A Cautionary Tale: The Importance of Understanding Your Customers

“Why Best Buy is Going out of Business… Gradually” has hit a national nerve (http://tinyurl.com/89dydhr). In the two weeks since the Forbes’ article posting, it’s exceeded 2.6 million hits and has prompted scads of confirmatory comments.

Yes, key metrics are cited (the stock losing 40% of its value in 2011, its P/E of 6.23 vs. an industry average of 10.20, and an average analyst rating of B-). However, to discover the real reason for Best Buy’s downfall, author and Internet industry analyst Larry Downes proposes a simple test: “Walk into one of the company’s retail locations or shop online. And try, really try, not to lose your temper.”

Apparently, that’s where our collective experience kicks in. If you’ve ever approached an employee in blue to help you buy a PC, tablet, speakers, or cable, chances are you know the challenge. (I failed Downes’ test last weekend when I heard, “That’s not my area” and “I understood your question, we just don’t have it.”)

Whether in-store or online, the Forbes’ article asserts, “Best Buy just doesn’t understand its customers’ point of view.” And that’s how a company can go from being on Fortune’s Most Admired Companies list in 2006 to struggling in 2012.

When you stop understanding your customers, they stop buying from you.

Understanding your customers, your suppliers, your distributors, and your dealers requires vigilance. Just because you understood them in 2006 or 2009 doesn’t mean you understand them today. In order to increase sales in your channel, you need to validate your assumptions about their needs, requirements, and expectations.

How do you do that? You ask and you listen. Any strategy to increase sales has to begin with understanding the voice of the participant—whether it’s your salespeople, your dealers, or your distributors. Only in truly understanding their world can you design a program that works.