The No. 1 electronics retailer is working with Omnicom Group's Rapp Collins, Dallas, to bolster its direct-marketing capabilities, including efforts tied to its Reward Zone loyalty program.
The retailer is a major advertiser but its one-to-one efforts are "much less sophisticated" than its mass marketing, said Barry Judge, senior VP-consumer and brand marketing, Best Buy. The company wants to go out with "a strengthened ability to connect with our customers on a more individualized basis."
Best Buy executives have been working for about two months with Rapp, whose Dallas office specializes in database marketing. The company globally spent $712 million on advertising and promotion in the U.S. and Canada during the year ended February 2005, up 5%, according to its annual report filed with the Securities and Exchange Commission. (Best Buy executives declined to comment on any specific initiatives or programs or on spending.)
Strengthening its direct-marketing efforts fits in with its broader strategy of trying to drive more business through its existing stores rather than relying on store openings. To do that, it's identifying its best customers, whom it has labeled "angels," pushing loyalty programs and developing "customer-centric" stores that reflect the buying habits of people in the area.
The company is making the moves in face of a slowdown in same-store-sales growth. Same-store sales were up 4.3% in fiscal 2005 compared to a 7.1% increase in fiscal 2004.
The initiatives are "to prevent a slowdown in same-store sales," said Joe Beaulieu, an analyst with Morningstar. "Investors would start to get nervous if they would see comps much below last year's level. They really can't afford a sustained slowdown."
And as Best Buy nears its saturation point-it has 668 U.S. stores, more than double the number five years ago and two-thirds of the way to its target of 1,000-the retailer is testing boutique concepts aimed at particular niches. One concept is Escape, an electronics store aimed at young men; another is EQLife, a woman-focused health and wellness store. It has identified five customer types ranging from "Jill" (soccer moms) to "Barry" (affluent married men) to "Buzz" (tech geeks).
"The challenge going forward is how to create a customer contact strategy that maximizes the `right' number of contacts with a customer," according to an RPF that was used in the review to hire Rapp. "As direct marketing becomes a tenet of how Best Buy will market in the near future, we need to develop scenarios of how to ramp up our competency in this area."
The company's Reward Zone loyalty program will be one area of focus. Best Buy had more than 4.7 million Reward Zone members in February, nearly double the amount at the end of fiscal 2004, according to the company's annual report.