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Explanation of marketing initiatives for Best Buy

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Read the case below and answer the following questions.

1. From what internal and secondary sources did Best Buy acquire the data that helped it develop its customer centricity initiative?
2. How did Best Buy database marketing to better satisfy its customers?
3. How are the data gathered by Best Buy useful in customer relationship marketing?

Case: Best Buy Uncovers Angels in the Market

Best Buy Company, Inc., is retailer of consumer electronics, home-office products, entertainment software, appliances, and related services. One of the company's goals is to make life easier and more fun for consumers. To meet that objective, the company's retail environment focus on educating customers on the futures and benefits of technology and entertainment products. The Minneapolis- based firm operates more than 1,200 retail stores across the United states and Canada under the names Best Buy, Futures Shop, GeekSquad, and Magnolia Audio Video, as well as an outlet store on eBay.

Best Buy operates in the highly competitive consumer electronics retail industry and must compete against other electronics retailers, specialty home-office retailers, mass merchants, home improvement superstores, and a growing number of direct-to-consumer alternatives. It also competes against independent dealers, regional chain discount stores, wholesale clubs, video rental stores, and other specialty retail stores. There is also increasing pressure from online sites, which offer entertainment as downloads, as well as pay-per- view cable television companies.

Best Buy collects data on nearly every transaction made, rain check issued, and call-center problem resolved for 75 million customers. To discover what its customers want and need, the company developed a database that incorporated information from 19 customer touch points including point if sale, and enhanced it with Experian's INSOURCESM consumer marketing data to develop a complete picture of its customers. T gained further insight by using purchase histories to study its customer's current as well as their future needs through segmentation analysis. This allowed Best Buy to develop and identify new-customer segments, to better understand existing customers, to more precisely target promotions, and to identify key locations for expansion.

Best Buy collects data from its transactions and from mailing lists; it also has demographic information from local census numbers, surveys of customers, and targeted focus groups. In 2004 it launched a customer loyalty program called Reward Zone, which today has more than 24 million members from whom the company hopes to gain valuable insights. Best Buy retains Larry Selden, a professor at Colombia University's Graduate Schools of Business, as a consultant. Selden argued that losses produced by what he calls "devil" customers can wipe out profits generated by "angels." Through its consultation with Selden and its data analysis with Experian, Best Buy identified its angel and devil customers. The angels were customers who bought high-definition TVs, portable electronics, and newly released DVDs without waiting fro markdowns or rebates. The devils bought products, applied for their rebates, and then returned the products and bought them back again at returned-merchandise discounts. Best Buy then categorized its angel customers into these segments:

? The Small Business customer ("BBfB"): These customers use Best Buy's products and services to enhance the profitability of their business.
? The Young Entertainment Enthusiast ("Buzz"): These are active younger men who want the latest technology and entertainment. They are early adopters who are interested in buying and showing off the latest gadgets.
? The Affluent Professional ("Barry"): These customers wan the best technology and entertainment experience, and they do not mind spending to get the best, regardless of the cost. They are enthusiasts of action movies and cameras.
? The Busy Suburban Mom ("Jill"): These customers want to enrich their children's lives with technology and entertainment. They are busy but willing to talk about helping their families. They are smart and affluent but usually avoid electronics stores because the products intimidate them. "Jills" are typically the main shopper for the family and will make purchases based on staff recommendations.
? The Tech-Savvy Family Man ("Ray"): These are family men who want technology to improve their lives. They are practical adopters of technology and entertainment.

Best Buy's new "customer-centric" operating model focuses on these five key segments. The Company launched the initiative with 67 stores, each of which would analyze the demographics of its local market and then choose one or two of these groups to be their focus. Each store would then stock merchandise for and include elements designed to appeal to the targeted segments. Executives believe that this model offers customers a richer in-store experience, including better shopping assistance, and also provides more of the goods and services that they want. It also empowers employees to recognize unique sets of customers and to build offerings and experiences to meet their needs. In fact, employees receive training in how to differentiate the customers types and how to help each.

To encourage its angel customers, Best Buy sends out associates with pink umbrellas to escort the Jills to and from their cars on rainy days. Personal Shopping Assistants have been provided to help Jills from the moment they enter the stores till they leave via the express checkout. For Barrys, there are comfortable couches for watching large TV's hooked up to high-end sound systems; even popcorn is included to add to the atmosphere. Magnolia Home Theater specialists provide personalized expert advice. For Buzzes, Best Buy has set up video game areas with leather chairs and game players hooked to mammoth plasma-screen TVs, and TVs and games just a short walk from the area.

To discourage the undesirable devil customers, Best Buy is cutting back on promotions and sales tactics that tend to attract them, and it is also removing many of them from mailing lists. The company is also enforcing a 15 percent restocking fee on returned merchandise to discourage customers who return items with the intention of repurchasing them at " open-box" discounts. Best Buy is experimenting with reselling returned merchandise over the Internet, so the products do not reappear in the store where they were originally purchased.

Best Buy has already converted 85 stores to the new customer-centered model and plans to convert all of its U.S. Best Buy stores within three years. The 67 stores that underwent conversion in 2005 have reported of the year in which they operated under the customer centricity model. Compared do an average store sales gain of 1.9percents at other U.S. Best Buy stores, this is a considerable gain. However, due to onetime conversion costs and higher expense structure, the selling, general, and administrative expenses for the converted stores for the same period. Nonetheless, Best Buy believes that the profitability of stores operating under the customer-centered platform will improve over time, which is similar to its historical experience with new-store openings.

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Solution Preview

1. From what internal and secondary sources did Best Buy acquire the data that helped it develop its customer centricity initiative?

Best Buy developed a database internally that incorporated information from transactions, rain checks issued, and call-centre problem resolutions to determine what its customers wanted and needed. This database incorporated information from customer touch points and was enhanced with Experian's INSOURCESM consumer marketing data to develop a complete picture of its customers. To gain further insight about what its customers wanted, Best Buy used secondary sources from transactions, mailing lists, and demographic information from local census numbers, surveys of customers, and targeted focus groups to collect data. They also gained insight by using purchase histories to study its customer's current as well as their future needs through segmentation analysis. ...

Solution Summary

This solution discusses the marketing initiatives for Best Buy including Customer Relationship Marketing.

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Scenario 1
The Children's Hospital of Philadelphia (C.H.o.P) is considering adding a da Vinci robot to their Operating Room suites. The purpose of the acquisition is to facilitate more urologic cases hence deriving more income. Since most urological cases are done on an outpatient basis this initiative serves two (2) purposes tied to the facility's Master Strategic Plan;
a) enhance the bottom line performance of the OR
b) address the trend in patient care to outpatient procedures from traditional in-patient procedures.

The da Vinci lists at $1.75M today. The facility has one (1) da Vinci and they want to have the physician group trained in using the equipment prior to procurement as the Urologic surgeons do not currently use the da Vinci - it is the exclusive domain of the Neurosurgery team. In doing so the robot can go right into productive use and the learning curve for the physician group will already be met. Intuitive Surgical, the manufacturer of the da Vinci, has agreed to lend CHoP a simulator to assist CHoP in their desire to have the physician group trained when he new robot is received. However, Intuitive has their simulator booked into other facilities across the country and the earliest available date to receive the simulator is 16 months away.

Armed with that knowledge, the Strategic Planning Committee deems that the simulator training for the physician group will take 12 weeks. In optimal conditions the new da Vinci will be on-sight for the physicians to use immediately after they complete their training. So, the Strategic Planning Committee, in concert with the Purchasing Department negotiates delivery of the new da Vinci for April 29th, 2012 to be fully operational by May 5th, 2012. Since the new fiscal year at CHoP begins on April 1 and runs through March 31st, this acquisition will be two (2) fiscal years away.

If the equipment were being purchased this fiscal year CHoP is in a financial position that they could purchase the machine under their Capital Budget funding ceiling. However, since the Strategic Planning Committee suggests the purchase be made two (2) fiscal years out the CFO is concerned that the market conditions in the state of Pennsylvania will change to the point where the Hospital may have to borrow money to make the purchase. The Board will not accept that strategy so the CFO needs to plan for the acquisition now. The Board has directed that the Hospital will not issue a series of bonds so that option is off the table. The CFO has shopped the investment market in the immediate area and finds that the best CHoP can do is a return of 5.25% on their investment over two (2) years. The CFO has locked that rate down so market shifts will not impact that rate for two (2) years.

1. What will the $1.75M have grown to in 2012 when the facility needs the money to make the acquisition? The vendor assumes that the purchase price will escalate at a rate of 6% annually.

2. Will the facility have enough money on hand from the investment in two (2) years time to cover the cost of the da Vinci or will they have to find additional Capital funds to make the acquisition happen?

3. If they will not have enough in 2012, how much short (if they are short at all) will they be?

Scenario 2
The Director of the Emergency Medicine Service at Brigham's and Women's Hospital in Boston has submitted her Revenue for the next fiscal year. In preparing her volume projections she noted that for the last seven (7) months her volumes through her Emergency Room were flat. There had been incremental creep in her volumes for the fist two (2) months of the new fiscal year but for the last seven (7) months there has been zero growth in volume.

In the preparation of her volumes for the next fiscal year she instructed her Administrative Assistant to peg the new year's volumes at the current year's budgeted volumes. So, that meant that there would be zero growth from this sector of her overall division.

In preparing her expense budget she anticipated and budgeted a 3% inflationary increase of the cost of all non-labor expense. Additionally she budgeted a 4% pay increase in her non-exempt employee base. Her current expense budget for the Emergency Room, including salaries and benefits, is $12,475,312. The salaries and benefits component of that sum is 63%. Her budgeted Revenue for the current year is $19,813, 978.

The fiscal intermediary the hospital utilizes has already deemed that there will be no price increase in any service or procedure performed in the Emergency Room next fiscal year.

1. Given that the numbers of procedures and visits next year will be exactly what they are projecting this year, what will the revenue for the Emergency Room look like in 2010 dollars assuming a 3% inflationary rate?

2. Calculate the gross income before tax of the current year's operations using the numbers cited in the question.

3. Compute the increase in the Emergency Room's expenses next fiscal year given the information in the scenario and then compute the gross revenue before taxes for next year's operation. Assume all labor is non-exempt.

4. How much did the Emergency Room make or lose in the second year relative to the first year?

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