Why Circuit City Is Bankrupt and Best Buy Thrives

By John I. Todor, Ph.D., The Whetstone Edge, LLC

Simply put, Circuit City was stuck in transactional-economy mode, while competitor Best Buy is making the transition to a business model where delivering value to customers is not just focused on price.

Circuit City, the consumer electronics giant, announced a few days ago that they would be closing a significant number of stores and laying off employees. Yesterday they filed for bankruptcy protection.

Over at Best Buy, they are busy getting ready for the holiday shopping season.

Here are my observations and contrasts:

  • Management versus Employee compensation: The CEO of Circuit City made in the neighborhood of $8 million per year. The CEO of Best Buy made $4 million. Perhaps more importantly, Circuit City made a cost-cutting blunder a while back by firing more expensive and experienced employees and replacing them with lower paid people.

  • Investing in Employees: While Circuit City was dumbing down their frontline people, Best Buy was investing in training and employee retention strategies. One example is their investment in blueshirtnation.com, the internal social networking site that has reduced employee churn and gets employees to motivate and help each other learn how to serve customers better.
  • Customer-focus versus discounting: Best Buy has made a number of strategic shifts over the past few year. One, they purchased the Geek Squad, so they could provide better post-sale support both in the stores and in the customers’ homes. They use customer scenario planning in an effort to customize the shopping experience to key customer groups. Circuit City has focused on discounting and cost-cutting.
  • Websites and Social Media Presence: Circuit City has been stuck in Web 1.0 mode. Their site is a selling site, a brochure online and not easy to navigate. Best Buy continues to experiment with online strategies that have the customer at the center of their efforts. They don’t always get it right, but they are actively and rapidly learning. Circuit City is going bankrupt.

Some will blame Circuit City’s problems on the economy and declining consumer confidence. Another view is that the downturn in the economy just brought bigger issues to the surface faster. Best Buy figured out that customers want value and value is not just the lowest price. Customers want to deal with businesses that help them. One, help them make informed decisions whether via a customer-friendly website or knowledgeable and enthusiastic employees. Two, they want help in consuming the products they buy, whether it is installation of a new flat screen TV or fixing a problem with their computer.

The hard lesson for transaction-oriented companies to learn is that in today’s marketplace, a solid product at fair price is expected. The competitive differentiation is in the things that enable customers to have a better experience—buying and using the things they buy.

3.72222
Average: 3.7 (36 votes)
 

john_todor's picture
John I. Todor, Ph.D., is the managing partner of The Whetstone Edge, LLC, a customer-centric consulting firm that helps clients build customer equity by engaging customers online via social media and delivering compelling offline customer experiences. He is the author of Get with it! The Hands-on Guide to Using Web 2.0 in Your Business.

A modern day twist on the Ant and the Grasshopper

Right on John!

Cutting edge analysis - you have exactly captured the difference which has turned out to be the survival factor for Best Buy.

Beyond just striving for "better experience" Best Buy is focused on the hard work of operational improvement, instead of being focused on high salaries and earning management bonuses with short term cost cutting as was the case of Circuit City.

This reminds me of the Aesop's fable The Ant and the Grasshopper
http://en.wikipedia.org/wiki/The_Ant_and_the_Grasshopper

with the part of the Ant played by Best Buy and Circuit City taking a bow as the Grasshopper!

Mei Lin Fung
Blog: Professionals Earn Customer Trust

The Ant Marches On...

Mei Lin,

Thanks for the comments. The Ant and the Grasshopper fable is apt. Since I wrote this blog Best Buys announced that they expect lower earning than earlier projected. Well, that is true for nearly everyone in the retail business. However, in Best Buys case, they recognize the economic crisis is changing consumer buying behavior and are trying to adapt to the new dynamics. That's not Grasshopper behavior.

John

John I. Todor, Ph.D.
Author of Get with it!. The Hands-on Guide to Using Web 2.0 in Your Business.

Circuit City

Here is an example of why Circuit City will not stay open. Today I tried to order the WII Fit. I called the 800# only to be told I could not order the WII Fit unless it was part of a bundle. I thought this seemed rather odd since what I was trying to order had a valid SKU. After talking with a supervisor Deron employee #596245, it became clear. The SKU I was ordering was only $89.00 they were trying to force me to order 2 additonal accesories to call it a bundle. When going to the site to see what would qualify to make it a bundle you see how stupid their marketing really is. There were only 10 accesories most being just colored covers or a travel bag. So they lost an order because I would not order $40.00-$60.00 worth of JUNK.

Post new comment

The content of this field is kept private and will not be shown publicly.
 
  • Allowed HTML tags: <a> <br> <img> <em> <i> <b> <u> <hr><strong> <table> <tr> <td> <th><ul> <ol> <li> </li><font><blockquote><sup> <colspan> <rowspan>
  • Lines and paragraphs break automatically.
  • Web page addresses and e-mail addresses turn into links automatically.
  • You may quote other posts using [quote] tags.
  • Images can be added to this post.
  • You can use BBCode tags in the text, URLs will automatically be converted to links.

More information about formatting options

CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

MarketPlace

Customer Service as a Differentiator: The Road to Excellence at Overstock.com

Companies are beginning to realize they don’t have the option of ignoring the quality of their customer’s experiences. Overstock.com realized that customers want service that is excellent, regardless of which channel is used. But they had to overcome some serious obstacles on the road to excellence. Read their story.

New Research Report: Customer Experience Maturity Monitor

Discover the five levels of customer experience maturity, ranging from Limited Capability to Experiential Master. Find out where your company stands, and explore what it takes to move from the base level to the peak. Download free research report here.

Selling the "New Consumer" with Smart Conversations, Not Blind Automation

Learn how to engage your customers in a great cross-channel conversation that will set your company apart. CustomerThink founder/CEO Bob Thompson reveals his latest research on the multi-channel buying experience, and Lisa Abbott of Genesys explains how to solve cross-channel challenge.

Four Strategies to Shift Your Support Center from Surviving to Thriving

With an economic upturn on the horizon, it's time to focus on how to gain a sustainable competitive edge. In this webinar, contact center guru Bill Price reveals how to improve the customer experience, reduce operational costs and retain top technical talent.

TCE (Total Customer Experience) Model Building e-Workshop for Financial Services Providers

[August 27, 09:00-10:30 GMT] This program is designed to help Marketing, Sales and Service Executives of Financial Services Providers to build a TCE model to monitor, manage, and enhance the total customer experience across multiple channels and touch-points throughout the whole customer lifecycle.

Global Customer Experience Management Certification Program

[Sep. 30-Oct. 1, Paris] Learn cutting-edge CEM methods from a team of international gurus. This 2-day course applies CEM essentials, strategies and methodologies on Marketing, Sales and Services; provides a framework with relevant guiding principles and tools for designing the best experience to your customers.

Featured Links

CEM Training and Certification

Patent-pending methodologies combine the art and science of Customer Experience Management.

On-Demand CRM Software

Use RightNow solutions to create the best possible customer experience while reducing costs.

Get your event or resource listed in the MarketPlace, reaching 300,000 business leaders monthly.
For more information, contact CustomerThink advertising sales.