Why Everyone is Wrong about Best Buy (and Apple)

Why Everyone is Wrong about Best Buy (and Apple)

April 2nd, 2012 // 1:57 pm @

Why Everyone is Wrong about Best Buy (and Apple)

Recently Best Buy announced significant store closings as it continues to compete with the likes of Wal-Mart, Amazon.com, and Apple’s direct sales.  It’s been heavily reported and it seems everyone has their own theory.  Best Buy’s solution is to focus on smaller stores and mobile sales.

I am sure you remember Circuit City and their downfall, is it possible Best Buy is next?

So how is it when Best Buy can’t even keep its doors open, Apple has thriving retail space.  It’s even yielded copycat stores from the once-critical Microsoft due to their success.

Some suggests it’s the “Apple experience” or the glass showroom or the fewer products.  However, this is not why the Apple Stores are a “success”.

It’s actually not as complicated as it seems.  Ultimately it comes down to 3 principles of direct marketing.  With Best Buy (and Microsoft) lacking anyone of the three, let alone all three, their failure is this arena is inevitable.

Find ways to apply all three principles in your business, and Apple-like success will surely follow.

  1. Sell at the High-End: Most Apple computers start where Windows machines peak.  Fans of both will argue which is superior, but recent sales suggests that no one is doubting the value of the higher-priced Macs.  Premium prices need to be matched by a differentiated, premium product, but that’s not the point here.  Having prices higher than your competitors allows you to pay more for the customer through marketing.  Once achieved it also insulates you price wars.  Have you ever seen Apple use discounts to lure buyers?
  2. Own the Entire Process: This principle embodies Steve Jobs’ early vision.  He wanted everything to run through Apple.  Without critical mass of early Mac adoption, it nearly killed the company, but now the philosophy reigns.  Apple doesn’t have to share the customer or the profits.  Best Buy only makes a small percent on every sale then the manufacturer gets their profit, then Microsoft, and so on.  Apple’s biggest advantage of its retail stores, it simply doesn’t need to make any money from their existence.  They are not there to derive profit, only attract the customer.  This relates to “paying more for your customers” in #1.  Given Apple owns the hardware, software,  accessories, and add-ons – it can afford to pay higher customer acquisition cost including retail locations.  By acquiring the customer, Apple can now can build brand loyalty and life-long customers.
  3. Lifetime Value of a Customer: The first two principles lead to the #3, which is the reason I believe Apple is the most valuable company in the world.  After Apple acquires you as a user (let’s say through a retail location) and you buy your first mac, what’s next? An Windows Phone, or perhaps an Android tablet?  Of course not – more Apple products.  A CNBC study reports that half of all U.S. households own an Apple product, but more telling – over 30% of U.S. households own MORE THAN ONE.  Plus, each of those devices is upgraded every couple of years and after you use an Apple device it’s hard to switch.  Yet, here is Apple’s Golden Goose: as of last year there were over 200 Million Apple ID Accounts (the account that all iTunes, App Store, and Apple users create), making it one of the largest credit card repositories.  See, each and every Apple device offers a multitude of ways to continue to pay Apple money long after you’ve bought the device (including music, movies, apps, magazines, books, and more things in the making).  An area where nearly all other retailers fail.

If you are a retailer of electronics it might be time to alter tactics, because really Apple is merely getting started.  If it can sustain the three principles above without their visionary founder, there is no end in sight.





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3 Comments → “Why Everyone is Wrong about Best Buy (and Apple)”

  1. Kevin Kowalke

    12 years ago

    Brilliant as always Ryan! Million dollar analysis.

  2. ted

    12 years ago

    Good insight (as always)

  3. Nate Riopelle

    10 years ago

    Good stuff! I’ve been telling people this for a long time and try incorporating these philosophies into all that I do.

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