Jérôme Barthelemy: The two (only) fundamental levers of value creation

In the early 2010s, American electronics retailer Best Buy was in trouble. The reason: it had become Amazon's showroom. Customers came to its stores to see the products they were interested in, but ended up buying them from Amazon ...

In the digital age, “physical” points of sale are often considered a relic of the past. Against all odds, Best Buy has succeeded in transforming them into a war machine thanks to its 'boutique within a boutique' formula. This formula - inspired by department stores - consists in renting part of the sales space to suppliers. It benefits both equipment manufacturers (who can showcase their products without needing to open their own stores) and customers (who can interact with brand-specific sales staff). But points of sale have many other advantages. They can be used for 'click and collect' or as local warehouses for online sales. In short, physical and online sales are complements rather than substitutes. The results of Best Buy's new strategy have been spectacular. As the Wall Street Journal put it: “Best Buy has done what was considered impossible... to stand up to Amazon”.

More generally, the Best Buy story reminds us of a fundamental principle of strategy: there are only two ways to create value:

·        Increase customers' willingness to pay. At Best Buy, this has been achieved by improving the customer experience with brand-specific sales associates, a stronger Internet presence and faster delivery from the point of sale;
- Increase the 'willingness to sell' of suppliers and employees. The 'store within a store' formula is particularly interesting for equipment manufacturers, because it enables them to showcase their products without having their own network of stores. They are then much more inclined to offer competitive prices to Best Buy. The 'store within a store' formula also gives salespeople the opportunity to work for a single brand. It enables Best Buy to attract the best talent in its sector without paying them higher salaries than the competition.

In short, companies tend to spread themselves too thin. They would do better to focus on activities that increase their customers' willingness to pay or their employees' and suppliers' willingness to sell. These are the only two levers of value creation.

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