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May the Best Brand Win: Best Buy vs. Circuity City

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One retailer forgets little thing called "customer service," goes bankrupt.

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Circuit City thought it could win on price alone.

It was wrong.

Circuit City forgot that there's more to retailing than moving merchandise out the door. Competitive pricing is a given. Beyond that, customers demand a knowledgeable sales staff and strong support. Circuit City failed to deliver - and now it's bankrupt.

Most people aren't all that clever; simple tasks like hooking up a new flatscreen TV, DVD player, or other gizmos baffle them.

Circuit City responded to the needs of its customers by firing many of its most experienced and knowledgeable sales reps as a cost-cutting measure. This brilliant move hobbled Circuit City: The cheap-o replacements didn't know the products, couldn't make valid comparisons with competing models, and couldn't answer detailed questions. In short, Circuit City's new stupider-than-thou sales staff lacked the ability to sell.

Navigation Incredibly, Circuit City made this intolerable situation permanent by gutting sales commissions. This assured that talented sales reps looking for work would take their skills elsewhere.

Best Buy (BBY) moved in the opposite direction by purchasing the delightfully named Geek Squad to underscore it's commitment to customer service. "We can repair or install your gear no matter where you bought it," Best Buy proclaims. "Geek Squad service available 24/7, in home, in store or over the phone."

Buyers noticed - and voted with their wallets. Circuit City's sales took a dive, while Best Buy's 1,300 stores gained market share in mobile phones, computers, home theater equipment and music.

Unlike Circuit City, Best Buy understood the importance of its staff and launched BlueShirtNation.com, billed as the "place we go to talk about stuff." The internal social-networking site enables Best Buy's employees to talk shop companywide, solve problems, and better serve customers. It builds morale by encouraging employees to share common interests.

Circuit City stressed sales volume with an eye toward keeping Wall Street happy. But many customers found the company's stores had become too big - and too impersonal. In the rush to expand, Circuit City opened stores in marginal locations, tarnishing its standing with investors and its image with prospective customers.

Just as Best Buy was pounding Circuit City on customer service, the credit crunch kicked the reeling retailer down the stairs. Suppliers were reluctant to sell to Circuit City, fearing the company couldn't make timely payments, and customers shunned Circuit City's 1,330 stores. That's a death spiral.

Circuit City's failure is surprising: The company pioneered the big-box retailing of TVs, stereos and exciting stuff like refrigerators. But bad management -- not the economic downturn -- killed Circuit City.
No positions in stocks mentioned.
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