The “value equation.” It’s a term we’ve heard laptop makers throw around for years. That’s what Best Buy uses to decide which notebooks gain access to its precious shelf space, and therefore exposure to millions of shoppers. This equation has so much influence, in a way this single retailer has the power to determine which technologies are ready for the masses, and which ones still need time in the oven. But what goes into this mysterious formula? And who’s behind it?
To get some answers we sat down with Jason Bonfig, Best Buy’s vice president of computing. During our in-depth interview the most important person in the PC industry you've probably never heard of helps demystify the value equation. Bonfig claims that consumers have the most sway in determining what gets picked up, a dynamic he's taken to the next level with the retailer’s exclusive Blue Label laptops. Bonfig also questions the staying power of netbooks--he calls them “stale”--and weighs in on the iPad competition. Note to tablet makers: unless you bring an app store and/or lots of content to the table, it won’t make the cut.
Best Buy’s value equation for determining which notebooks are good enough for your stores has become legendary within the industry. How does it work?
Jason Bonfig: The best way to describe the value equation is it takes every single component in a notebook and it actually puts a customer value on that component. Add up those parts and it actually comes up to a customer value for that product. And that value is compared to the retail price or the cost. And that value equation score can be articulated in a percentage, and that percentage deems which products are better value for customers. And when I say better value for customers it’s always based on the previous quarter sales information, so really what we’re doing is taking customer votes. There’s millions and millions of them each quarter, and we extract them down to the component level.
How do you decide which notebooks are online exclusives?
JB: Yeah, we expand our assortment. So generally what happens is there is a product that we don’t think is the right fit for all stores or we make a decision there’s 20 we put in stores and the 21st, 22nd through 25th assortment we want to make sure we’re offering that rest of the assortment. They were close but not quite right for all store locations.
What about when a new technology debuts? How do you factor that in?
JB: There’s some art and science. When there’s new technologies, it wont be under that equation so you have to make a judgment call. That’s why we have very good merchants in the building. But the guide for the vast majority of the assortment is probably as high as 80 percent of the assortment is really what is coming out the strongest on the value equation in each individual price span and what combinations make the most sense for customers.
How did you decide that Intel’s Wireless Display was going to be valued by your customers?
JB: There were a tremendous amount of customers that were telling us that they wanted to figure out how to take content from their notebook to their TV. There were a lot of customers going the HDMI route. We wanted to find a way where, seamlessly and quickly, a customer could press a button and put that content on their TV. It really caters to the needs of watching videos and the family principle where we’ve all seen those pictures where everybody’s huddled around the notebook or the desktop. That doesn’t need to happen anymore. You can use the biggest display in the house. We solved that problem in a way that was organized and first to market.
WiDi was exclusive to your Blue Label notebook line for six months. How did that whole program come about?
JB: The primary premise was “the customer spoke and we listened.” We have a tremendous amount of extremely passionate customers. We also have a number of retail employees that are very good at taking what their customers want and articulating it. And then there’s a lot of external research that really points out things. We work with our vendor partners and investigate what technologies can actually solve customer needs. Backlit keyboards are a great example. Blue Label was one of the first products that had it. And it was simply that customers told us that they couldn’t see their computers in the dark.
From your perspective, what notebook brands are on the way up or the way down?
JB: You know I think there seems to be a lot more choices in the arena, which is good. One of the things the value equation does, and this is one of the things we don’t publish externally, is it actually gives a value for that brand. The service experience, the length of warranty, the design--a lot of things drive into that value. HP is a brand that our customers want, Sony is a brand our customers want, Toshiba’s a brand our customers want and I think they remain very strong.
And we have some new up and comers. We have ASUS that’s doing very well in our stores; we also have Samsung coming into the notebook arena for the first time in a long time which is showing some great progress. You know Apple drives a tremendous amount of demand in the 600 and some locations that we have them in. More brands are differentiating and bringing more value, and bringing different things. Sony’s very focused on Blu-ray and HP has a Beats initiative where they’re focusing on sound. I think that competition is really healthy, and it’s creating better values for the customer.
What are the biggest trends you’re seeing right now in mobile computing?
JB: So obviously the iPad trend is significant, and there seems to be definite interest in tablets. There will be more competitive products in that particular ecosystem as the future moves on. Right now though I think the biggest concern for us is making sure there is an app ecosystem to support those devices. There’s a lot of excitement behind a product like the iPad but if you use one or if you have used one you learn very, very quickly that a lot of the value in that is in the content and in the apps. And the product itself, although it’s very cool, is not about hardware, its actually about that experience.
So as other tablets come to market, whether they be Android based, whether they be MeeGo based, whether they be Windows based, the number one priority for us is making sure that ecosystem is there from an app perspective. Or I think that experience can be looked at as inferior to the experience out there today. That’s one of the big things we’ll look to as we move into holiday and beyond. I really think you’ll start to see non-iPad devices roll out more aggressively in the January timeframe. Hopefully a little bit in holiday but definitely in the January timeframe.
So I’m assuming your value equation is different for tablets than for notebooks. Are you saying that you won’t sell a tablet that doesn’t have a good app store behind it?
JB: You’re actually hit the nail on the head on the number one thing that’s keeping me up at night right now. It’s a very difficult time right now in making those assortment choices because there are a lot of products that don’t have the complete experience figured out. I don’t want to bring a product to market that isn’t quite ready yet. Content is really a better way to describe it than apps. The number one thing we want to be focused on, if you see something from us in holiday, we want to make sure it has that back-end ecosystem set up so that customers are going to be very elated to the experience rather than disappointed.
There are some analysts who say that tablets as are going to outsell netbooks over time. Do you agree?
JB: I think I could see some opportunities where that would happen and the biggest reason for that is netbooks have some things that limit their ability to really expand into different areas. There’s not a tremendous amount of differentiation or innovation that is happening in that space and that’s concerning. There are some limitations with it in screen size, memory, and OS. And when you spin all those things together it actually creates a category that, at least from my perspective, is getting a little stale from an innovation perspective.
In the next three to six months I think were going to see the writing on the wall as to whether the netbook category finds a way to evolve. Or if a category like tablets takes over just because of the pure ability to innovate either with different operating systems or different feature sets in that particular area.
What are the most important things Best Buy shoppers look for in a notebook?
JB: I think form factor is extremely important to customers. Materials and form factor are at the top. Speed. Customers articulate it as performance and when you dig into performance there’s a couple of things that come out. General speed and the ability to do tasks, which is something we’re continuously focusing on. It’s a little bit of complicated because industry standards don’t exist there. We need to have that dialogue because it’s something that’s really important to our customers. Battery life is critical, especially as we’re starting to get to more second-, third-, and fourth- time buyers. And then I think the other aspect of it is service and reliability, which I think is extremely important to customers.
What technologies will you be highlighting this holiday?
JB: I think graphics performance is one. I think there’s going to be a lot of different flavors on it. There will be a lot of changes from an integrated perspective, so integrated graphics solutions that come with a chipset that have the ability to play a game like Call of Duty and actually not sacrifice the battery life. That’s actually pretty powerful. It’s also about all the other things graphics are used for, whether it be photography or watching high-definition content. I actually think there’s a lot of push in that visual performance aspect of it.
I think the other thing that’s a significant trend--and I think you’ll make some fairly bold moves in this space—is connectivity. Customers today want to be connected everywhere. You’ll see us in the holidays with a lot more Wi-Max enabled products. It’s a local solution right now but as it rolls out to more and more cities it’s becoming more national. It really allows a customer to have that experience that we’ve been talking about in the industry for 7 years which is connected everywhere.
What "connected everywhere" will do is start to bring more and more form factors like the tablet, form factors that I can’t even imagine right now from the mobility perspective. Part of that might be Wi-Max, part of that might be 3G, part of that might be LTE, part of that might be additional hotspots and the ability to jump on them easier, but that connectivity portion is an area we’re really focused on.
Is that why you debuted your own mobile broadband service?
JB: We recently rolled out a mobile broadband service called Connect. There’s a Dell laptop in our store where that can be activated and you’ll continue to see us offer that as a choice in our store, because connectivity is really where we think a lot of our customers want to go. Those are all choices we’ll offer to the customer depending on their individual needs.