Best Buy Wants to Build a Differentiated Customer Experience

During Tuesday’s fourth-quarter earnings conference call, Joly said he believes a differentiated customer experience can happen at Best Buy.

“We are pursuing a strategy that is focused on delivering advice, service, and convenience at competitive prices to our customers,” Joly said, according to Seeking Alpha. “Within this strategy, we are focused on driving a number of growth initiatives around key product categories, life events, and services. To drive these initiatives, we are pursuing and investing in the transformation of key functions and processes. We will also, in fiscal 2016, be facing industry and economic pressures on our business related to deflationary pricing and weak industry demand in certain product categories that we discussed last quarter.”

There's that new buzzword, customer experience.  What I find fascinating is why a market leader like Best Buy hasn't been trying to differentiate customer experience for years?  Amazon has clearly hurt their business and low-price alternatives like Walmart have been coming after them for years, why all of the sudden is a differentiated customer experience important now?

I know personally I try to never step foot in a Best Buy.  I used to be a very loyal customer, however there were a few experiences that made me so upset, I never went back.  These experiences were anti-customer experience moments.  They were trying to up sell so hard, it made me uncomfortable, to the fact they were trying to make me feel stupid for not getting the protection plan.  As a customer, I didn't like the feeling and stopped going back.  

They will have quite the challenge to create a differentiated customer experience in the stores.  Their salespeople, in general, have not given me great customer experiences in the past.  Whenever I have had the opportunity to engage and ask questions, they have read the stickers and told me what was on their brochure, like I already didn't do that.  

What I would like to see in Best Buy is the days of the "old" Home Depot model.  Home Depot used to pay its employees top dollar for their expertise.  The idea was that a plumber who was tired of working in less than stellar conditions would work at Home Depot and they would be able to give expert advise to customers looking to do home improvement.  Over the years, to save payroll, Home Depot went away from this model and most of the staff can't help you with great advise.

If Best Buy softens the sales approach and becomes more of an expertise experience, I could see wanting to shop there again in the future.  When I am shopping for a camera, I want the salesperson to be able to tell me about why this camera will be better for me than another camera.  I want them to ask me questions and figure out what I need instead of reading off of a price ticket at the features of a camera.  This would be a great experience and something Amazon could never match from an online perspective.  

The one reason I don't believe this will succeed are the words coming out of the CEO's mouth about this change.  He talks about "growth initiatives" which is not a customer-centric way to speak about the business.  Customer experience is a culture change, not an initiative.  

Why Amazon Has No Profits (And Why It Works)

What amazes me about Amazon is how Wall Street treats them.  I love companies that put their profits back into the company to make the future better.  Some companies, like Apple, cannot necessarily put all of the profits back into the company, it goes against their strategy of extreme focus.  

However, the secrecy of all the spend is what baffles me.  Not that Amazon has to tell anyone where it spends its money, but that Wall Street gives them a break on it.  Apple doesn't say what their future products will be and Wall Street gets very upset, yet Amazon spends billions of its profits on reinvesting in Capex and then tells Wall Street its none of your business what we are spending it on and Wall Street says, "ok".  

The thing that would worry me about Amazon is lack of focus.  The varying array of different businesses Amazon has gotten itself into continues to grow.  From the article:

Amazon is in fact organized not just in these segments, but in dozens and dozens of separate teams, each with their own internal P&L and a high degree of autonomy. So, say, shoes in Germany, electronics in France or makeup in the USA are all different teams. Each of these businesses, incidentally, sets its own prices.

The bigger Amazon becomes, the harder it is to manage.  Amazon then becomes a conglomerate and eventually starts doing nothing well, just runs a bunch of revenue through its coffers.  This leaves the valuable revenue and cash flow at risk, giving an upstart the opportunity to out perform Amazon by focusing on one part of their business.  If that happens to be the profitable retail business, Amazon could find itself vulnerable as it may be focusing on other business lines and be too late to react.  

Why Netflix walked away from personalization | ThoughtGadgets

n 2006 Netflix offered a $1 million prize for anyone who could improve its movie preference recommendations by 10%. Netflix, at the time, made most of its money sending DVDs in the mail to users’ homes

Mathematicians went wild. The competition was lauded by business pundits as an example of crowdsourcing genius. Because this was damned hard math, the project took years. And then in 2009, a team of mathematicians called “BellKor’s Pragmatic Chaos” actually cracked the code, achieved a 10% lift, and Netflix gave them the $1 million.

And then … Netflix never implemented the winning algorithm. Because personalization at that point no longer mattered.

Personalization has been such a buzzword for so many years.  Netflix was one of the poster children for this.  It's interesting to look at articles like this and understand they really don't utilize it like say an Amazon does.

In fact, this article is very critical of Amazon and I'd have to agree.  Amazon has decent recommendations, but it seems to be a fairly basic market basket model that shows what others who bought similar items.  That may be the best way to offer items to customers.  Amazon has all the money in the world for R&D, in fact they flaunt how much money they put back into their business and if they are using this model, it must mean the personalization models of predicting other types of product must not bring in as much as the market basket.

Amazon's Jeff Bezos: The ultimate disrupter - Fortune Management

He's a pro-customer, tightfisted risk-taker who is conditioning Wall Street to embrace his erratic earnings. If you're running a business with high margins -- watch out.

I am fascinated with Jeff Bezos and Amazon.  Years ago I became obsessed with Steve Jobs and Apple and the differences between the two companies are drastic.  People compare Jeff and Steve all the time, but there isn't much in common from their philosophies.  

The first thing that fascinates me about Amazon is when are they going to start making money?  Sure they bring in a large amount of revenue, but they really don't bring anything to the bottom line.  Can they ever?  If they make moves to make more bottom line will they lose their extremely price sensitive customers?  It will be interesting to watch.

I also don't know if this low margin business model is actually good for the consumer in the long run.  Sure, it's always nice to pay next to nothing for any items, but there are always consequences.  Innovation will lessen if a competitor can come in later and make no money and steal all the marketshare.  Also, for companies that sell to Amazon, if price is always driven down and margins are always squeezed, the products become worse over time.  Companies need to make money and margins are a good thing as it allows for better innovation in the product and higher R&D budgets.  If the margins are so low, the only innovation becomes cost-cutting and that is not good for anyone, especially the consumer.

Again, it will be interesting to watch.  

Amazon profits: They don't exist, but the company keeps on keeping on.

I totally agree with this article.  Companies like Amazon and Google are ruining innovation and stifling competition.  If they are going to compete in many markets at a loss, it prevents many other companies from entering the space because they can't compete and make a profit.  

I still don't understand the fascination with market share.  Market share without profit is meaningless.  The theory with Amazon is eventually they'll be able to bring some of that massive top-line to the bottom, but can they really?  Are customers loyal to Amazon or the price?  If they try to get more margin will they keep the business or have they just trained their customers to expect the service and goods at a discounted price and wait until they get it?  

It's about time Wall Street and bloggers start rewarding companies that make money and are growing longterm sustainable business models, instead of focusing on market share and number of non-paying customers a company acquires.