1

Running head: BEST BUY

Best Buy
Student Name
Institution













2
BEST BUY
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
3
BEST BUY
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 Jills: 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 Buzzs; 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
4
BEST BUY
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
5
BEST BUY
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 Buys 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
6
BEST BUY
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.
7
BEST BUY
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
8
BEST BUY
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
9
BEST BUY
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
10
BEST BUY



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
11
BEST BUY
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.
12
BEST BUY
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 Amazons 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-Marts 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.
13
BEST BUY
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.










14
BEST BUY
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%
15
BEST BUY
Empty Nester 0.05 0.36 0.468

Appendix C: Graph showing US demographic









Appendix D: Reachable US Segment
16
BEST BUY




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 youre 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.


.
17
BEST BUY