any chance for them to accidently bring home the wrong product.
Testimonials from satisfied customers
One of the best ideas I have received from a fellow twelper was to favorite all of the “Thank You” responses that I receive. It is a great morale booster and can be used to demonstrate our impact to other associates while explaining what Twelpforce is and how it impacts our customers. Having a public facing version of this would allow for potential customers and critics what kind of service they can expect from us. There are always going to be critics that we can’t win over to our side, but one negative voice can be overwhelmed by a sea of positive. I could see an area for this on the official Twelpforce website, along with mentions from real customers in future advertising of Twelpforce, we are already using real employees, why not use real customers as well.
Archives
One of the things I have noticed as I twelp is that some questions come up over and over again. We have solved this problem for now by linking to a forum, but in the future I believe that there will be a fully functional archive of answers that the public will be able to search. These searches will find relevant answers to questions that are commonly asked. If a customer doesn’t want to wait for a twelper to help them out, they could simply look at the answers we have already provided, along with longer more detailed answers than 140 characters are able to provide.
Articles
Another change I see in the future is the addition of articles or columns written by twelpers on a daily, weekly, or monthly cycle based on the twelper and the content on which they are writing. Essentially like a Mashable, CNET, Gizmodo, etc type of news source written by Best Buy employees. With over 2,200 twelpers currently finding a handful of them willing and able to write Tech/Best Buy related articles will be an easy task. These articles would be based on the writers’ prowess and interests detailing things like new technology coming out, possibilities from current tech, benefits of services we offer, etc. In this way we will drive extra traffic from people who may not have questions or issues for us to resolve, but my just be interested in what one of our writers has to say.
Videos
One really amazing thing I witnessed recently was a question being answered in a video. This was a really fantastic thing for many reasons. First, it allow for a longer than 140 character answer, but it was more than that. It was a personal connection that words can’t always convey. I can see this as a big part of the future as it seems like an even more positive version of what we are doing currently. Also, archiving these videos would be very simple through TouTube and TwitVid.
Alright, this week was a short update. As always feel free to leave comments below.
Customer service tools
Many tools are already in the average Blue Shirt’s hands to take care of common to advanced customer issues. The future twelper will use more of these tools to hand customer issues in the same way that any rep 2 or a 1-888-Best-Buy call center employee currently does. This will provide a faster way to handle customer issues, along with increasing productivity for the call center load. Imagine an army of call center employees all taking phone calls and at the same time being able to take care of 1-10 customers through the web. This takes place in a world that merges Twelpforce with the remote support Geek Squad agent idea, and provides a very quick and easy experience for our customer.
More ways to send/receive messages
Another big change that I see happening is moving outward from Twitter. We will take advantage of over ways to communicate with our customers; this includes communicating with customers through SMS, Google talk, Google wave, Facebook, Xbox Live, and BestBuy.com. In the future this will be one way that we can eliminate the barriers like distance, time, and service that have between us and taking care of our customers.
Process Sales
Another patch that I could see following is one where twelpers are able to process sales through whichever method they have established contact with the customer. Of course there are a great many pieces of security we would have to put into place first to ensure that we are not setting up an easy way for customers to be duped and defrauded. Other than that this could be an easy transition from just educating customers around products they may enjoy to actually facilitating the sale of that product. This way the customer can get exactly what they had talked about without any chance for them to accidently bring home the wrong product.
Testimonials from satisfied customers
One of the best ideas I have received from a fellow twelper was to favorite all of the “Thank You” responses that I receive. It is a great morale booster and can be used to demonstrate our impact to other associates while explaining what Twelpforce is and how it impacts our customers. Having a public facing version of this would allow for potential customers and critics what kind of service they can expect from us. There are always going to be critics that we can’t win over to our side, but one negative voice can be overwhelmed by a sea of positive. I could see an area for this on the official Twelpforce website, along with mentions from real customers in future advertising of Twelpforce, we are already using real employees, why not use real customers as well.
Archives
One of the things I have noticed as I twelp is that some questions come up over and over again. We have solved this problem for now by linking to a forum, but in the future I believe that there will be a fully functional archive of answers that the public will be able to search. These searches will find relevant answers to questions that are commonly asked. If a customer doesn’t want to wait for a twelper to help them out, they could simply look at the answers we have already provided, along with longer more detailed answers than 140 characters are able to provide.
Articles
Another change I see in the future is the addition of articles or columns written by twelpers on a daily, weekly, or monthly cycle based on the twelper and the content on which they are writing. Essentially like a Mashable, CNET, Gizmodo, etc type of news source written by Best Buy employees. With over 2,200 twelpers currently finding a handful of them willing and able to write Tech/Best Buy related articles will be an easy task. These articles would be based on the writers’ prowess and interests detailing things like new technology coming out, possibilities from current tech, benefits of services we offer, etc. In this way we will drive extra traffic from people who may not have questions or issues for us to resolve, but my just be interested in what one of our writers has to say.
Videos
One really amazing thing I witnessed recently was a question being answered in a video. This was a really fantastic thing for many reasons. First, it allow for a longer than 140 character answer, but it was more than that. It was a personal connection that words can’t always convey. I can see this as a big part of the future as it seems like an even more positive version of what we are doing currently. Also, archiving these videos would be very simple through TouTube and TwitVid.
Alright, this week was a short update. As always feel free to leave comments below.
Saturday, January 2, 2010
How to build Best Buy’s Service culture
This is a topic that I am probably not nearly done with, but if I don't upload it now, I will likely continue to add to it forever.
This is what Reuters has to say about Best Buy:
Best Buy Co., Inc. (Best Buy) is a specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services. The Company operates retail stores and Web sites under the brand names Best Buy (BestBuy.com, BestBuy.ca, BestBuy.com.cn, espanol.BestBuy.com and BestBuyMobile.com), The Carphone Warehouse (Carphone Warehouse.com), Five Star (Five-Star.cn), Future Shop (FutureShop.ca), Geek Squad (GeekSquad.com and GeekSquad.ca), Magnolia Audio Video (MagnoliaAV.com). It operates through two business segments: Domestic and International. The Domestic segment consists of the store, call center and online operations in all states, districts and territories of the United States operating under the brand names Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video and Speakeasy. The International segment is comprised all Canada store, call center and online operations, under the brand names Best Buy, Best Buy Mobile, Future Shop and Geek Squad.
A specialty retailer is the first part of the definition, with services seemingly an afterthought. They view Best Buy as a retail store. If we want to build a true culture of service we have to shake the perception that we are retail. Because Wal-Mart is the king of retail grossing hundreds of billions of dollars a year and we all know that there is no logical person that will mistake them for a service company. The question moving forward is this: “Are we a retail company that offers services or are we a Service company that offers product?” If we allow Wall Street or our customers to answer this question today, we would likely see that we are the former, but how do we shift the perception to the latter? This blog update will cover a few ideas on how that can happen.
Rebranding Best Buy to Geek Squad
Rebranding the Best Buy store to Geek Squad is one possible solution, but with the cost of giving up the Best Buy brand this may be a hard sell to most powers that be, so instead of rebranding every store in the company we could have true Geek Squad stand alone stores instead of the stand alone precincts we have tried in the past. These Geek Squad stand alone stores would essentially be rebranded Best Buy stores with Geek Squad agents/autotechs/installers working on the sales floor; these members of Geek Squad would be able to provide the sales advice for customers along with being able to perform the services required. The plan would be to one of these Geek Squad service stores in each district, that way they would be close to the other stores and be able to use Geek Squad members from these other stores in a rotation. The Geek Squad stand alone store should drive more services than any other store as it would be those most qualified to talk about the services that we offer on the front lines offering them to our customers. This would also be a great place for other stores in the district to send their employees for training around the services that we offer.
Change the Signage
One easy way to allow customers to know that we offer services is to change the price tag. Instead of the largest most visible price being that of the product, it should be that of the product combined with the most applicable service that we offer. The product price should still appear on the price tag, but should be a reduced size. This will give customers who aren’t speaking to a Blue shirt the knowledge that we do offer services as a company. This also gives breaks the illusion that we are simply adding services on to the product. This also helps the customer understand that it is our mission to make their lives better through a complete solution. To select which services to add to the price tag, I would suggest looking at the most common services sold on whichever product we are talking about (e.g. Netbooks would have optimization). Another great thing about having the prices on the tag is that associates covering from another area in the store would have an easier time offering services.
Leverage Speakeasy, Napster, and D-Subs(Digital Subscription)
It isn’t a large stretch to think of a content provider offering services (e.g. DirecTv setting up a new TV or AT&T setting up your network). One thing we to need leverage now more than ever is the fact that we offer content, as the margins on consumer electronics plunge lower and lower every year, one constant remains that we have to turn a profit to stay in business. We are heading towards a future where televisions are a loss leader to bring customers in (where computers are today), customer traffic drivers like CDs and DVDs are obsolete (replaced by digital download), and online retailers can sell products far below costs of big box retailers and turn a profit (Amazon is already consistently doing this). In this crazy future we will need to find products and services that provide the margin our business needs to stay healthy.
If our business routinely matched customers up to content that we either provide or are a conduit to, they will think of us when it is time to do any of the service work to make it work. This hypothesis is based on the current culture where customers have a tendency to hold Best Buy responsible for products that don’t work properly because they know we have a service center and fix things, where they don’t typically hold other retailers responsible in the same way (e.g. Wal-mart/Target). Essentially by strengthening this part of our business we will grow the services aspect and add margin while we do it.
One way to do this is to have bigger more interactive displays for the content and D-subs we offer currently: Napster, Netflix, CinemaNow/Blockbuster, AT&T, Comcast, etc. Make it a simple process for a customer to sign up, with or without an associate present. By making this a process that the customer can do by themselves we also save on SG&A and potentially making it a faster experience for the customer during very busy times where associates may be helping other customers.
One innovation that comes to mind is having a D-sub display that is zoned by an employee of Best Buy, or even allow the third party to use their own labor. For example, Netflix is a great D-sub that we are offering right now. We could have a 4 foot section devoted to Netflix (or even use the one of the FEZ in Home Theater), this section would have a TV, a computer, and an Xbox/PS3. A Netflix account would be created for each one of these displays. We could use a MiFi to provide internet to all of the devices, and truly show customers how easy it is to stream Netflix. If we assume that all of the product would be on planogram anyway and nearly any mobile vendor would jump at the chance of having their MIFI associated with this type of display, the only real extra cost to us would be in the labor. If the average d-sub has a $35 dollar vendor credit behind it, and we assume the average line level employee makes $10 per hour, the goal would be for the associate to sell one per hour. This would give a margin of $25 per hour.
Now if these assumptions are correct lets add it all up. Assuming that this display sells an average of 10 per day, and we have half our stores that meet this goal and the rest did nothing, we would do an extra $125,000 per day in margin. If we assume that type of performance for 360 days out of the year we would gross and extra $45 Million a year in margin. Now I understand this is only an increase of about .001% in a $40 billion dollar company, but it is a move in the right direction and it assumes a very small investment with a very small impact. If we move those goals up a bit, to have 70% of the stores participating, 2 an hour, still 360 days a year we move up to $126 Million which is .003% of that $40 billion dollar business.
Obviously these assumptions are not all completely accurate, as the $35 amount is just one created for the sake of creating an equation that may be solved. Depending on the D-Sub that is chosen the number sold and the vendor credit could be completely different, but the point remains if there is an amount of margin that exceeds the employees’ salaries a small section in each store that changes periodically would be a boon for Best Buy along with whichever company we were selling in that vignette. This would be doubleplusgood if we used Napster as one of these manned vignettes, as we can leverage our business to compete with Apple, although right now we aren’t going to go into depth around how we sell gift cards for our competition.
Change Free Delivery Offer
The issue that is caused by Free Delivery is the “hook up” where delivery will connect a single source, usually for the purpose of making sure the TV works before they leave. Customers have a hard time separating from an installation (Geek Squad employees performing the service) and delivery and hookup (Third party connecting one device). This leads to problems when trying to match the customer to the proper services, as they feel that those services are going to be free before they come into the store. Free delivery works very well VS. Wal-Mart/Target & other retailers, but is hurting our installation business.
The question I would pose is this, “What do we want to do?” Are we trying to win a war with Wal-Mart in TVs or are we trying to build our business into one that we want to run and our customers want to shop?
If we are trying to win a price/VPE war with Wal-Mart in TVs we might as well give up now, the reason I say that is because of the results so far – TV margins are very slim, Wal-Mart and Best Buy have similar prices, and Wal-Mart attempts to copy every innovation made by Best Buy. The problem with all of this is that Wal-Mart is 5 times larger and sells groceries meaning they can sell more product and they can use their entire electronics department (a Best Buy clone without the Blue-Shirts) to drive traffic and still make margin off of the odds and ins that other retailers can’t/don’t carry.
Home Theater Changes
If the answer instead is that we want to build the business into one that we enjoy and that our customers want to shop at we have to change some of our thinking and strategy to work for the long term result.
One way we can drive installations is to work with our vendors for backend support, offering discounts on the installation prices with the purchase of certain brands each week. This would be a promotion that we would run every week with alternating brands for 6 months to a year. The goal is to drive word of mouth advertisement to friends and family of those having the work done, along with putting our agents in more homes which gives us the chance to inspire and demonstrate the art of the possible, and with backend support from our partners it gives us the margin that we would normally have. If we go with this strategy I would caution that the services should never be free at first it should be around 30-50% off and by the end it should be reflecting a 20-40% discount, this will keep the HT(HE) associates offering. The issue with giving it away for free can make the associates a little more apathetic in their offering when it is no longer free.
Another way to drive installation is to take pictures of our completed installations. We can then use these on GeekSquad.com, in local stores (“brag books”, on the TVs in the HT loop, as posters, etc), and in different forms of advertisement. Some stores already use pictures like this, but installers aren’t all taking pictures after every job (with customer permission of course). The more pictures of completed installations we can show our customers the more they will trust our work along with feeling confident with our ability to do a great job.
Advertise Repair
One of the areas that we don’t talk about often is the repair service that we offer. If we look at the smaller local businesses that sell appliances and offer repair we see a key difference between the vehicles we use and the ones they use. Theirs call out the products and services they offer along with contact information where ours typically are either plain (e.g. Delivery + appliance install/repair) or mysterious (Geek Squad), and while I agree that there is a certain appeal that is gained from the mystic that Geek Squad vehicles have, there is also an opportunity to advertise what we do, and that mystic can only last so long before customer get tired of trying to figure out what it is that we do. One big thing we can do with our vehicles is to put some information of what we offer somewhere on our vehicles. The type of information and location to print it will vary from vehicle to vehicle, but as an example on the back of a Geekmobile we could put 1-800-Geek-Squad and a reference to computer setup/repair. Perhaps as OLED screens become a little more common place we could use screens like these to display advertisements on our vehicles.
We should also use in-store signage to let customers know that we can repair old appliances, TVs, computers, etc. Along with putting this information in our weekly advertisements will allow us to drive our repair business. The goal here again is a long term one, where by educating customers that we can repair their products we also gain their trust and demonstrate our prowess which will lead to more installations sold in the future.
Low priced services – Ala Cart
Price shopping customers tend to balk at the price of our services, which is an issue when we are trying to drive a service culture. Even Wal-mart is starting to learn that there is a finite amount of boxes that you can sell to a customer, but one thing that we are both forgetting is that the lower income customer has a set budget for the TV when they come in and the reason they will do it themselves most of the time is not because of some joy of the manual labor, or even that the service doesn’t have enough value for the money, but more likely because it exceeds the amount of money in their wallet. To cater to these customers I would suggest having budget services, where we have a low opening price point to appeal to these customers, but with a very limited service offered. For the sake of example let’s take a look at the TV Mounting service that we currently offer and the low priced version of this service.
TV Mounting - $149/$249/$349 depending on the size of TV. This service has a huge value for the money, and provides a really great job, the downside is that with the price of TVs dropping a 32” TV may only cost $299-$399 which means that the service nearly doubles the price of the TV. The low price version could be $90/$180/$270 and the trade off would be that we no longer conceal the wires in the wall and we don’t do an educational demo – these being two of the more time consuming pieces of the wall mount.
Training
Another large piece that we are missing out on is the training around consumer electronics. This should be a category on every page on GeekSquad.com. It should be difficult for a customer to go without knowing that we offer training on nearly every product in the store. One big innovation that my store has been using for years with varying degree of success is an in store training at $29.99 on Camera’s and iPods. I would assume that if we had a large push companywide that we could drive a great deal of services. Very much like the example above with D-Subs, this training drives a margin of about $24.99 on average. This makes for a very profitable symbiotic relationship with our customers. Taken a step further, if we offered a class every weekend for $10 per person, and taught a classroom full of people, we could increase participation and margin quite a bit. If this were an hour long class held every Saturday with a minimum of 5 clients scheduled for each class, assuming that each store was able to hold 2 of these a month with the minimum number of clients we would drive an additional $1.2 million in revenue each year, which may be a very small amount of money in the big picture, but this would represent 10,000 customers each month that we are reaching out to in a very personal way.
These customers would be educated on product categories they own and/or intend to buy along with reasons why Best Buy. The other large thing to consider here is that normal people only use about 20% of the features of any piece of technology in their house. With that said, they typically will need a cable, or just one other piece to unlock a great deal of the potential of what they have. If we are able to supply the knowledge and the product, this becomes a win-win situation for us and the customer.
This is what Reuters has to say about Best Buy:
Best Buy Co., Inc. (Best Buy) is a specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services. The Company operates retail stores and Web sites under the brand names Best Buy (BestBuy.com, BestBuy.ca, BestBuy.com.cn, espanol.BestBuy.com and BestBuyMobile.com), The Carphone Warehouse (Carphone Warehouse.com), Five Star (Five-Star.cn), Future Shop (FutureShop.ca), Geek Squad (GeekSquad.com and GeekSquad.ca), Magnolia Audio Video (MagnoliaAV.com). It operates through two business segments: Domestic and International. The Domestic segment consists of the store, call center and online operations in all states, districts and territories of the United States operating under the brand names Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video and Speakeasy. The International segment is comprised all Canada store, call center and online operations, under the brand names Best Buy, Best Buy Mobile, Future Shop and Geek Squad.
A specialty retailer is the first part of the definition, with services seemingly an afterthought. They view Best Buy as a retail store. If we want to build a true culture of service we have to shake the perception that we are retail. Because Wal-Mart is the king of retail grossing hundreds of billions of dollars a year and we all know that there is no logical person that will mistake them for a service company. The question moving forward is this: “Are we a retail company that offers services or are we a Service company that offers product?” If we allow Wall Street or our customers to answer this question today, we would likely see that we are the former, but how do we shift the perception to the latter? This blog update will cover a few ideas on how that can happen.
Rebranding Best Buy to Geek Squad
Rebranding the Best Buy store to Geek Squad is one possible solution, but with the cost of giving up the Best Buy brand this may be a hard sell to most powers that be, so instead of rebranding every store in the company we could have true Geek Squad stand alone stores instead of the stand alone precincts we have tried in the past. These Geek Squad stand alone stores would essentially be rebranded Best Buy stores with Geek Squad agents/autotechs/installers working on the sales floor; these members of Geek Squad would be able to provide the sales advice for customers along with being able to perform the services required. The plan would be to one of these Geek Squad service stores in each district, that way they would be close to the other stores and be able to use Geek Squad members from these other stores in a rotation. The Geek Squad stand alone store should drive more services than any other store as it would be those most qualified to talk about the services that we offer on the front lines offering them to our customers. This would also be a great place for other stores in the district to send their employees for training around the services that we offer.
Change the Signage
One easy way to allow customers to know that we offer services is to change the price tag. Instead of the largest most visible price being that of the product, it should be that of the product combined with the most applicable service that we offer. The product price should still appear on the price tag, but should be a reduced size. This will give customers who aren’t speaking to a Blue shirt the knowledge that we do offer services as a company. This also gives breaks the illusion that we are simply adding services on to the product. This also helps the customer understand that it is our mission to make their lives better through a complete solution. To select which services to add to the price tag, I would suggest looking at the most common services sold on whichever product we are talking about (e.g. Netbooks would have optimization). Another great thing about having the prices on the tag is that associates covering from another area in the store would have an easier time offering services.
Leverage Speakeasy, Napster, and D-Subs(Digital Subscription)
It isn’t a large stretch to think of a content provider offering services (e.g. DirecTv setting up a new TV or AT&T setting up your network). One thing we to need leverage now more than ever is the fact that we offer content, as the margins on consumer electronics plunge lower and lower every year, one constant remains that we have to turn a profit to stay in business. We are heading towards a future where televisions are a loss leader to bring customers in (where computers are today), customer traffic drivers like CDs and DVDs are obsolete (replaced by digital download), and online retailers can sell products far below costs of big box retailers and turn a profit (Amazon is already consistently doing this). In this crazy future we will need to find products and services that provide the margin our business needs to stay healthy.
If our business routinely matched customers up to content that we either provide or are a conduit to, they will think of us when it is time to do any of the service work to make it work. This hypothesis is based on the current culture where customers have a tendency to hold Best Buy responsible for products that don’t work properly because they know we have a service center and fix things, where they don’t typically hold other retailers responsible in the same way (e.g. Wal-mart/Target). Essentially by strengthening this part of our business we will grow the services aspect and add margin while we do it.
One way to do this is to have bigger more interactive displays for the content and D-subs we offer currently: Napster, Netflix, CinemaNow/Blockbuster, AT&T, Comcast, etc. Make it a simple process for a customer to sign up, with or without an associate present. By making this a process that the customer can do by themselves we also save on SG&A and potentially making it a faster experience for the customer during very busy times where associates may be helping other customers.
One innovation that comes to mind is having a D-sub display that is zoned by an employee of Best Buy, or even allow the third party to use their own labor. For example, Netflix is a great D-sub that we are offering right now. We could have a 4 foot section devoted to Netflix (or even use the one of the FEZ in Home Theater), this section would have a TV, a computer, and an Xbox/PS3. A Netflix account would be created for each one of these displays. We could use a MiFi to provide internet to all of the devices, and truly show customers how easy it is to stream Netflix. If we assume that all of the product would be on planogram anyway and nearly any mobile vendor would jump at the chance of having their MIFI associated with this type of display, the only real extra cost to us would be in the labor. If the average d-sub has a $35 dollar vendor credit behind it, and we assume the average line level employee makes $10 per hour, the goal would be for the associate to sell one per hour. This would give a margin of $25 per hour.
Now if these assumptions are correct lets add it all up. Assuming that this display sells an average of 10 per day, and we have half our stores that meet this goal and the rest did nothing, we would do an extra $125,000 per day in margin. If we assume that type of performance for 360 days out of the year we would gross and extra $45 Million a year in margin. Now I understand this is only an increase of about .001% in a $40 billion dollar company, but it is a move in the right direction and it assumes a very small investment with a very small impact. If we move those goals up a bit, to have 70% of the stores participating, 2 an hour, still 360 days a year we move up to $126 Million which is .003% of that $40 billion dollar business.
Obviously these assumptions are not all completely accurate, as the $35 amount is just one created for the sake of creating an equation that may be solved. Depending on the D-Sub that is chosen the number sold and the vendor credit could be completely different, but the point remains if there is an amount of margin that exceeds the employees’ salaries a small section in each store that changes periodically would be a boon for Best Buy along with whichever company we were selling in that vignette. This would be doubleplusgood if we used Napster as one of these manned vignettes, as we can leverage our business to compete with Apple, although right now we aren’t going to go into depth around how we sell gift cards for our competition.
Change Free Delivery Offer
The issue that is caused by Free Delivery is the “hook up” where delivery will connect a single source, usually for the purpose of making sure the TV works before they leave. Customers have a hard time separating from an installation (Geek Squad employees performing the service) and delivery and hookup (Third party connecting one device). This leads to problems when trying to match the customer to the proper services, as they feel that those services are going to be free before they come into the store. Free delivery works very well VS. Wal-Mart/Target & other retailers, but is hurting our installation business.
The question I would pose is this, “What do we want to do?” Are we trying to win a war with Wal-Mart in TVs or are we trying to build our business into one that we want to run and our customers want to shop?
If we are trying to win a price/VPE war with Wal-Mart in TVs we might as well give up now, the reason I say that is because of the results so far – TV margins are very slim, Wal-Mart and Best Buy have similar prices, and Wal-Mart attempts to copy every innovation made by Best Buy. The problem with all of this is that Wal-Mart is 5 times larger and sells groceries meaning they can sell more product and they can use their entire electronics department (a Best Buy clone without the Blue-Shirts) to drive traffic and still make margin off of the odds and ins that other retailers can’t/don’t carry.
Home Theater Changes
If the answer instead is that we want to build the business into one that we enjoy and that our customers want to shop at we have to change some of our thinking and strategy to work for the long term result.
One way we can drive installations is to work with our vendors for backend support, offering discounts on the installation prices with the purchase of certain brands each week. This would be a promotion that we would run every week with alternating brands for 6 months to a year. The goal is to drive word of mouth advertisement to friends and family of those having the work done, along with putting our agents in more homes which gives us the chance to inspire and demonstrate the art of the possible, and with backend support from our partners it gives us the margin that we would normally have. If we go with this strategy I would caution that the services should never be free at first it should be around 30-50% off and by the end it should be reflecting a 20-40% discount, this will keep the HT(HE) associates offering. The issue with giving it away for free can make the associates a little more apathetic in their offering when it is no longer free.
Another way to drive installation is to take pictures of our completed installations. We can then use these on GeekSquad.com, in local stores (“brag books”, on the TVs in the HT loop, as posters, etc), and in different forms of advertisement. Some stores already use pictures like this, but installers aren’t all taking pictures after every job (with customer permission of course). The more pictures of completed installations we can show our customers the more they will trust our work along with feeling confident with our ability to do a great job.
Advertise Repair
One of the areas that we don’t talk about often is the repair service that we offer. If we look at the smaller local businesses that sell appliances and offer repair we see a key difference between the vehicles we use and the ones they use. Theirs call out the products and services they offer along with contact information where ours typically are either plain (e.g. Delivery + appliance install/repair) or mysterious (Geek Squad), and while I agree that there is a certain appeal that is gained from the mystic that Geek Squad vehicles have, there is also an opportunity to advertise what we do, and that mystic can only last so long before customer get tired of trying to figure out what it is that we do. One big thing we can do with our vehicles is to put some information of what we offer somewhere on our vehicles. The type of information and location to print it will vary from vehicle to vehicle, but as an example on the back of a Geekmobile we could put 1-800-Geek-Squad and a reference to computer setup/repair. Perhaps as OLED screens become a little more common place we could use screens like these to display advertisements on our vehicles.
We should also use in-store signage to let customers know that we can repair old appliances, TVs, computers, etc. Along with putting this information in our weekly advertisements will allow us to drive our repair business. The goal here again is a long term one, where by educating customers that we can repair their products we also gain their trust and demonstrate our prowess which will lead to more installations sold in the future.
Low priced services – Ala Cart
Price shopping customers tend to balk at the price of our services, which is an issue when we are trying to drive a service culture. Even Wal-mart is starting to learn that there is a finite amount of boxes that you can sell to a customer, but one thing that we are both forgetting is that the lower income customer has a set budget for the TV when they come in and the reason they will do it themselves most of the time is not because of some joy of the manual labor, or even that the service doesn’t have enough value for the money, but more likely because it exceeds the amount of money in their wallet. To cater to these customers I would suggest having budget services, where we have a low opening price point to appeal to these customers, but with a very limited service offered. For the sake of example let’s take a look at the TV Mounting service that we currently offer and the low priced version of this service.
TV Mounting - $149/$249/$349 depending on the size of TV. This service has a huge value for the money, and provides a really great job, the downside is that with the price of TVs dropping a 32” TV may only cost $299-$399 which means that the service nearly doubles the price of the TV. The low price version could be $90/$180/$270 and the trade off would be that we no longer conceal the wires in the wall and we don’t do an educational demo – these being two of the more time consuming pieces of the wall mount.
Training
Another large piece that we are missing out on is the training around consumer electronics. This should be a category on every page on GeekSquad.com. It should be difficult for a customer to go without knowing that we offer training on nearly every product in the store. One big innovation that my store has been using for years with varying degree of success is an in store training at $29.99 on Camera’s and iPods. I would assume that if we had a large push companywide that we could drive a great deal of services. Very much like the example above with D-Subs, this training drives a margin of about $24.99 on average. This makes for a very profitable symbiotic relationship with our customers. Taken a step further, if we offered a class every weekend for $10 per person, and taught a classroom full of people, we could increase participation and margin quite a bit. If this were an hour long class held every Saturday with a minimum of 5 clients scheduled for each class, assuming that each store was able to hold 2 of these a month with the minimum number of clients we would drive an additional $1.2 million in revenue each year, which may be a very small amount of money in the big picture, but this would represent 10,000 customers each month that we are reaching out to in a very personal way.
These customers would be educated on product categories they own and/or intend to buy along with reasons why Best Buy. The other large thing to consider here is that normal people only use about 20% of the features of any piece of technology in their house. With that said, they typically will need a cable, or just one other piece to unlock a great deal of the potential of what they have. If we are able to supply the knowledge and the product, this becomes a win-win situation for us and the customer.
Friday, December 11, 2009
Best Buy Game Lounge
In previous posts and other forums I have talked about an innovation that I call the Best Buy Game lounge, usually as a pay by the hour network that Best Buy would host inside of its retail stores. In this update I would like to expand on that idea along with adding elements that I feel would complement this idea in ways that drive customer satisfaction/loyalty and assorted business metrics.
Game Lounge - rehash
For those who haven’t seen my previous posts or submissions around this idea allow me to rehash for a moment. The Best Buy Game Lounge would be a gaming network setup inside of a Best Buy store that allows for customers to play either computer or console (Xbox 360/ps3) games together in either cooperative or competitive modes. Customers would pay an hourly fee to have access to these machines. This gives the customers an experience that can’t be duplicated through typical online play, a great VPE for gaming customers, and a competitive differentiator that other retailers would find difficult or impossible to duplicate due to many factors.
Game Lounge – how it works
Let’s move onto the nuts and bolts on this to see why this innovation has the potential to be very profitable. For the purpose of this example of cost I will use 8 (eight) Xbox 360s (Arcade) @ $200, 8 (eight) of any HDTV @ $300, 1 (one) 8-port switch @ $32.99, and misc. Cat-6 cables @ $10. This means that the entire LAN would cost about $4043 excluding any other costs (labor, electricity, rent, etc). We can use this number to find our breakeven point for the equipment.
Price per hour/Hours needed to hit breakeven/Hours needed with 8 machines full
3 / 1347 / 168.375
5 / 808.6 / 101.075
7 / 577.57 / 72.19625
Essentially if we assume the machines are full for an average of 2 hours a day Monday-Thursday and 4 hours a day Friday-Sunday we will arrive at an average 20 hours a week, this assumption also provides that there are no other customers paying for use. At that rate the LAN equipment would pay for itself in as little as 4 weeks or as much as 8 and a half weeks. The next aspect to look at is the other costs. These costs such as labor, electricity, and rent are costs that we already incur. There is a slight increase in total electricity and labor costs because this is additional, but the electrical costs are minimal and the labor pays for itself.
In terms of this assumption the labor we would use is one associate “zoned” in the Game Lounge for this single LAN. This associate is responsible for taking payment, measuring time, ensuring proper conduct from those at the gaming machines, etc. During the time the associate will also have other tasks to perform in the immediate vicinity.
Essentially if we assume that the average salary for anyone in retail (Best Buy or anywhere else) is about $10 per hour, then it whenever two people are playing at $5 or $7 dollars per hour or three people are playing at $3 dollars per hour, then 90-140% of the employee labor cost is being offset. Also, the associate would be able to perform tasks such as farming or greeting/stacking customers in an adjacent department depending on the layout of each individual store. This scenario was also assumes that we use only have one LAN comprised 8 computers for each associate that we use in the lounge.
One of thing to keep in mind while thinking about this innovation is that it is scalable based on area and demand. This means that one associate can manage multiple LANs comprised of 8-16 machines. A large part of the testing of this innovation would be to determine the average number of LANs/players the average associate can manage easily. With that said another assumption that I will make is that the average associate will be able to manage about 24 people regardless of how they are spread out between LANs, this is based on the experience that I have had in the past with LAN gaming and Midnight openings at Best Buy.
A quick note on “Measuring Time”: There are a great many ways to measure time for multiple machines that are being used from something as simple as a kitchen timer to the very elaborate computer programs, whichever we use really doesn’t matter as long as the customers and employees can all tell when the time has expired for each customer/machine.
Once the breakeven point for the equipment is made we are also able to sell the equipment for whatever cost and derive 100% margin from that sale as well. This is something to consider when it is time to upgrade the equipment that we are using. For the gaming consoles (Xbox 360/PS3) this will only need to be done once every 2-8 years. Depending on the frequency at which new gaming consoles come out (which has been trending longer and longer). The computers are a different story, and should likely be upgraded at least once per year. This is due to the changes in PC gaming which happen frequently.
In order to draw customers into the store we must have machines better than what they typically have at home. Part of the VPE of having a gaming LAN in the store is machines that can outperform the average customers’ home PC. This is also a benefit to us because customers are more likely to want to purchase a computer like the one they are playing. Because of this we can inspire possibility while explaining to the customer why Best Buy is the one place they should consider when purchasing this type of PC.
Value Proposition – Unbeatable Experience for the Customer
As I stated before the Game Lounge is about creating an experience that can’t be matched by online play and it is also an experience that other retailers would have trouble creating due to their lack of powerful people. One of the greatest things about Best Buy is the emphasis on its people and the power they have unleashed in each of their associates. It is partly because of this value that Best Buy can pull this off where others cannot. Another part of the reason why it is Best Buy that can be successful is because of the culture of knowledge they have cultivated in their employees, because line level associates are more knowledgeable they will be able to handle changes and adaptations to the business better than other companies’ associates.
Margin Driving – benefits to Best Buy
There are several benefits for Best Buy these are some of the most important: building great customer experiences, margin, and driving the service culture at Best Buy.
Great Customer experiences are obviously a benefit to the company because of organic growth. A happy customer returns to do business where an unhappy will potentially lapse and not shop with us again for months, years, or ever again. By creating an area of the store that is designed to deliver good customer experiences, we will gain more lifelong customers.
Margin is obviously a big focus right now. The TV wars have taken their toll on TV prices and Margin. It is coming to the point where TVs have as little margin as Computers. For a long time computers have been a loss leader that drive traffic and present an opportunity for us to show the world how we are building a service culture. TVs are getting to that point as well, which is troublesome for me when I think about the business as I have seen it evolve so far as TVs have been a product that drive margin. We can always hope to turn to appliances as a product that carries margin, but for now let’s focus on the Game Lounge. If the Game Lounge were able to drive a very conservative $100 a month in bottom line revenue for each store it was in, that would be a $1.2 million gain in margin. Now obviously there is more margin possible than that as I stated earlier the breakeven for $4000 in revenue is possible within one to two months, which means out of the rest of the year each store would have $48,000 of revenue in which to make a profit, or $48 million companywide if this rolled out that far. And these estimates are based on very small usage of one 8 machine LAN.
This innovation will help drive the service culture at Best Buy. First and foremost this is a service that we are offering to our customers, but it also inspires the art of possibility. This works as more than a revenue/margin driver, it allows customers to see what is possible. It also shows them that we are capable of doing complex networks, so we will obviously be able to handle their home network.
Next Step – Hobby Gaming
The complementary products to LAN gaming are based in hobby gaming. For those unfamiliar with hobby gaming you might want to look into companies such as: Wizards of the Coast and Games Workshop. The companies produce many games that appeal to the same customers that would frequent the Game Lounge.
The big innovation over the way other retailers sell this product is to have a place to play. By devoting a small area with a few tables we will give hobby gamers a reason to visit our store which will increase traffic. By hosting leagues such as Arena and other assorted tournaments on a monthly/weekly we can also drive sales of targeted products (e.g. a Warhammer 40k tournament drives the sales of Warhammer 40k models, paints, etc).
Having these products and hosting a place to play are great value props from a customer perspective, but they also have great benefits for Best Buy notably: 30+% product margin and increased customer traffic.
Anyway, I am going to leave it here before I get too long winded… Anyway as always your comments and suggestions are always appreciated as the point of this blog is to inspire conversation.
Game Lounge - rehash
For those who haven’t seen my previous posts or submissions around this idea allow me to rehash for a moment. The Best Buy Game Lounge would be a gaming network setup inside of a Best Buy store that allows for customers to play either computer or console (Xbox 360/ps3) games together in either cooperative or competitive modes. Customers would pay an hourly fee to have access to these machines. This gives the customers an experience that can’t be duplicated through typical online play, a great VPE for gaming customers, and a competitive differentiator that other retailers would find difficult or impossible to duplicate due to many factors.
Game Lounge – how it works
Let’s move onto the nuts and bolts on this to see why this innovation has the potential to be very profitable. For the purpose of this example of cost I will use 8 (eight) Xbox 360s (Arcade) @ $200, 8 (eight) of any HDTV @ $300, 1 (one) 8-port switch @ $32.99, and misc. Cat-6 cables @ $10. This means that the entire LAN would cost about $4043 excluding any other costs (labor, electricity, rent, etc). We can use this number to find our breakeven point for the equipment.
Price per hour/Hours needed to hit breakeven/Hours needed with 8 machines full
3 / 1347 / 168.375
5 / 808.6 / 101.075
7 / 577.57 / 72.19625
Essentially if we assume the machines are full for an average of 2 hours a day Monday-Thursday and 4 hours a day Friday-Sunday we will arrive at an average 20 hours a week, this assumption also provides that there are no other customers paying for use. At that rate the LAN equipment would pay for itself in as little as 4 weeks or as much as 8 and a half weeks. The next aspect to look at is the other costs. These costs such as labor, electricity, and rent are costs that we already incur. There is a slight increase in total electricity and labor costs because this is additional, but the electrical costs are minimal and the labor pays for itself.
In terms of this assumption the labor we would use is one associate “zoned” in the Game Lounge for this single LAN. This associate is responsible for taking payment, measuring time, ensuring proper conduct from those at the gaming machines, etc. During the time the associate will also have other tasks to perform in the immediate vicinity.
Essentially if we assume that the average salary for anyone in retail (Best Buy or anywhere else) is about $10 per hour, then it whenever two people are playing at $5 or $7 dollars per hour or three people are playing at $3 dollars per hour, then 90-140% of the employee labor cost is being offset. Also, the associate would be able to perform tasks such as farming or greeting/stacking customers in an adjacent department depending on the layout of each individual store. This scenario was also assumes that we use only have one LAN comprised 8 computers for each associate that we use in the lounge.
One of thing to keep in mind while thinking about this innovation is that it is scalable based on area and demand. This means that one associate can manage multiple LANs comprised of 8-16 machines. A large part of the testing of this innovation would be to determine the average number of LANs/players the average associate can manage easily. With that said another assumption that I will make is that the average associate will be able to manage about 24 people regardless of how they are spread out between LANs, this is based on the experience that I have had in the past with LAN gaming and Midnight openings at Best Buy.
A quick note on “Measuring Time”: There are a great many ways to measure time for multiple machines that are being used from something as simple as a kitchen timer to the very elaborate computer programs, whichever we use really doesn’t matter as long as the customers and employees can all tell when the time has expired for each customer/machine.
Once the breakeven point for the equipment is made we are also able to sell the equipment for whatever cost and derive 100% margin from that sale as well. This is something to consider when it is time to upgrade the equipment that we are using. For the gaming consoles (Xbox 360/PS3) this will only need to be done once every 2-8 years. Depending on the frequency at which new gaming consoles come out (which has been trending longer and longer). The computers are a different story, and should likely be upgraded at least once per year. This is due to the changes in PC gaming which happen frequently.
In order to draw customers into the store we must have machines better than what they typically have at home. Part of the VPE of having a gaming LAN in the store is machines that can outperform the average customers’ home PC. This is also a benefit to us because customers are more likely to want to purchase a computer like the one they are playing. Because of this we can inspire possibility while explaining to the customer why Best Buy is the one place they should consider when purchasing this type of PC.
Value Proposition – Unbeatable Experience for the Customer
As I stated before the Game Lounge is about creating an experience that can’t be matched by online play and it is also an experience that other retailers would have trouble creating due to their lack of powerful people. One of the greatest things about Best Buy is the emphasis on its people and the power they have unleashed in each of their associates. It is partly because of this value that Best Buy can pull this off where others cannot. Another part of the reason why it is Best Buy that can be successful is because of the culture of knowledge they have cultivated in their employees, because line level associates are more knowledgeable they will be able to handle changes and adaptations to the business better than other companies’ associates.
Margin Driving – benefits to Best Buy
There are several benefits for Best Buy these are some of the most important: building great customer experiences, margin, and driving the service culture at Best Buy.
Great Customer experiences are obviously a benefit to the company because of organic growth. A happy customer returns to do business where an unhappy will potentially lapse and not shop with us again for months, years, or ever again. By creating an area of the store that is designed to deliver good customer experiences, we will gain more lifelong customers.
Margin is obviously a big focus right now. The TV wars have taken their toll on TV prices and Margin. It is coming to the point where TVs have as little margin as Computers. For a long time computers have been a loss leader that drive traffic and present an opportunity for us to show the world how we are building a service culture. TVs are getting to that point as well, which is troublesome for me when I think about the business as I have seen it evolve so far as TVs have been a product that drive margin. We can always hope to turn to appliances as a product that carries margin, but for now let’s focus on the Game Lounge. If the Game Lounge were able to drive a very conservative $100 a month in bottom line revenue for each store it was in, that would be a $1.2 million gain in margin. Now obviously there is more margin possible than that as I stated earlier the breakeven for $4000 in revenue is possible within one to two months, which means out of the rest of the year each store would have $48,000 of revenue in which to make a profit, or $48 million companywide if this rolled out that far. And these estimates are based on very small usage of one 8 machine LAN.
This innovation will help drive the service culture at Best Buy. First and foremost this is a service that we are offering to our customers, but it also inspires the art of possibility. This works as more than a revenue/margin driver, it allows customers to see what is possible. It also shows them that we are capable of doing complex networks, so we will obviously be able to handle their home network.
Next Step – Hobby Gaming
The complementary products to LAN gaming are based in hobby gaming. For those unfamiliar with hobby gaming you might want to look into companies such as: Wizards of the Coast and Games Workshop. The companies produce many games that appeal to the same customers that would frequent the Game Lounge.
The big innovation over the way other retailers sell this product is to have a place to play. By devoting a small area with a few tables we will give hobby gamers a reason to visit our store which will increase traffic. By hosting leagues such as Arena and other assorted tournaments on a monthly/weekly we can also drive sales of targeted products (e.g. a Warhammer 40k tournament drives the sales of Warhammer 40k models, paints, etc).
Having these products and hosting a place to play are great value props from a customer perspective, but they also have great benefits for Best Buy notably: 30+% product margin and increased customer traffic.
Anyway, I am going to leave it here before I get too long winded… Anyway as always your comments and suggestions are always appreciated as the point of this blog is to inspire conversation.
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