Two-Faced & Tight-Fisted - ' Page 3'

Even companies that don't have the luxury of a membership base like REI's (willing to pay $15 to join) are getting into the game. Consumer electronics retailers Best Buy Co., of Minneapolis, and Circuit City Stores Inc., based in Richmond, Va., both enable gadget addicts to purchase online and then race to the local store for immediate gratification. This is possible because both stores allow shoppers to check online to see which local store is carrying the item they want. Best Buy will even reply with an e-mail, then send a sales assistant out to physically pick up the item from the shelf and hold it until a customer arrives to buy it. That way, the customers are assured that their trip to the local store will not be fruitless. Best Buy estimates that at any given time, about 50 percent of its customers have first researched products on its Web site.

Interestingly, Best Buy CEO Brad Anderson recently caused a ruckus by going public with the company's plan to discourage its more costly demon customers. Best Buy's goal, says Anderson, is to separate the 20 percent of transactions that are costing the company money from the 80 percent that are making the company money. "We do not use the phrase [demon customer] internally at Best Buy," says Sam Taylor, senior vice president of online stores and marketing at Best Buy. "What we are trying to do is focus on our most loyal customers and provide them with the best service that we can offer."

Among the company's get-tough tactics: a 15 percent restocking fee on returns. The company is also doing surveys and mining customer databases in an attempt to identify what types of customers shop at each store. Best Buy realizes that it needs to respond to a market that is rapidly segmenting, so it is using this information to convert 68 California stores to address five specific customer segments—small business owners, affluent professionals, family men, suburban moms and young early adopters. Each store will be geared toward one of the five different buying behaviors. For example, the family-man stores will offer same-day home theater installation. "We are now focusing on this market segmentation so that we can offer a more targeted service to these customers," says Taylor. The company's "Geek Squad," for instance, will not only help customers find the product that best suits their needs but will also, for a fee, provide after-sales support, such as coming to their homes to install a wireless system. "These are services that other retailers cannot offer," Taylor adds.

Furthermore, Best Buy is culling the names of its less profitable customers from its marketing lists, according to recent reports. Perhaps that's good news for Best Buy's shareholders, but bad news for the likes of Mr. Ehara, who may find it harder to do his offline research. He and other good shoppers may get marked as bad customers. "It seems like a rather negative approach to me," says Forrester's Carrie Johnson. "I think it's probably easier to encourage good customers than try and discourage bad ones."

The question is whether the good customers will get significantly better service, and spend enough, to make up for the loss of less profitable ones. In the meantime, most stores will continue to try to change the behavior of their demon customers by gaining their loyalty. Richard Ehara says bring it on.

Niall McKay is a San Francisco-based freelance writer who has written for The New York Times, Wired and Red Herring.

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