We live in a fragmented age. Best Buy's CMO, Michael Linton, tells Geoffrey Colvin how to sell in it.
(Fortune Magazine) -- As recently as the 1970s, you could reach 90% of the U.S. television audience just by buying ads on the three networks at 9 P.M. Today's marketers have it tougher. They must sell to a highly fragmented audience of Internet- empowered, channel-surfing, TiVo-happy consumers whose tastes change on a dime. Make a mistake, and capital markets hammer your company's stock.
That is the world of Michael Linton, chief marketing officer of Best Buy (Charts), the $30.8 billion Minnesota-based company that is America's top specialty consumer electronics retailer. As CMO, a title that didn't even exist in the 1970s, Linton is responsible for selling products that not only change continually - think software - but have to hit the zeitgeist just right. He's also up against killer competitors in Wal-Mart (Charts) and Dell (Charts) (not to mention a resurgent Circuit City (Charts).
Best Buy is nonetheless prospering, helped recently by a strategy called "customer-centricity" that is becoming a model of how to market to the modern consumer. (See "Best Buy's Giant Gamble") Though the stock has slumped of late, down almost 15% since April, it has risen by a factor of 20 over the past decade.
Twice named by Advertising Age as one of the top U.S. power players in marketing, Linton sat down on July 25 with Fortune senior editor at large Geoffrey Colvin at the Time Warner Center in Manhattan.
Advertising Age recently said, "The job of CMO has become one of the highest-stressed, shortest-tenured in American industry." Spencer Stuart estimates the average tenure of a CMO is just 23 months. What makes this job so brutal?
The sweet spot for marketing has never been smaller, and I'll tell you why. Three components go into it. The first is the demand for organic growth. The second is the need to balance short-term results with long-term marketing competencies. The third is the need to innovate and put money and resources into new tools so you're not caught dead later.
New tools meaning new marketing tools, new media tools, things like that?
Partnerships, direct marketing, loyalty programs, anything like that. Marketing is the most public of functions. I think hardly anybody comes up to the CIO at a party and says, "I've been thinking about data architecture." But I have had neighbors come up and ask me about, say, the advertisements and the loyalty program.
And I bet they have really good ideas.
They do. They are loaded with good ideas.
So the market wants results today, but the nature of marketing is that you have to make investments that are going to take time - and you can't know in advance how effective they'll be. How do you think about this?
I'll tell you what has worked for us. We have two streams of marketing. One is "ready, aim, fire," which is marketing we know - the circular [in the Sunday newspapers], some TV, a lot of direct marketing. The other is "ready, fire, aim." That is, things we don't know but we believe we have to at least try so we stay current and fresh and new in the marketplace. If you hold the new tools to the same standard as the old tools, you actually won't do many new things, because you can't measure a lot of them. If you want to stay on the cutting edge, you have to invest some time, money, and personal risk in developing and implementing those new tools.
Let's take an example. A few years ago Best Buy made a deal with the Rolling Stones to be the exclusive retailer of their new DVD. Why did you do it? How did it work? And most important, did it involve any personal face time with the Stones?
This was a live album, with new technology that put you front and center at the best concert you ever could be at, with songs that you always wanted to hear. The Rolling Stones were coming to the market with the ability to make this DVD and were looking for a partner. First, we had to sell them that we would be a good partner. And then we took the manufacturing rights and sold the DVD exclusively in the U.S. and Canada.
It was very scary to do because the timing was short. There were multiple parties involved, and no one had done it before, so it was controversial both inside and outside the company.
Yes, there was some face time with the Rolling Stones - and an awful lot of time with their management.
And you ended up with a guitar autographed by all the Rolling Stones?
Yes, I did. In the end, we felt comfortable guaranteeing that this DVD would go platinum on day one, and it did, and now I think it's close to 20 times platinum. I think the Stones feel good about it, and we surely feel great about it.
You have since done similar deals with Elton John and with Usher.
That's right. At first this was ready, fire, aim, and now it's probably ready, aim, fire. We have a better bead on what works.
You've been in marketing for more than 20 years. What's the biggest change in the U.S. consumer that you've seen?
There is much more control of media and how consumers absorb it, and much greater expectations - not just in terms of the quality of the message but also in the understanding of the company and the products. And there is also much more fragmentation of "What do I want?"
Recently you said, "Without a doubt, demographics matter less and less." What did you mean by that?
What I meant was that trying to market to demographics is less important than trying to market to purchase patterns or behavior. As people get older, they don't necessarily want to be viewed as older. For example, they have certain hobbies, whether that's photography, computers, or whatever. I think trying to segment them by demographics first is less important than trying to segment them by what they do. So your goal is to get more and more data based on things like behavior.
There's a bigger goal here for me, which is to give customers what they want in a marketplace with literally thousands of possibilities. In the end, people want to customize those possibilities in a way that works for them. One of the ways we do that is through the data. The other is through the customer-centric work that we're doing as a company.
As I understand it, customer-centricity means configuring each store according to the needs of the particular customer segments that predominate in the area of that store. Is it tough to market and create a brand for different customers?
If you have a customized marketplace developing, you need to customize the operating model. It's not a matter of completely new brands; it's about making changes to the stores - maybe 20% - things like store hours. Does it drive you nuts? Well, it adds to the challenge. From a customer-centricity standpoint, one of our segments is women. One of the things the company has done for that segment is personal shopping assistance, so you can call and make an appointment. The way things are displayed in the store has helped. Also, we have a component of the brand that is a little irreverent and approachable. All this is designed to break down what I believe is one of the biggest barriers of technology - that it is not an easy thing to shop for.
Does selling media devices give you any insight into the kind of media you want to use in your marketing?
Yes. We look for developing trends. The past couple of years have seen the emergence of a huge amount of connectivity. The digital marketplace is in its next phase, which I call customization. If you go back five, six years, you could buy a television and a VCR. Now you can buy multiple sets of televisions, lots of sources into that television, and other devices around it. You can take your music around. That's important, and we look at that in terms of how we should market to these folks.
With people buying all these different devices and then wanting to connect them, they are going to run into some trouble.
Right. I maintain that the computer is the most emotional appliance in your house. If your TV goes down, you're upset, your washer, yeah, your refrigerator, yeah, it's a big inconvenience. But the computer goes down and your life stops - and your kids are on you too, if you have them.
So you need help immediately. And who're you gonna call?
I think you should be calling Geek Squad [Best Buy's 24-hour computer-support service] right away. As things connect through the computer, whether it's your camera or printers, or you want to network your home, Geek Squad can be a huge help.
Geek Squad has terrific profit margins and is growing rapidly. What is its value from a marketing point of view?
It is a fantastic brand to work on. The creatives cannot get enough of having fun with the geeks. We actually have a whole group of geeks who check out stuff before we put it out to make sure it's consistent with geek culture. That is very important to us, because there's a purity to that brand that we never want to mess with, the purity of a geek. The other thing is that it goes places where Best Buy can't go. It can go to your house. We own Geek Squad as a company, but it can go off on its own and do some great stuff. It is a riot to work with.
Best Buy spent more than $800 million last year on advertising, more than Coca-Cola or IBM. But I don't see Best Buy up there in the various rankings of the most powerful brands. Why isn't the brand stronger?
I think we'd have to talk to the people doing the rankings. We laid out a whole bunch of measures about seven years ago in terms of what we saw in technology and entertainment and where we wanted the brand to go, and we feel really good about where the brand is today.
A lot of people would say that a powerful brand requires an emotional connection with the audience. Do you have that?
I think it's for others to judge. A couple of things have happened to the brand in the past seven years that we're proud of. We went after the fun component of technology and entertainment starting in 2000, when our slogan was "Turn on the fun," because one of the things we saw was that this category is way fun. Once you buy it, you want to plug it in, turn it on, and listen to it. So we wanted the brand to be energized around the fun, and that got us into entertainment and led to the Stones and to some of the changes in the stores.
Wal-Mart went into groceries and crushed some retail grocers. It went into toys and crushed some toy retailers, went into jewelry and crushed some jewelers. Now it's going into consumer electronics. Why won't Wal-Mart crush Best Buy?
It is a merciless marketplace, and if you don't evolve, others will evolve for you. I think you have to be true to your own game, and I like the game we have. We think we are very, very good at complex solutions - technology and entertainment and how they come together. We plan to add services to that. We like what our brand stands for and its connections, both practically and emotionally. There's an awful lot of good players in the marketplace, and we always feel that pressure, but I think you've got to stay with your game. That's what we'll be doing.
Best Buy recently confirmed that it's buying a majority stake in a Chinese consumer electronics retailer, Five Star. There's obviously huge potential there. But the richest man in China, Huang Guangyu, owns the biggest chain of consumer electronics retailers. Can Best Buy ever understand Chinese consumers as well as he can?
I don't think we're under any delusion that we have this figured out. We believe China is a fundamentally good place for us. Our alliance with Five Star will help us learn what we can do in China and what unique value propositions we can bring there.
Do you stump your children or do they stump you when it comes to music?
Usually I'm still winning on the music, but the 13-year-old is closing the gap. The iPod thing has been a problem for me. You can listen to a lot of music when you're in the car. I was listening to the new Red Hot Chili Peppers on the way down here. I like it.
Do you go to concerts?
I do. I go to a lot of concerts.
How has that been?
Once my wife and I went to this stand-up concert by a techno-artist named Moby whom I really like. Walking through the crowd at intermission, a guy grabs me, and he goes, "Thank God you're here!" And I say, "What do you mean?" And he says, "Now I'm not the oldest person here!"
So that's what you endure on behalf of Best Buy.
Somebody's gotta do it.
THE C-SUITE SERIES
This is the third of four interviews by FORTUNE senior editor at large Geoffrey Colvin with the nation's elite executives. See video excerpts of this interview at fortune.com/csuite, plus find out how Rob Carter, CIO of FedEx, gets it there on time, and where in the world Citigroup CFO Sallie Krawcheck sees growth.
THE VIEW FROM THE TOP OF CIRCUIT CITY
DAVID VS. GOLIATH. Pepsi vs. Coke. Red Sox vs. Yankees. History is full of examples of rivalries that seem lopsided--until they aren't. Consider Richmond-based Circuit City, which is a distant No. 2 (revenues: $11.5 billion) behind Best Buy in consumer electronics retail. But Circuit City's stock is up more than 20% in the past year, while Best Buy's is slumping.
Phil Schoonover led the customer-centricity effort at Best Buy, then joined Circuit City in 2004. He became CEO in March. Here is his take on the industry.
" On where growth is coming from: Digital TV is the biggest. With that comes accessories and services. TVs will commoditize over time, but the flat-panel-TV business pulls along with it profitable products and services. If you buy a flat-panel TV, you might need a bracket, a piece of furniture, or a universal remote. You need an HDMI cable . We sell satellite TV and cable services in our stores, and digital music, movie, and game service going forward. Oh, and a lot of customers come back and upgrade their audio system after getting their new TV. In the imaging business, digital cameras and photo printers are really big growth engines. MP3s, satellite radio products and services, and mobile navigation are all selling well.
" On the role of services: Our IQ Crew had the same positioning as the Geek Squad. But we learned some people found the brand arrogant. Also, there really wasn't a brand that transcended PCs. Both brands tested well with the PC user but not for installing home theaters. We'll announce a new services brand later this month that serves the whole home. Over the next five years home-theater installation and PC services could become a $20 billion business. It's a big space.
" On integrating the web: We'll pass $1 billion in web-initiated sales this year; more than 60% of those customers shop online and then come to our stores to pick up. That pattern was a surprise to us; it was counterintuitive. So we have been systematically removing the barriers between the web and the stores.
" On other retailers: I have a lot of respect for the way Dell sells the customer a complete solution. Amazon's product reviews and affinity work is great. Costco makes shopping fun and interesting, like a treasure hunt. Target has done a great job with brand differentiation. We're also inspired by Lowe's.
" On his own gadgets: I can't get away from my BlackBerry; they gave me this new, cool color one. I love TV, and I love audio products. We have a deal with IBM, and they take care of the company's laptops. I also have two Sony Vaios at home. And I have two iPods.