Amazon’s quarterly revenue rose 51% year-over-year while Best Buy’s revenue remained flat. Is it any wonder Best Buy’s stock prices fell by one-third this year?
What’s going on? A high percent of store visitors use Best Buy for decision-making but turn to the Internet to find best prices and make purchases. Without stores and with a government-given competitive advantage called “no sales tax,” Amazon has the lowest cost business model.
Best Buy is stuck in commodity-competition quicksand, sinking steadily while customers see little difference between buying from them, Amazon or other reliable suppliers. Of course, lowest price wins. Best Buy is not alone. Most manufacturers and retailers are stuck in this situation.
I saw a great solution to this dilemma while helping my husband Nick shop for running shoes at Road Runner Sports, the world’s largest on-line running and walking store with a growing number of retail outlets. Like any serious running store, the wall of shoe options hits you like a two-ton truck. You can either rely on your tried and true brand or seek advice from running-world experts.
Road Runner Sports offers a new twist on guru advice – a computerized assessment based on a video of the shopper running on a treadmill, a pad measuring where the runner places the weight of his feet and runner-provided information. Nick tried it, and the assessment was insightful and correct, his right leg is shorter than his left. The associate then advised Nick on the shoe, an insert, the sock, etc., to address recent knee discomfort.
Road Runner Sports turned a product sale into a high-value experience that made us happy we found the store. The company deploys what innovation expert Henry Chesbrough calls “Open Services Innovation.” By working with the runner, plus treadmill, video and shoe insert companies and software engineers, Road Runner Sports fulfilled its value promise of providing the best solution.
Chesbrough has four recommendations for capitalizing on the innovation opportunities created by today’s open economy.
First, think of yourself as a services business. You must think beyond your current product, which typically boxes you into too narrow a business concept. Road Runner isn’t selling shoes; it’s selling a service that provides confidence in your selection.
Second, invite customers to co-create with you in order to generate the user experiences they want. Nick invested 15 minutes in the assessment. P&G increasingly relies on customers for product ideas. Fed Ex informs customers of exactly where their shipments are thanks to data they enter into the Fed Ex system.
Third, turn your solutions into platforms that others build on. Apple invited software developers to create applications for its iTunes store, allowing its customers to personalize their devices while giving Apple an attractive incremental revenue stream. Amazon allows small retailers and self-published authors to use its platforms to reach Amazon customers. In Chesbrough’s words,
“No single person or company can hope to compete with this explosion of potential offerings by relying on their own internal knowledge.” Your aim should be to create “a business ecosystem in which many parties vie for the attention of customers, who in turn benefit from more variety and more specific alternatives for them to consider.”
Finally, redefine your business models around open-innovation platforms. At present, Road Runner Sports’ business model is selling shoes and gear with just one value-added service created through the platform. What if this platform also included outside trainers who would add custom training regimens designed for specific kinds of runners characterized in some way by the Road Runner Sports platform? Nutrition specialists could add advice for different kinds of bodies on different types of training runs and races. Could Road Runner Sports license its platform to specialty running stores in communities where the company has no intention of locating a store? What if the platform created a custom insert in conjunction with local chiropractors linked to the Road Runner Sports community through the platform? Chesbrough is advocating this type of innovation.
In moving from the Industrial Age to the Internet Age, we transitioned from a world of protected, hard-to-access knowledge to ubiquitous knowledge. Think of solution platforms in an open-innovation world as magnets. How can yours draw others into working seamlessly with you to benefit your customers?
As the magnet, you’ll gain insights into customers’ tacit knowledge. Chesbrough claims this knowledge will create a stronger, harder to copy business model. Road Runner Sports customers might even reveal where the best runs are for different kinds of runners and training needs. As running newcomers to San Diego, we’d really value that!
How might Best Buy become a magnet for a community that would make Best Buy the best place to buy?
Greg Gehrich says
Excellent point. I was just talking to someone from Breg, a medical device maker, and they combat the race to the bottom by layering a differentiating service on top of their product.
Brad Shorr says
Hi Kay, My experience with Best Buy is that they provide a lot of the services you describe, but don’t always do a great job of packaging them up and marketing them. For instance, Best Buy really helped me figure out what mobile phone to buy, and then took care of all the setup and AT&T account monkey business – things I am clueless about. When we bought our first flat screen TV, from Best Buy, they were fantastic in helping us figure out which one to buy and doing the delivery and setup. I’ve usually found their staff helpful, willing to field any question no matter how seemingly ridiculous. But as I said, I’m not sure most consumers realize how much value-add they provide.
Kay Plantes says
You raise a great point Brad. How should Best Buy define its business in the eyes of its customers – what business are they in? Amazon is in the business of selling electronics. Best Buy still presents itself as selling electronics. As a small business owner I would be drawn to a company that was a productivity enhancer–that made sure I was fully utilizing tools that would make me more productive and that I had electronics configured and working to contribute to my productivity. Geek Squad gets at this in part–it would be an even more powerful service.
Brad Shorr says
Kay, You are exactly right. Best Buy has unique value as a formidable low cost seller AND solution seller.
Best Buy is great for making a decision. I love the feature that you can compare products too.