1Running head: BEST BUY

Best Buy

Student Name

Institution

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Part II: General Marketing Strategy

Segmentation

Segmentation is very important to every business that wants to survive the competition in

the market. Best Buy knows the importance of classifying customers into groups, as a result; it

has kept on the work of online marketing. Through online marketing, company has been able to

collect very important information about customers. The collected information is then used

offline to make a decision on the classification of customers. The data taken online include the

frequency of purchases by the customer, the quantity, and finally the quality of the goods being

bought (Jopson, 2012). It is important to identify profitable segments and those that are less

profitable, and those that are not profitable. Best Buy working hard to ensure that there is a

record for every customer, and their details kept for records. When doing segmentation, Best

Buy ensures that the entire market is segment together with the current segment. This is to help

the company identify new customers from the whole market.

To reach customers successfully, Best Buy has been explicitly divided into four different

psychographic segments. The segmentation is guided by the core differences of the customers in

every segment that Best Buy is finding very economical. The segments have been given names

and each category has different characteristics. The first segment is Barry; this segment

represents very wealthy professionals. Best Buy ensures that products that best suits the wealthy

professionals, such as leather couches are added in the stores where these groups of customer

make their purchases. Comfortable environment has to be created within the store to meet the

status of the customers; things like television with large screens are hosted (Jopson, 2012). This

segment may not need after sale services that involve transportation, or offering options on

financial assistance. This will reduce the cost of Best Buy as these customers are rich enough to

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handle their purchases. This is done to provide customers with a feeling that they be in a place

that recognizes their position in the community. The second segment is the Jill’s: Jills are

commonly known as soccer moms. While serving this group of customer, sales associates are

advised not to use jargons such as gigabytes as such words may be intimidating to them.

Customers in this category only stick to either one particular product that was bought time back

or the one that was recommended. Any attempt to persuade these customers may not be fruitful

as they have formed opinions. Sales persons will not spend much time with this category of

customers, which will give room to handle clients that are inquisitive (Jopson, 2012).

There is the category of Buzz’s; this segment is the group that is so much into

technology. This group has a lot of information about a variety of products being sold by the

company. When they come to the store for purchases, they always have adequate information.

They may need little or no information from the sales persons (Jopson, 2012). The fourth

category is called Ray; a segment that is a family man. A family man always spends carefully

considering the burden of the family. Best Buy has to take care of this group by ensuring that a

more variety of products are provided as they can demand a range of product, for example, the

product that fit the wife and those that fit the husband. Best buy has been doing well in the

market because it has managed to identify how customers shop and not simply what the

customers buy. Group of Jill will not feel comfortable in the store as the group of Barry, and

when that is known, the company works hard to create a favorable environment for both. These

categories are also known as Suburban, Urban Trendsetters, Middle America, and Empty

Nesters.

A part from psychograph segmentation method, Best Buy has used demographic

segmentation. The largest demographic, when looking at the population, is normally the aging

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baby boomers. However, Best Buy is not targeting this populace but has rather resorted to

College-educated adults in California and Canada (Jopson, 2012). Most business tends to ignore

this group with a reason that the group is poor; they just finished college the other day and have

to service their student loan, which normally take a longtime. Best Buy looks at this segment to

secure their lifetime loyalty, which is only possible when they are targeted at this early stage.

Other than their age, best buy gives other reasons as to why they think this is a good

group to target. Youths of age between twenty and thirty are believed to be learned and have

exposure on the variety of products they need (Jopson, 2012). Educated youths of this age

bracket also have discriminated tastes and, therefore, the company that can accurately study them

well can easily tap their purchases. Majority of this segment are not having children this

knowledge is important as these mean that they spent entirely on themselves. Since the group

starts to live alone away from their parents, they would be very much interested in buying

household goods. Best Buy stands a better chance as the brand recognition easily attract this

large demographic.

It is also believed that college-educated demography normally looks for instant

gratification. They rely so much on the word of mouth despite the fact that they stand a better

chance to research about the products or services they need (Jopson, 2012). They are also fond of

seeking suitable and speedy shopping familiarity. Sales persons in the Best Buy store normally

avoid interacting with this demographic group as they consider themselves self-sufficient.

The entire market population of Best buy is between 35 to50 million and women forms the

largest proportion of 40 percent. This proportion of women is falling under the category of Jill,

which is an also known as suburban category. Middle American, also known as Ray forms 17.3

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percent of the total population of customers. They contribute up to 30.3 percent of revenue to

Best Buy.

Targeting

Best Buy has international segment that is majorly based in China and India, and may be

very profitable to company (Jopson, 2012). The only challenge that the company is facing is to

know whether these segments are identifiable, substantial, responsive, profitable, and reachable.

This is the first thing that Best Buy would wish to consider on which segment to settle on and

which one to drop (Jopson, 2012). One thing Best Buy is sure about is that the transaction with

customers in China will have to involve different currencies. This possesses risk on depreciation

of currency which is a potential risk. The company would consider the potential market

population in California and Canada before taking much interest in the foreign market.

Best Buy’s primary market target will be in the age of 16-35, which will be further

divided into specific groups. Between the age 18 and 24 of the primary target, is normally 40

percent college students (Jopson, 2012). The other subgroups will be Middle American families,

also known as Ray, and the high-income Earning group normally called Barry. The strategy

designed by Best Buy will be focusing on providing a variety of products to its primary market

target. The electronics targeting the primary target will be flat panel TVs, cell phones, digital

cameras, laptops, and car electronics. The primary target for Best Buy will be provided with

excellent services from the customer service desk. In looking for the most attractive segment, the

company will look into segments that are highly identifiable, reachable, and profitable.

The college students, as Best Buy target group, are composed within the age of 18 and

24. The focus by the company is the ability of this target group to adapt with technology so

easily (Appendix D). The group has almost $13000 per capita spending that is within their

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discretion. Since this group has exposure on new technologies, 70 percent of them are able to be

aware the signage for digital. Students have the character of trying brands that are new, which

lead them to commitments on the future brands. In a year college, students spend up to 200

billion dollars per year much of which is spent on electronics (Jopson, 2012). They also respond

so well to electronic advertisement especially those adverts that are done online. This is the most

attractive as students are easily identifiable, they tend to behave in a particular way that makes it

easy for Best Buy to attract. The nature of student enjoying travelling makes the segment more

reachable as they are almost everywhere. They can get to the stores that may be far away, from

where they hail. The fact that this segment is 40 percent of the larger market population makes it

substantial segment. As shall be discussed in the subsequent subheading this segment is highly

attractive as it is also more profitable as compared to other segments discussed. This is because

very little cost is used to reach this group due to its ease of identity and being easily reachable.

The other target that the company will target is the, Ray segment which is also, the

Middle American Family. All these spending are on electronics and 30.3 percent of the total

spending by this group goes to Best Buy. Middle American family, which is the largest spending

group, has an average age of 38 (Jopson, 2012). The core consumers can also be divided into

males which form 58 percent and females which is 42 percent of the Ray group. This group has

$75000 as household income. The company is planning to create brand awareness and offer

effective cost solutions. Barry family segment are the professional affluent that need technology

and experience on entertainment, they also demand excellent services. They are not very many,

but they are also very important group as they buy most expensive products without so much

extra cost incurred (Jopson, 2012). This segment is however not easily reachable, which makes it

not so attractive.

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Target Segment Profitability

To be able to determine profitability of segments total population off all five segments

were extracted from U.S. Census Bureau Website. Looking at the Best Buy quarterly financial

report of 2013, the company posted a total sale of $9.36 billion. With a unit cost of $40, the

number of units sold can be calculated by dividing total sales by the cost of unit sold. The total

cost was 234,000,000 units (Hays, 2014). The cost of sales, which is considered as variable cost

was $7.03 billion. Fixed cost was shown to be $1.6 billion. The number of products that were

sold per store was calculated by dividing total sales by the number of stores. The number of

stores was 1400 in February 2014, and the total sales were $9.36 billion giving 9249000 sales per

store. When customers shop at least three times a month, compared to the number of transactions

of the company in the average of products sold per year will be 3000 units (Jopson, 2012).

The profitability of each segment can be calculated. Middle American, as shown above,

contributes up to 30.3 percent of the total company revenue in a year (Hays, 2014). Since the

total revenue is $9.36 billion, the total revenue by Middle American is gotten by multiplying the

total revenue by the percentage of the segment, which gives 2.84 billion (Appendix A). The other

segment is the college students who have a minimum of $13000 per capita to spend on Best Buy

products. They formed 40 percent of the total sales by the company this translated to 3.744

billion of the revenue of the firm. Suburban and Empty Nesters segments consisted of 5 percent

each of the total sales. This translated to total revenue of $0.468 billion for each of the two

segments (Appendix B).

Looking at the profitability of the four various segments, college students segment seem

to be the major customers of Best Buy Company leading in the number of revenue of 3,744

billion followed by the Ray segment which formed the 30.3 percent of, which translated to a

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revenue of 2.84 billion (Appendix B). college student segment become the most attractive as it is

the most profitable, highly reachable and easily identified. The company will consider this

segment as the main segment. The Suburban and Empty Nesters got the least revenue which is

$0.468 billion each (Hays, 2014).

Targeting Strategy

In as much as Best Buy has specific preference on a given segment, it will still use

undifferentiated method of targeting strategy (Ian, 2013). The target group of the company does

not need to be given a special attention. College student tend to be informed of what they want to

buy and does not necessarily need money to promote the product. Since Best Buy sells similar

goods to the different segments, it is more appropriate to carry out promotion to specific

segments. The constant expansion of the stores by Best Buy will ensure that the target method

chosen become effective (Tommy, 2013). Using other strategies will not be economical since the

company is producing similar products. Using strategy such as differentiating will mean that the

company address each and every segment differently which will be uneconomical.

Positioning

To be able to maintain competitive advantage, Best Buy has to position carefully in the

market taking care of the competitors (Hays, 2014). To meet satisfy and meet the demand of

different customers that the company ha; it has to create a variety of products to give customers

options from where they can choose. Most customers would prefer a product that has many uses,

and they feel the value of their money when they can use a single product to satisfy different

needs. There are a number of positioning strategies, such as product positioning, pricing

positioning, and the likes, but the one that the company feels is the most appropriate is Product

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variety and customer orientation (Tommy, 2013). The diagram that shows two dimensions of

customer orientation and product variety can be drawn as shown.

High Customer Satisfaction

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Best Buy specializes in supplying consumer products like laptops, cameras, televisions,

mobile phones, appliances, consumer electronics, entertainment, and services (Tommy, 2013).

When the sales on analog Television became sluggish, Best Buy decided to reduce it and stock

more of digital ones that were preferred by customers. There various reported that the company

gets from the customers concerning the services they get. Some customers believe that the

customer cares who work online and even in the physical stores deals with clients in a cordial

manner. They say that the customer cares are very much equipped with information about the

product that they sell. Some customers are also impressed by the level of cleanliness that Best

Buy maintains around and beyond their shopping area (Aston, 2011). However, with the many

praises of good work from most clients, there are those customers who have also complained

about poor customers care services at some stores citing cases of being addressed rudely by Best

Buy staffs. Some other customers have cited problems such as delay in the delivery of ordered

High Variety of Products

Low Variety of Products

eBay

Amazon.com

Best Buy

Wal-Mart

Low Customer Satisfaction

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products, which Best Buy admit, but it only happens when there is a breakdown in the online

system (Ian, 2013). System breakdown has since been corrected, and just a few similar cases are

being reported. To be able to serve customer promptly, Best Buy has used $50 million to

renovate over 56 stores to current market standard. The new stores have attracted several positive

comments from customers who feel good when they walk in the stores (Ian, 2013). Best Buy is

not bothered to participate in brand name selling but works very hard to ensure that variety of

products is sold under the company brand. It is easier since the introduction of online showroom

where customers can walk in the online store do shopping of various products and pick a product

like Television from store pick up button. The omnichannel idea by Best Buy was intended to

reach all the market segments anywhere anytime.

Customers of eBay are proud of the low prices that eBay charge due to the economies of

scale that is being enjoyed by the company (Thomas, 2013). Due to the large size of eBay, the

company has managed to construct very large stores that customers feel comfortable walking as

they shop. There are varieties of products in eBay stores that seem to be liked by most of its

customers. The company has managed to reduce their prices lower than Best Buy due to

economies of scale (Best, 2012). This lower price has increased eBay sales, which has made

them become reluctant in addressing other important areas (Thomas, 2013). Customers think that

eBay is doing very little in taking care of the environment, which has prompted to a number of

accidents where customers constantly slip off due to uncombed floors. eBay staffs are also said

to be taking very long to respond to the complaints raised by customers (Thomas, 2013). Some

staff does not seem to get bothered to assist customers while in the store. The other problem with

eBay is that it has grown so big that strategies for growth do not seem visible to the strategic

managers.

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Customer preferred amazon.com because it was positioning itself as a low price giver,

but that was before eBay became the lowest price giver (Siklos, 2010). Because of that, the

company has since witnessed low turnout. Most customers felt the company was shortchanging

them when they started to raise prices of some commodities. They compare Amazon’s prices

with those of eBay that is offering very low prices to customers. Amazon has managed to tailor

their products to meet their customers (Siklos, 2010). The company also worked hard to be a

one-stop zone where customers come and get what they want. There were a little complains on

how the staff team were handling the customers while in the store.

Looking at Wal-Mart, it works to position itself as low cost but with integrated

systems such as acquiring real estate (Hays, 2014). Their customers are able to enjoy the

products at relatively low prices. Most of the customers are happy because the company is

helping live a better life by offering them low prices. Wal-Mart’s customers also pride of the

wide variety of electronic that the company is offering, which they say give them opportunity to

choose from what they want (Hays, 2014). Distribution network has been praised by most of its

customers; it is through this efficient distribution channel that the company has managed to

lower its prices. Withal the good things, the company is phasing a lot f complains on the online

stores (Hays, 2014). The online store does not offer the same selection technique as done by

most of its competitor.

New Position

Best Buy Company has resolved to target people of age between 18 and 24, which is

composed of college students that have up to $13000 per capita to spend on electronics. This

group is chosen as it forms the majority of the total market population. The company is also to

target Middle American Families who form 30.3 percent of the total revenue of Best Buy.

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This positioning is considered the best as it is different with the current position that

assumes variety (Best, 2012). With this high customer focus, the company will be able to target

all market as all customers are pleased when served with quality products. As Middle American

Families will be taking their time to bargain on the prices of goods sold due to their low annual

income, college students will be walking in the store with little or no complains and pick

products of quality at the set price. Women, the Jill group, who tend to shop for their family, will

also have something to smile about as they will be able to get products that fit the desires of their

family. Best Buy will also take care of the affluent professionals who do not have a problem with

the price but quality (Best, 2012). With high quality, Barry segment will be satisfied as the

company makes good returns from them. When fully implemented, this new positioning strategy

will be facilitating a faster growth of Bes Buy.

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Appendices

Appendix A: Table of Competitors

Appendix B: Target Segment Profitability

Segment # Segment

Adoption %

Profit Margin

%

Current Segment

Profitability(Billion $)

Ray 0.303 0.36 2.84

College Youths 0.04 0.36 3.744

Suburban 0.05 0.36 0.468

  Best Buy Wal-Mart eBay Amazon.com

Revenue $496.21b $476.94b $16.05b $74.45b

Net Income ($249)mil $16.022b $2.86b $274mil

FT Employees 180000 2.2mil 27770 109800

Market

Capitalization

$8.76b 24053.42b $74.24 $165.34b

Earnings per share ($0.73) $5.02 $0.67 $0.59

Return on Assets 1.50% 7.85% 7.32% 0.84%

Return on Equity 38.17% 21.77% 12.98% 3.10%

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Empty Nester 0.05 0.36 0.468

Appendix C: Graph showing US demographic

Appendix D: Reachable US Segment

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References

Aston, A. (2011). "How Best Buy Makes Money Recycling America's Electronics." .GreenBiz.

Best, B. (2012). Yahoo Finance: http://finance.yahoo.com/q?s=bby&ql=1. Web. 14 March

2014.

Hays, L. (2014). "What Wal-Mart Knows About Customers' Habits." The New York Times. Print.

Ian, B. (2013). Best Buy Products: True Definition Of Luxury. New York: PR.

Jopson, B. (2012). “Best Buy to close stores and axe jobs.” Financial Times. Print

Siklos, R. (2010). "Amazon Considering Downloads." The New York Times. Academic Search

Premier.

Thomas, O. (2013). "Turns out you’re not Allowed to Sell Your Soul On ebay." Business

Insider. Print.

Tommy, C. (2013). “Only Stores Consumer Complaints and Reviews.” Consumeraffairs.com.

Consumers Unified LLC. Web. 14 March 2014.

.

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