Harambee University College, Adama Campus

Bizuwork Simeneh
ID: HMBA/1039/11R-AD

Circuit City Challenge

In the 1980s Circuit City, based in Richmond, Virginia, was the top consumer electronics
retailer. It was the first to expand its format into the warehouse superstore. The company built a
proprietary computer system, which gave it a competitive advantage throughout most of the
1990s. The system supported commission-based sales compensation and allowed associates to
check and hold inventory for customers. But by 2000, the system was slow and prone to crash.
Competitors were beginning to pay employees a salary, with no commission.

In order to save money on rent, Circuit City stores were located in out-of-the-way locations.
“Executives at the time figured that since its stores were destinations, consumers would go a
little bit out of their way to get to them.” However, in the 1990s, Best Buy started expanding by
buying property and building stores in busy shopping centers. Circuit City responded by
remodeling its stores, but sales continued to decline.

While Best Buy pursued its customer-centricity initiative, Circuit City managers “relied on their
instincts or what worked in the past to determine what products to promote, how to promote
them and where to place merchandise in stores.” Circuit City lost focus of its core business. It
“opened a bank to operate a private-label credit card financing operation, took a minority stake in
a used car dealership and conceived a pay-per-view format for DVDs that consumers ultimately
rejected.”

In Chapter 3 of their book, Return on Customer: Creating Maximum Value from Your Scarcest
Resource (Currency Books), Don Peppers and Martha Rogers report that Best Buy’s customer-
centric strategy allowed it to identify its most profitable customers and place them into the
following five segments:

• Affluent professionals who want the best technology and entertainment experience
• Active younger males who want the latest technology and entertainment
• Family men who want technology to improve their lives practical adopters of technology and
entertainment
• Busy suburban moms who want to enrich their children’s lives with technology and
entertainment
• Small-business customers who can use Best Buy’s products and services to enhance the
profitability of their businesses

After identifying its customer segments, Best Buy matched its store layouts and merchandise to
meet the needs of those customer segments. By 2001, Best Buy surpassed Circuit City in
revenue, and today Best Buy has more stores.

Circuit City is trying to regain its position in electronics retailing. The company sold its non-core
businesses and is focusing on the business of selling consumer electronics. Employees are on

Case study 1 Page 1

Compiled by Dr. Bogale Alemu
 Harambee University College, Adama Campus

salary, not commission. The company is making a significant investment in new technology to
aid management in decision making. In October 2004, Circuit City hired Philip Schoonover from
Best Buy as its new President. He “plans to turn the company into a customer-focused business
that delivers a personalized experience to all of its customers across all of its channels (stores,
Web and call centers)”.

QUESTIONS

1. Which management functions did Circuit City managers fail to perform? Cite examples to
support your answer.
2. What management roles did Circuit City managers fail to perform in the actions taken? Give
examples to support your answer.
3. Which management skills did Circuit City managers fail to use? Cite examples to support your
4. How did Best Buy exercise leadership? Give examples to support your answer. Answer

ANSWER.

1. Planning because before they changed their store location they did not set goal.
2. Informational role because they do not gather information about the store from stake-
holder.
3. Conceptual skill because they did not analyzed any situation.
4. Be a purposeful leader, be clear about your role as leader, be clear about who you are
serving, be a values-driven leader and be an authentic.

Case study 1 Page 2

Compiled by Dr. Bogale Alemu