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Brad Anderson: Best Buy Poised For Digital Future

Drawing upon events from his own life, Best Buy’s vice chairman/CEO Brad Anderson extolled the virtues of digital technology and explained the evolution of Customer Centricity during a keynote speech that kicked off the first ever DigitalLife CE consumer show here earlier this month.

Anderson traced Best Buy’s role as “evangelists for the digital life” back to his early days as an audio salesman for founder Dick Schulze’s start-up, Sound of Music, when he felt driven to share his discovery of high-fidelity sound with others.

He further exposed his enthusiast side by expressing awe over advances since then in home entertainment. “I remember reading about how the Kennedy patriarch [Joe] had a movie theater in his home, and I thought that was spectacular,” he said. “I couldn’t imagine that in my lifetime that experience would be surpassed by tens of millions of Americans” with HDTVs and home theater systems. “It’s a complete transformation of the experience within a lifetime.”

Anderson then pointed to his 80-year-old mother, who has become taken with e-mailing photos to friends and family, to illustrate the universal benefits and appeal of digital technology. “She’s obsessed with what technology can do,” he said.

Despite such innovations, the industry is only now at the point of getting the foundation of the digital home in place with HDTVs and media center PCs, he said. The next stage is “personal networking,” where customizable content will be available to the individual at work, at home, in his car or on the go.

Despite pronouncements of its arrival during the dot-com boom of the late 1990s — which were 10 to 15 years premature — personal networking will be the wave of the future, he observed. To help prepare for it, Best Buy is investing in its Internet site and is developing the service capabilities and skill sets that will help consumers integrate various products, he said.

To speed adoption, service providers need to get connected to the kitchen and other hubs, and manufacturers need to establish standards for interoperability, Anderson said. To that end, Best Buy will use its considerable clout to promote single industry standards, including one for an optical disc format for HDTV. “We only want one format,” he said, referring to the current skirmish between Blu-ray Disc and HD DVD proponents.

Best Buy’s new Customer Centricity strategy, which tailors individual stores — and employees — to distinct consumer groups, will also help “propel and fuel the velocity of digital life,” Anderson said. The concept, which was inspired in part by a lecture and scolding by Columbia Business School professor Larry Selden, has a twofold purpose: to better utilize the unique talents of employees and to better meet the specific needs of Best Buy’s diverse customer base.

“Most of us are wired in unique ways with unique talents,” Anderson said. “We need to connect the individual talents of our employees to the needs of customers. Fortunately, we’re at a point in time when technology is enabling us to unlock an inordinate amount of human capital, and we can measure and communicate in ways that were previously unimaginable.”

The consumer side of the equation came to the fore after Selden addressed a Best Buy leadership conference. After “blasting” management for its marketing strategy of growth through acquisition, he asked a senior executive a telling question: “Do you know when your best customer walks in the door?” Best Buy didn’t, nor had it considered Selden’s contention that some customers were highly profitable for the company because “their needs were met by the way we come to market,” while it lost money on others.

As a result, Best Buy tapped into its vast customer database (assembled with the help of its Reward Zone loyalty program) to develop profiles of five customer segments, and began tailoring test stores’ products, services and designs to suit them.

Encouraged by “enormous sales growth rates” at the pilot stores, Best Buy rolled the concept out to 68 locations in and around Los Angeles, San Francisco and San Diego this month. Like the lab stores, the new segmented stores will provide differentiated in-store experiences, and sales staffs that were trained to focus on customer archetypes rather than product categories alone.

The stores are also moving some of the decision-making to the selling floor, to better put the customer in the middle of the operating model, and have taught sales associates how to measure results from the new processes in terms of return on invested capital.

Best Buy has earmarked $50 million for the program in fiscal 2005, and will base next year’s rollout plans on results from this holiday season. The goal, said U.S. stores president Mike Keskey during a Bear Stearns retail outing held here earlier in the week, is to bring at least some elements of Customer Centricity to all of its stores nationwide within three years.