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and CompUSA, are now gone. The reason is that even in good times, electronics retailing can be a brutally tough business, haunted by thin profit margins, ever-falling prices, feast-or-famine product cycles, and price pressure from Internet retailers. On top of that you have the likes of Wal-Mart and Costco skimming electronics shoppers. This sounds like a case for repositioning. As reported in the New York Times, Brian Dunn, Best Buy s new CEO, plans to reposition the chain around services, something that in the past it has done better than any national electronics retailer. That translates into selling product warranties or help with installing a home theater or configuring a computer. An analyst at Pacific Crest Securities forecasts that such services, which can be highly profitable, could bring in 5 percent of the company s $47 billion in sales in the next fiscal year. The company s blue-shirted tech support staff, called the Geek Squad, has expanded beyond PC-centric services. Not all of the company s services are direct revenue generators. Dunn said that a chief example of the kind of thing Best Buy wants to be known for is a service it calls Walk Out Working, which it began introducing in May 2007. The service, which is free, helps consumers configure new mobile phones so that when they leave
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the store, they are able to use features like music playback and Web surfing.* This sounds like a pretty good repositioning strategy to us. It s similar to the Sam Bridge story. If one shopper asks another why he comes to Best Buy, and if the answer is, No one else is as smart, it could be said that the firm s repositioning mission has been accomplished.
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These are hard times for expensive brands. What is a brand to do when its customers feel that it is necessary to cut back and save Or when products that were sold on prestige are not socially acceptable Do you cut your prices and thus tell your customers that you were overcharging them A Vera Wang wedding gown once averaged $5,500. Next year it will be $3,800. She is also introducing a lower-priced casual line called Lavender aimed at twenty- and thirtysomethings. Nordstrom is opening fewer full-price department stores and has tripled the pace of opening lower-price Nordstrom Rack stores. We re not so sure about all these subbrands and their impact on the main brand.
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* http://www.nytimes.com/2009/07/18/technology/companies/ 18bestbuy.html.
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Companies all over the globe are facing this dilemma. One to watch is Coach, a maker of rather expensive ladies handbags. When sales of its $300-plus bags tanked in the middle of the financial crisis, its managers were faced with a decision that made them uncomfortable. As the CEO, Lew Frankfort, recounted, The first question everyone asked when they came into our fullprice stores was, What s for sale Frankfort s response was, We never go on sale. But any lingering resistance to the idea that Coach had to reposition itself ended then. But what to do
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A New Brand
Rather than cut prices, Coach decided to launch a new subbrand that is more youthful, using new materials and new designs. It is to be called the Poppy line, and it will sell for an average price of $260, or 20 percent less than the usual Coach purse. We prefer the newbrand strategy over that of just cutting price on existing brands. But your new brand should have its own name, look, and market segment, while still being profitable. And there should be a clear differentiating story between the original brand and the new brand. All this requires a great deal of work and planning. As this is being written, the main pieces of the Poppy collection were tested in 9 Coach stores and 23 department stores.
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