In Competing on Analytics: The New Science of Winning, Thomas Davenport and Jeanne Harris explain how Best Buy used data collected on 60 million U.S. households to create eight customer segments.

And with the insights it gained, the company devised new formats that cater to specific segments in a few testbed stores. Best Buy CEO Brad Anderson describes these retail laboratories as "our R&D arm for researching customer segments and the value propositions that matter to them."

A "Barry" store, for instance, appeals to young men who crave audio and video equipment; a "Jill" store, meanwhile, caters to mothers with packed schedules. "In this [latter] format," say Davenport and Harris, "personal shoppers are available since they are both useful to 'Jill' and are a feature that dramatically increase average spending per customer. Other changes are more subtle; for example, the volume on background music is lower than it is in other formats."

The company even encourages salespeople to think in terms of analytics. "Best Buy also trains employees to understand financial metrics," they say, "such as return on invested capital, so that they can gauge for themselves the effectiveness of customized merchandising displays."

The Po!nt: Using analytics to create retail formats can pay big dividends. "[T]he new stores formatted around specific customer segments are generating sales at twice the rate of Best Buy's traditional format," say Davenport and Harris.

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