By Ben Smith

ORIGINAL ARTICLE:

So the rumor is out there – Radio Shack could be on the market, and Best Buy’s name has been tossed out as a suitor – we wanted to share our perspective on what it could mean.  Best Buy and other retailers are known to be taking learnings from European Retail and applying them in the US.  Best Buy’s own acquisition of Carphone Warehouse in the UK in 2008 could serve as a model for a potential acquisition of Radio Shack.

If Best Buy buys Radio Shack, they could convert Radio Shack stores to “Best Buy Mobile”.  While there are approximately 61 Best Buy Mobile stand alone stores in the US today, there are over 6,000 Radio Shack locations when you combine company owned stores, franchies, and wireless kiosks.

Per TWICE 3/26/2010: RadioShack could be seen as an attractive asset thanks to aggressive cost-cutting measures by CEO Julian Day, solid cash flow, and its strong position in the growing wireless market. Its more than 4,000 small-format stores would also play into Best Buy’s mobile strategy of rolling out freestanding, mall-based wireless shops.

We live in a connected world, and Best Buy’s key differentiator is all of the value add they provide their customers – from educating them on new technology, providing advice on products, to being able to configure / install / fix the products they purchase.  While Walmart and Amazon can match or beat them on price, Best Buy can win on service.  Radio Shack locations can extend the reach in a more manageable, focused format.

Per Financial Times 3/26/2010: Best Buy said it was testing labour models and store design concepts aimed at demonstrating the “invisible” services in the centre of its stores, and that its first Best Buy stores in the UK, opening this Spring, would influence its remodelling efforts in the US … As part of the strategy, it is also continuing to roll out smaller Best Buy Mobile stores to malls and shopping plazas, and CPW’s Wireless World format, which sells computers alongside mobile phones.

RETAIL LEVERAGE TAKEAWAYS:

Frankly I’m just trying to wrap my head around this at the moment, and am sharing this as a service / food for thought for our readers.  At a high level, retail consolidation puts more power in the remaining players, and Best Buy goes from leading the mobile phone market to OWNING it.  With the kind of reach that thousands of additional locations provides, long long term you start to question the viability of stand alone brand cell phone stores (ie AT&T store).  However you look at it, Best Buy would get larger increasing their own leverage versus the competition, but also with their vendors.

It is hard to say what impact there would be beyond the mobile phone + accessories category, as well as the brands/categories that are in Radio Shack today.  The average Radio Shack store is 2,500 square feet, whereas the average Best Buy store is in the 40,000 square foot range.  I’m not sure about the size of the typical Best Buy mobile section inside their US stores, but it is pretty small.  The carphone warehouse stores they bought in the UK average 800 square feet.  Just as their is additional computer / technology related merchandise in Radio Shack’s today, I’d assume there will be more than just mobile phones + accessories in a Best Buy Mobile store.

I’ll keep my eye out for additional thought / speculation floating out there from people we trust on this potential retail shake-up, and I’ll share – primarily via our twitter feed @retailleverage , which I highly encourage you to follow!

UPDATE #1: Note – shortly after hitting submit on my article, Brian Barrett of Gizmodo wrote a great article that blows out lots of the topics I discuss below. Check it out.

UPDATE #2: Tom Ryan at Retailwire started a discussion on the topic of “Best Buy Reportedly Exploring RadioShack Merger.” They currently have 20 comments from various retail industry contributors.  One note – Retailwire contributors tend to come from the retailer perspective often.  We hope to add more brand marketer perspective to the conversation in the future.

UPDATE #3: An article in the Minneapolis St. Paul Business Journal highlighted a nugget from a Best Buy job posting – that they plan on opening 50 Best Buy Mobile stores this year – in enclosed shopping malls.  Obviously a great deal of Radio Shack stores are in shopping malls – buying Radio Shack would put this plan on steroids.

Additional Reading / Sources:

• Fort Worth Star Telegram article: RadioShack shares up on report of takeover or merger
• average Radio Shack store is 2,500 square feet
• average Best Buy store is in the 40,000 square foot range.
• average carphone warehouse is 800 square feet.

By Ben Smith

WHY MINNEAPOLIS?

For Retail Leverage purposes, 3M doesn’t stand for the company that gave us post-it notes.  In this case, it stands for Mobile Marketing In Minneapolis – where you should look for leadership in this rapidly expanding consumer touchpoint.  Target and Best Buy are retail leaders in different aspects of mobile marketing, and their leadership will impact adoption throughout the rest of the retail.  This article provides an overview of their mobile marketing efforts.  If you deal with Target or Best Buy, your antennae should be tuned to how you can incorporate / leverage mobile marketing in your business with them.

TARGET LEVERAGING MOBILE COUPONS

One point of differentiation between Target and Walmart has been that Target embraces coupons.  So it is no surprise that Target will become the first retailer to accept mobile coupons at all of its stores. Target’s program requires consumers to opt-in to receive text messages to their mobile phone, with links to mobile web pages with barcoded offers they can use at checkout.

I don’t have the data to prove it, but I’m willing to bet that Target’s customers have a higher adoption rate in smart phone usage, as well of general text messaging usage than Walmart’s customers.

Promoting the usage of coupons also helps Target in its quest to overcome the perception that customers don’t save as much when they choose to shop at Target over Walmart.  On a related note, I wonder if the mobilization of coupons will cause Walmart to warm up to them?

BEST BUY LEVERAGING SALES LEADERSHIP IN SMART PHONES

Best Buy demonstrated their mobile marketing leadership early by enabling consumers with mobile phones to get product info sent via text message.  They plaster the 7 digit code & instructions throughout their circular ads and in-store POS and got valuable learning from consumers use of the technology.  However, the text messaging was just a piece of their evolving mobile marketing strategy.

Best Buy’s unique position as the leading retailer of smart phones (and mobile phones in general) positions them at the front lines of the rapid growth / evolution of uses for Smart phones, including mobile commerce.  In a recent article appearing at www.mobilemarketer.com, Tracy Benson, senior director of interactive marketing and emerging media at Best Buy, shared the trends Best Buy sees in mobile commerce, as well as provided a peek into their mobile commerce results.

6 trends in Mobile Commerce that Best Buy discussed:

1. Increased Smartphone Sales And Usage
2. Dramatic Increase In Mobile Web Usage
3. Mobile Commerce Adoption Grows
4. Mobile Search Becoming Essential
5. Multichannel Marketing Mix Expanding
6. Market Fragmentation Continuing

Visible Impact to Best Buy online traffic:

3% traffic coming from mobile (and increasing as a percentage of total)

Significant Impact to Best Buy’s Conversion rate:

25% higher on mobile platform than wired website (and increasing as compared to wired website)

Ways Consumers Are Using Best Buy’s Mobile Platform:

• 30% are using for research
• 18% are using to check inventory
• 28% are using to make a purchase
• (In store pickup heavily used)

Where Best Buy’s Mobile Platform Is Used:

• 60% are accessing from home via their mobile device
• 14% are accessing while in store

TAKEAWAYS:

You already knew retailer dot-coms were increasing in importance.  It’s not like that internet thing is going away – but I’m not sure if everyone sees the mobile marketing tsunami silently rolling across the ocean.  The smart phone arms race will accelerate the mobile applications available and consumers understanding of how much power they have in their hands.  If you’re visited Retail Leverage before, I’m sure you’ve picked up the theme that your retailer’s priorities should be your priorities also.  So add mobile marketing to your retailer checklist and bone up on the latest applications that consumers will use when making decisions in the aisle.  The good news is that retailers dot coms can be a great equalizer for challenger brands versus the big guys.

Finally, here are 3 things brands can do to improve their mobile marketing efforts:

1. Optimize your brands website for mobile.  The goal is to help consumers find info about your products from their mobile phone, without regard for where they actually purchase it.
2. Improve / increase your presence on your retailers website.  If you have a brand showcase on a retailers website, investigate its mobile appearance / functionality.
3. Optimize search on the retailers website.  Yes you have to pay for this.  Others are already doing it.  It is only going to increase in importance.

RELATED READING / RESOURCES:

• Related Retail Leverage Article: “Buying BIllboards In Bentonville”
• Ad Age article (subscribers only) An App for That, Too: How Mobile Is Changing Shopping
• Mobile Marketing Watch article about the killer barcode scanning app from ScanLife – it’s being preloaded on millions of handsets sold by Sprint and others. Note – it can even read basic UPC’s on every product.
• Mobile Marketing Watch coverage on Target mobile coupon announcement
• Mobile Marketer article that shares Best Buy’s insight on mobile marketing

By Ben Smith

WATCH THE BIG BOYS:

The next big thing in TV’s, the largest category in Consumer Electronics, isn’t going to be 3D.  So put the dorky glasses down and think about what recent moves by the big boys signify.

• Walmart buys VuDu (streaming movies) (credit: ZatzNotFunny)
  • Walmart spent over $100M to buy the whole cow
• Best Buy Bankrolls Tivo’s Marketing (credit: Davis Freeberg’s Digital Connection)
  • Tivo’s market cap is $1 billion, so Best Buy is renting the cow for now.  They are spending $20M to promote Tivo this year … Tivo itself only spent $5M last year.

THE NEXT BIG THING:

The next battleground for hearts, minds and wallets of consumers will be connected / internet TV.  Don’t get hung up on the idea that these moves by BBY and WMT are solely focused on the consumer demand for the added features that connected TV’s provide.  Here’s how we see things playing out:

Short term: the need to address consumers growing desire for streaming video is important.  Walmart and Best Buy are gaining access to existing relationships & infrastructures to offer their customers access to their own branded digital video services.

Near term: Walmart and Best Buy are already the leading retailer of TV’s.  Best Buy has an obvious opportunity to integrate Tivo capabilities & connectivity into their own Insignia line of TV’s.  It is not a stretch to think that both Walmart and Best Buy persuade leading TV vendors to integrate these services into TV’s for sale in their respective stores.

Long term: the bigger picture of these moves is about more closely connecting the retailer to the consumer in their home.  In a fragmented media world where it is increasingly difficult to reach consumers via traditional means, Walmart and Best Buy are hard wiring themselves to their consumers.  These new platforms enable a retailer to not only offer the obvious of streaming movies & other digital downloads, but also positions them to take advantage of future advances in connectivity and digital offerings, including ones geared around shopping at home.

For more speculation on retailers connected TV & on demand services, check out these articles:

• “Wal-Mart enters the battle of TV vs. the Internet.” (credit: Fortune)
• “Best Buy Betting Big on Tivo” (credit: NewTeeVee blog)

Now that is about as far as I can go without staying from the mission of Retail Leverage. We know that our readers value that we help keep them informed on big picture news that has retail impact, but we aren’t really focused on the product or technology.  The reason I share this article with you is that you don’t have to be selling TVs or set top boxes to walk away with ideas that you can apply in your own brand/business.

HOW CAN YOU ADVANTAGE A PARTICULAR RETAILER?

The key lesson here in the pursuit of Retail Leverage is to ask (and answer) the question – “How can I advantage a particular retailer versus their competition?”

Look at the lengths that Walmart and Best Buy are going to position themselves against each other in the connected TV space.  Walmart’s strategy involves acquiring a company (VuDu), and Best Buy’s strategy involves entering into an exclusive relationship (Tivo).

The real story is the retailers fight against each other.  Get over the battle you are fighting against other brands – THE RETAILER DOESN’T CARE.

Fortunately though, you don’t have to be in a category that is in the cross-hairs of retailer corporate strategy teams to be able to employ the “advantage” strategy.  Simply put, If you want to get the buyer’s attention, bring something to them that strengthens their hand versus their competition.

As assortments narrow and the tentacles of private label expand, brands are being forced to make bigger bets on specific retailers, product lines, and skus. Too often, people wait to make tough decisions until their hand is forced, and sometimes it is too late.  While the “advantage” strategy might not be right for you at this time, you can learn a great deal from the exercise.  Good luck!

By Ben Smith

I recently posted an article that shared data on how Best Buy has performed since Circuit City closed.  The key point was that Circuit City’s market share was up for grabs, and every retailer that sells CE products had their own designs on capturing as much of that share as possible.  I didn’t spend much time in the previous article on the “why” of Circuit City’s demise, but now I can close up that loose end.

GREAT RESOURCE + PERSPECTIVE FROM A RIVAL INSIDER:

I found a great resource that fills in the blanks on Circuit City’s demise from a person I follow on twitter, @DonEames .  He is a former Senior VP of Best Buy, and now has his own management consulting company.  Even though he was not inside of Circuit City, instead inside of their key rival, I believe he had front row seats to the analyze the demise.  The analysis and candor he provides would be politically tough to get from a Circuit City insider, especially since it has only been a year since the stores closed.

Check it out – it is called “CIRCUIT CITY SIX: Six Fatal Mistakes of a Once “Good to Great” Company”. It is a quick and to the point read.  I found it to provide valuable insight to both retailers and brands alike, and for that matter, consumers who used to shop there (or avoid it).

VISUAL SUMMARY:

I started to summarize it but realized it is so succinct and to the point I wouldn’t do it any justice.  It is a summary in itself.  However I will tantalize you with images that represent the “6 Fatal Mistakes” that Don Eames discusses, so hopefully you’ll be intrigued to go ahead and click on through to the site.

RELEVANCE TO RETAIL LEVERAGE:

When we find valuable nuggets like this, we feel it is our duty to share with our readers, in case you haven’t seen it on your own.  Why is it important?  Circuit City’s departure from the retail market had huge implications for other retailers, but also the brands/vendors who sold their products there, and the consumers who shopped there.  From a brand perspective, in Circuit City’s final years, some brands had achieved great success in growing their business (at least in sales) by being willing to take a risk and bet big on Circuit City.

Some of those brands became very dependent on Circuit City’s business, and I am sure it was painful when Circuit City closed (and also didn’t fully fulfill their financial obligations).  Some brands went from having Retail Leverage with Circuit City and a broader base of sales, to being even more dependent on the remaining CE retailers, primarily Best Buy and Walmart.  The ripples from Circuit City closing changed the equation of leverage at retail, and retailers, brands and consumers all continue to be impacted.

RELATED READING / RESOURCES:

• My previous article on Best Buy’s market share gains after Circuit City’s demise
• Follow Don Eames on Twitter

By Ben Smith

It’s hard to have a conversation about consumer electronics without making the discussion relative to Best Buy.  While I assume most people know that Best Buy is the market leader, I don’t know if they understand their magnitude in the marketplace.  With their longtime rival Circuit City closing in 2009 this provided a slight “reset” for the market and it is worth taking a look at how things shook out.  I know that all the customers we met with had their own take / plans on how they were going after Circuit City’s market share.   The general market consensus was that Best Buy would gain the most, but that Walmart and Amazon.com would also benefit.

Well the dust has settled and results from the Q4 holiday season are in.  I realize that some of our readers are in the CE community and have ready access to retailer share.  Note that I’m not quoting anything from NPD that I have access to for my job.  I’m linking to a couple of public sources to point out that you can get a good idea of what is going on with a little digging (or you can get it from us)!  The data I’m sharing is from consumer surveys conducted by 2 different firms,  so take it with a grain of salt – it isn’t cash register data, but provides valuable perspective on where consumers look to purchase their electronics.

1) AD AGE ARTICLE SHOWS BEST BUY GAINING GROUND (WITH 33% SHARE)

Ad Age featured an article appropriately titled “Former Foes Gain Share From Shuttered Circuit City”.

Summary: Best Buy gained share last year and is up to approx. 33% consumer preference share.  Walmart gained also, and is up to approx. 20% consumer preference share.  They have further breakdowns in the article by customer’s income.  Those under $50K/year, Best Buy and Walmart are neck and neck.  But for those $50K & over, Best Buy is the overwhelming leader, over 40% share.

Store       Dec. 2008   Dec. 2009   +/-

• Best Buy    29.8%       33.1%       3.3
• Walmart     17.0%       20.6%       3.7
• Amazon      2.3%        3.6%        1.4
• Target      2.1%        2.8%        0.6
• Sears       1.6%        2.0%        0.4

Their data source: (data from BIG RESEARCH)

Notes: Of course they didn’t include Circuit City’s share in 2008, but I estimate it was between 8-10%.  I estimate that brick & mortar Best Buy and Walmart probably split Circuit City’s share pretty evenly, with Walmart gaining a little more due to a larger number of store locations.  Amazon.com gain’s were likely from Circuitcity.com’s absence, as Circuitcity was a strong dot com player (stronger than their retail presence in comparison).

2) RETREVO PULSE ARTICLE SAYS BEST BUY LOSING GROUND (BUT WITH 40% SHARE)

Retrevo Pulse featured an article titled “Best Buy Competitors Gained Ground This Year”.

Summary: Take it with a grain of salt that Best Buy lost ground in this survey, as they actually have an even larger share of preference in this one, at 40%.  I’m not disputing the source, but as you’ll see in my notes, I think you can explain away some of the differences.

About Retrevo & their data source: The Retrevo Pulse is a data source from a CE shopping website that conducts its own surveys and publishes them. What I like about Retrevo is the simplicity of their reports.

Notes: This article shows Best Buy with a even larger share of preference than the Ad Age article, at 40% – but that it slipped over the last year.  The article also makes it look like Amazon gained at Best Buy’s expense.  Perhaps it boiled the results down too much, and again, we don’t see what Circuit City’s 2008 numbers were to gauge how much there was for competitors to take.  They also show Walmart much smaller than the Ad Age survey.  And conversely, Amazon looks huge here.  Given that the survey was conducted online by Retrevo, a online shopping/comparison site, you can imagine that their population is probably more comfortable with relying on Amazon.com for their CE purchases.

TAKEAWAY: CONSUMER ELECTRONICS STILL REVOLVES AROUND BEST BUY

Best Buy is the dominant player in Consumer Electronics, a king maker that has influence with consumers beyond whatever its share actually is (33% – 40%).  Even as Walmart and Amazon grow share in the CE space, it is ultimately because people get more comfortable NOT making their purchase at Best Buy.  If you are a CE manufacturer, not having your products at Best Buy robs you of credibility with consumers and key influencers.  If you are an agency with clients who sell products at Best Buy, you need to know as much about Best Buy as your clients because it is your best route to success.  If the products you sell can’t succeed at Best Buy, you will have little leverage wherever else you go to peddle your wares.  Conversely, succeeding at Best Buy paves the way for success in other channels.   Best Buy does the heavy lifting for other retailers that sell consumer electronics.  They just have to look at what Best Buy assorts as a baseline and start from there.  So get it right in the first place and base your plans on success at Best Buy.  Retail leverage will flow from there.

BONUS: NAME TO KEEP AN EYE ON IN CONSUMER ELECTRONICS:

If you don’t live in the midwest or south, you probably haven’t heard of HH Gregg.  In the coming decade you will.  They are a regional consumer electronics chain that has national ambition.   Imagine the things that people liked about Circuit City (more experienced sales associates, ability to deal), but without the legacy burden’s that held Circuit City back.   This article in the WSJ lays out HH Gregg’s ambitious expansion plans. While HH Gregg has a small footprint and is only roughly 10% of the size of Best Buy (127 stores), in many ways this is an advantage to them.  They are ramping up expansion in a market where retail real estate has been decimated, including many former Circuit City locations that can easily be re-purposed.

By Ben Smith

HOW TO GET 250,000 NEW CUSTOMERS A MONTH – OVERNIGHT

I guarantee that if you haven’t seen / heard of MagicJack by now – you must have given up cable and are avoiding retail.  How many other consumer electronics products have gained distribution in over 10,000 stores in the last 12 months?  In fact they aren’t far from being on the shelves in 20,000 stores.  While it isn’t a cultural phenomenon like Snuggie, MagicJack has pulled off something that any brand marketer worth their salt has to respect – let alone a challenger brand marketer desperate to break through.

Behind MajicJack is a privately held company largely driven by the efforts of a handful of men with roots in the telecom industry. Remember the 10-10 dialaround numbers? That was one of the founders early successes.  Little is known about the company besides the fact that they’ve built a proprietary network that runs MagicJack – probably how their cost structure is able to work.  It is also hard to get a handle on their finances, but I’ve seen articles projecting over $100 million in revenue in 2009, based on estimates on their install base and quoted sales of over 250,000 new customers a month.

I won’t bore you with the details of “what is” MagicJack beyond saying it is something similar to Vonage, or other voice over IP (VOIP) services out there.  There are some technology and business model differences, but the end result is you are getting phone service via your high speed internet.  It is legitimate, and even Consumer Reports has weighed in on MagicJack, as is one of the most searched terms on their site.

The hook to MagicJack is the pricing – Under $40 the first year, and under $20 each additional year.  Do the math (or they’ll do it for you) – that’s under $2 per month for phone service.  Compare that to what you pay monthly today – if you are lucky $33 via a triple play bundle from your cableco, or $40ish from AT&T.  You can pretty quickly see the value prop.

So the essence of this article is to discuss how MagicJack got to where it is today – and provide inspiration that illustrates potential paths for others to follow.  Challenger brand marketers / agency strategists – take note.  While the path they have taken isn’t necessarily glamorous – it does make sense for the story that they had to tell.  Follow along with us.

FROM HUMBLE BEGINNINGS:

2007: Launched via Drive Response TV (aka infomercials):

Late nights / early mornings.  MagicJack came up on TV the hard way – without Billy Mays or Anthony Sullivan.  Instead all they had to rely on was their value proposition.  You’ve got to start somewhere, and for a consumer electronics / technology related product you don’t just call up 1-800-2BestBuy, sweet talk the receptionist to get thru to the buyer, and bam – your product is on shelves across the country.  They had a story to tell and they used one of the best mediums to tell it.  Direct Response.  Direct Response is even better if you don’t have an ego to get over.

2008: Gained 2^nd Tier Retail Distribution:

Radio Shack has its place in the world and they do certain things right.  This is the kind of product you’d expect to find at RadioShack.  With 5000 locations they can put a product in front of lots of people and add retail credibility.  So it is no surprise that a product like this made its first tangible appearance at retail at The Shack.

GOING BIG TIME – HOW MAGICJACK LANDED THE BIG BOXES

Not sure whose phone rang first, but here’s how we think it went down:

MagicJack Salesman: Your customers are already asking about my product, and  I sold 2 million units alone in 2008.  I ran over $10 million in DRTV ads last year – perhaps you’ve seen it once or a hundred times?  I’ll tag my infomercials telling customers they can now find my product at your store.

Retailer Buyer: I’m thinking about taking a chance and listing this MagicJack thing that everybody’s talking about.  Growth is hard to come by, especially in this environment.  It’s a risk but there is lots of upside …

Note – Risk is the enemy of the retail buyer.  Minimizing that risk in the buyer’s mind if your key job if you are trying to get over the hump.  MagicJack did a great job of minimizing the buyer’s risk.

2009: Gained 1^st Tier Retail Distribution via DRTV tagging.

Best Buy started carrying the product early in 2009.  Almost simultaneously the traditional magicjack infomercials morphed to a version that tagged Best Buy where the normal call to action would appear.  MagicJack was sending its customers to Best Buy stores (or customers could still figure out they could go direct to MagicJack.com).  Note – Without having tangible sell thru data, I have to guess that the product has done okay at Best Buy.  MagicJack has 126 reviews on Bestbuy.com, with 3.6 out of 5 stars.  The fact that it is still on shelf after almost a year is proof enough for me.

In methodical fashion throughout the rest of the year, MagicJack has appeared in retail at Walmart, Staples, OfficeDepot, Walgreens, and CVS.  I’ve seen Walmart, Staples and OfficeDepot tagged in similar fashion as Best Buy.

[youtube=http://www.youtube.com/watch?v=cIRcWKa8CG8&hl=en_US&fs=1&]

MAGICJACK: RETAIL AND DIRECT IN PERFECT HARMONY:

So you might ask yourself wasn’t MagicJack giving up something by tagging retailers, effectively pointing potential customers to stores?

Well they can start dialing back their Direct Response spend, or at least keep it flat.  Plus after 2-3 years of hitting the airwaves hard with the same product, there are diminishing margins of return on the number of people who will buy your product direct.  Chances are they saw the ad – if they were going to buy it direct they would have done so already.

Retail represents an untapped market.  There are people who won’t buy direct, or maybe never even saw it on TV.  And there is a good chance the retail margin they’ll pay is probably close to the cost per order to sell direct (media costs + fulfillment.

LESSONS LEARNED:

1A) Infomercials are a great vehicle for telling a story and building demand at retail.

1B) Marketers with a holier than thou attitude towards Direct Response TV (DRTV) are ignoring a viable tactic.

2) Take risk away from the retail buyer. This makes it easier for them to list / support your product.   MagicJack wouldn’t be at retail if they didn’t have a success story from their direct experience, as well as ongoing aircover in the form of their DRTV spots they continue to run that in effect are ads for their retail placements.

3) There is less risk in balancing a direct and retail strategy than ever before. The battle lines have been blurred by retail consolidation, and the growth of private label.  I don’t think the retail buyer spends much time worrying about where you are selling your product, as long as it is selling well in their stores.   We spend way too much time worrying about who we compete against, versus just selling.

By Ben Smith

The basis of Retail Leverage “the blog” is Challenger Brand Strategy.  While we continue to find ways to illustrate the concept of Retail Leverage, we love when somebody provides a teaching example that is directly relevant, such as the recent BusinessWeek article about “Why Tech Bows To Best Buy”. The article provides an inside perspective of what Best Buy looks like in the post-apocalyptic environment after the demise of Circuit City.  I have a great deal of respect for Best Buy’s CEO, Brian Dunn, featured in the article, who seems reasonable and straight forward – which you’d expect somebody that worked their way up from Blue Shirt to CEO.  The essence of the article is that while Walmart and Amazon are worthy foes, Best Buy is the only large national consumer electronics player left standing and they plan on capitalizing on what makes them different.  However important Best Buy was before as part of the buying process – regardless of the final point of purchase – Best Buy is now ready to take advantage of its position.

If you are a challenger brand marketer (or an agency working with one) there are lots of takeaways.  I hope you read the article but the highlights from a Retail Leverage perspective are below:

1. If you aren’t collaborating with Best Buy on product development  you are behind.  The earlier you involve Best Buy in the process the better.  They already are with your competitors.

Rather than waiting for electronics makers to ship Best Buy the same products that its rivals get, Dunn’s lieutenants are walking factory floors with executives from companies such as Hewlett-Packard and Toshiba, influencing product development and design.

2. Demonstrating (or demonstratability) of your product is increasing in importance.  This means you need to re-evaluate your in-aisle strategy to ensure your story is being told.

“We want to become a digital playground where people come in, experience it, try it, and find out how all these things can work together around their life,” says Dunn.

3. If Best Buy isn’t already competing with you, make the assumption they will be soon.  If not, your category probably isn’t a priority for them anyway.

“The company is already selling certain products in competition with suppliers, and will likely push other products off store shelves to make room for gear it’s developing. Best Buy’s new role makes it a kingmaker for companies that play along and a serious threat for those that refuse.  Executives at several major consumer electronics companies worry privately about Best Buy’s growing influence.  They’re concerned that Dunn and his team could block them from getting innovative products in front of customers or favor Best Buy-backed goods over their own.”

4. Pulling out of Best Buy is always an option.   Yeah right.  Maybe Apple could get away with it.  Maybe.  Anybody else – good luck.  I wish HP would try – ha!  Realizing this, know that even the strongest competitors in your category realize the power that Best Buy has and go great lengths to accomodate them.  You need to be willing to go farther.

“Apple, Sony, and other manufacturers could retaliate if they feel Best Buy is getting too heavy-handed, although they would think long and hard before doing so. They could pull products out of the retailer’s stores or forge closer relationships with rivals such as Wal-Mart.”

5. Reiterating the importance of product demonstratability / comparisons at Best Buy:

Dunn strolled into a store in Union Square to check out the company’s new “discovery zones.” In the Best Buy Mobile zone, for instance, dozens of customers were checking out how Motorola’s new Droid smartphone stacks up against Apple’s iPhone. Although it’s too early to tell whether the strategy that lets users try out multiple brands in one place will goose sales and create a more loyal following, Dunn nods approvingly. “What we’re able to do is show how all these things can work together,” he says. “Convergence is actually here now, and all those roads will lead through the center of our store.”

6. Start embracing Best Buy as a technology company – as a partner and competitor.  This isn’t just a fad like customer centricity.  Buzz Jill and Ray were useful but “partnering” is a strategy with much larger ramifications.  It means they’ll either get what they need from you, your competitor, or just make it Private Label.  They have more leverage than ever before.

“The job of knowing just how far Best Buy can push before manufacturing partners push back falls in large part to Kal Patel, executive vice-president for emerging business. Former CEO Anderson hired Patel away from the consulting firm Strategos in 2003 to direct the retailer’s strategy, and Dunn has given him broad leeway to transform Best Buy into a technology company. Patel suggests, unapologetically, that Best Buy and its partners will have to get used to a new relationship. “If you’re in the technology business, we’re going to have to learn to deal with constant conflict,” he says.”

7. If you have an annuity stream strongly consider using it as leverage to let Best Buy make you a king like Kaspersky.  Just be careful that you don’t make a deal that doesn’t allow you to live once they decide to make someone else king.

“PC makers are concerned the retailer is trying to grab more of their scant profit pool.  They may be right. One unusual deal Best Buy has struck is with the antivirus company Kaspersky Lab. The Moscow-based company agreed to let Best Buy manage its software and subscription program in exchange for more prominent placement in stores, says Randy Drawas, Kaspersky’s chief marketing officer. “We get a broader footprint within Best Buy and are seen as a premium brand,” he says. Best Buy salesmen promote Kaspersky’s software, and the retailer gets a slice of the revenues when customers use it. PC makers, though, may lose out on revenues as software from rivals such as McAfee are stripped off machines.”

8. You may be able to get leverage in your category by making Best Buy’s new in-store media network a priority for a chunk of your marketing dollars.  I don’t think it has ever hurt with the buyer to support a retailer’s key initiatives – especially those around getting you to shift some of your marketing dollars to their programs.

Best Buy plans to launch its own advertising business early next year. The company will let movie studios, PC makers, and other companies run trailers, songs, or commercials on the thousands of televisions, PCs, and cell phones within its stores. Sony, Toshiba, and Samsung have already signed on to advertise.

SUMMARY:

All in all, Best Buy is more important than ever before – regardless of where the consumer actually purchases the product.  Best Buy will still make money on the traditional one-time sale of your product.  Now they will ensure they get a piece of any annuity, and they also are covering their bets by monetizing the advertising and showroom experience – so that even if the consumer buys elsewhere, they still get their cut.  They are doubling down on the digital playground experience as this is one of the few vectors that would be hard for Walmart to beat them on, because they will never win on price vs. Walmart.

If you are in consumer electronics you need to be able to win at Best Buy before you can think of winning at Walmart.  Otherwise you simply aren’t relevant.  If you want to learn about how to gain Retail Leverage in an environment like Best Buy, we suggest you check out some of our ideas here, and then start following us so you can get our latest and greatest.

By Ben Smith

WHAT IS POWERMAT?

Everybody has cursed a charging cable at some point.  Either you left it at home / in the hotel room / at the office, or you simply lost it.  In turn, I don’t think it is a stretch to think that in this wireless age, you could dream of wireless charging.  I vaguely recall hearing about the power induction technology behind Powermat at CES 2009 but never gave it a second thought.

Then today’s article in Ad Age set off my Retail Leverage radar and provided a perfect opportunity to frame some retail leverage concepts around a hot new product.  Be sure to play the TV spot below.

[youtube=http://www.youtube.com/watch?v=fiCb4l1Hzcw&hl=en&fs=1&autoplay=1]

Have you seen or heard about Powermat yet? If you haven’t yet, you will soon.  You won’t necessarily see the commercial, although they will be running ads like this one.  Where I’m confident you will see it will be in the top retailers in their respective categories.

POWERMAT GETS RETAIL LEVERAGE:

When you start breaking down Powermat’s launch strategy, you’ll realize they are using a hybrid of retail leverage strategies. More importantly, they are doing it on a scale much more relevant to challenger brand marketers used to dealing with 7 figure budgets.

1) Offer Program or Product Exclusivity (sort of)

While I can’t call their launch an retailer exclusive strategy- it is not far from it, as they are focusing their launch efforts in Best Buy and Target.  Best Buy and Target tend to serve different customer types.  On the male / female spectrum they are about as far apart as you can get for consumer electronics purchases.  They both also provide best-in-class opportunities to tell your story to consumers.  Note – we love the power of Walmart and I’m sure Powermat has them in their future plans – but Walmart makes more sense down the line, once this new class of product is better established with consumers.

2) Have Something So Big “They” Can’t Ignore

Albeit on a more modest scale (see financial estimates below)-  they are employing the “Something So Big It Can’t Be Ignored” strategy.  First of all, by concentrating your retail distribution your marketing efforts at those 2 retailers go farther, and in turn the sales are concentrated.  PowerMat will feel BIG to the Best Buy and Target, even if their overall impact at retail is not large.  Secondly, according to Beth Harrison Meyer of Powermat (as quoted in Ad Age),  ”You will not be able to walk into these retailers and miss Powermat.” This is a clear signal that you will see those concentrated dollars in the form of endcaps, special signage, and probably demos too.

Powermat will feel big to the consumers when they are most engaged – in the store on a shopping trip.  Finally, they have to be banking on capturing the attention of buyers at other retailers who will feel like they are missing out on something big.  After all – a buyer can only take so many consumer requests, store requests, and more important – demands from the boss that they get this product in-store ASAP in 2010.

MORE DETAILS ON POWERMAT’S LAUNCH:

From the Ad Age article: “The push breaks in the U.S., U.K. and Italy on Oct. 5, with an integrated campaign that includes everything from airport signage and installations to a four-page insert in Wired magazine and full-page print ads in other publications, and a series of humorous 15- and 30-second commercials intended to show people’s reactions to the new technology.”  The article also estimated their spend for the first phase of the launch campaign to be between $10M and $15M.

POWERMAT(H) – BREAKING DOWN THEIR BUDGET:

I’d like to give you a better idea of how I think their budget breaks down, to get it to numbers that marketers focused on the US market can relate to from their own budgets.  They mentioned a range of $10M – $15M for their launch budget for the initial phase, which I assume is Q4 (Oct – Dec).  They referenced launching in US, UK and Italy.    I’m betting a 60/30/10 split between US, UK and Italy.    Let’s assume for round numbers that the launch campaign is $10M, and the launch period is Q4 (Oct – Dec).    Let’s zero in on the US.  How far does that $6M go?  (note – even if I was on the low side assuming $6M for the US and it turns out to be $9M, you’d just add 50% to each of the estimates above).

BUDGET ESTIMATE BY LAUNCH COMPONENT:

TV: $3M (50% of total)

That covers production and a modest TV campaign.  Here’s hoping the production is a lot closer to $500K than $1M.  A $2M campaign hardly makes a dent, so expect something concentrated and on cable.  Interestingly  & from personal experience – if they went the infomercial route which could have also been a viable strategy, that same spend would feel HUGE.

In-Store / Retailer Marketing: $2.4M (40% of total)

You could easily spend $1M+ on premium shelf space, incremental displays and fixturing between Best Buy and Target for Q4 alone.  Then add a demo program that ramps up the last 6 weeks and you could burn another $1M.  Demos are highly effective but expensive (600 stores, 15 days of demos/training, 4 hours per event, $30 per hour = 7 figures).

Print Media, Airport Ads, PR: $600K (10% of total)

Who knows about the mix here – or cares for that matter.  I probably am under-estimating the spend here but I feel like these levers are more strategic and also smells of the dreaded 360 campaign compulsion.  They probably got a recommendation to spread their dollars across multiple vehicles and to target business travelers or something like that.  I do think their PR budget should go a long way as they shouldn’t have to fan the flames too hard to get coverage of this product.  As Vince from Shamwow would say, “It sells itself.”  No word if the Germans make it – cause you know they make good stuff.

TAKEAWAYS:

Once you start to zero in on Powermat’s launch strategy you can see a pretty focused “looks bigger than it really is” type of program.  I’m not sure how much the TV campaign will get them outside of the buyer’s meeting, but for starting out in only 2 retailers they are launching with a bang.  With over 40 years of challenger brand marketing experience, the crew here at Retail Leverage is used to doing more with less so that is why Powermat’s launch is so interesting to us.  Anytime you have the ability to launch a brand new product and brand for that matter, you are starting with the proverbial clean slate.  An exercise that Retail Leverage advocates is to think like a start-up, imagine you’ve just been given several million dollars and start ideating on what you’d do.  Priorities can emerge pretty quickly when you are forced to allocate the dollars.  With limited dollars, it is clear that Powermat started with the end in mind, which is in-store at the point of sale.  They worked backward from there doing what it takes to get 2 leading retailers to buy-in and support their launch.  In effect, they are launching with Retail Leverage.  That is a great place to be as long as the sales back up the expectations.  If Q4 is a success, you can bet they will expand their leverage to other retailers,  If they fail, you could say they BLEEPED up by putting all their eggs in just a few baskets.  We’ll check back in once we get an indication of their results!

By Ben Smith

Tivo and Best Buy recently announced a partnership that will change how both DVR’s and TV’s are sold.  I won’t bore you with all the details but the summary is that both Best Buy and Tivo are giving and getting something big.

In Tivo’s case, they will be getting favored real-estate to display their product, with an increased focus from the Blue Shirts.  This kind of vote of confidence from a retailer like Best Buy is gold at retail.  Combine this with their coming wave of DVR’s via partnerships with DirecTV and Comcast, they have a story to tell and great place to tell it.

On Best Buy’s side, they are already a leading retailer of TV’s, and also a leading TV advertiser among retailers (almost $400 million in 2008).   However, once the customer gets home with their brand new TV, Best Buy is in the same boat as other advertisers when it comes to trying to reach the consumer.  The Tivo partnership will provide Best Buy with a platform to stay connected to customers who buy special Tivo boxes from Best Buy, as well as their house brand TV sets (Insignia, Dynex).  This platform is expected to operate on top of the renowned Tivo interface.  You can bet that Best Buy will use this tool to reinforce to its customers that it is the destination for technology, and provide offers and opportunites to learn more about their products and services.

So what did Tivo give up to gain leverage at Best Buy?  Frankly not much.  Instead of giving up more margin, or spending MDF dollars to buy premium merchandising, Tivo has created something new that they are basically giving away to Best Buy (and perhaps other retailers in the future).

Tivo is breaking new ground with this retailer specific platform that it can deploy via its boxes, or software embedded in TV’s.  The real question is what can Tivo gain?  They’ve been waging a losing war as of late as consumers take the generic DVR’s from their cable/satellite providers, and in many cases either think of it as, or refer to it as, a Tivo.  If the Best Buy partnership can help consumers make the choice to go with Tivo instead of blindly taking their providers DVR, Tivo is back in business.

UPDATE:

More details are coming out on the communications platform that Best Buy is getting from Tivo.  The platform may be coming on TV sets beyond just the Best Buy house brands (Dynex, Insignia).  LG and Samsung are rumored partners to deploy the Best Buy Tivo interface on their sets sold at Best Buy.

If the Tivo interface is anything like a storefront presence, you can guarantee that other key vendors at Best Buy will want to find ways to get their brands/products featured there.   If it is important to Best Buy, it better be important to you if you want to sell TV’s there or any products for that matter.

Stay posted.