Magazine Luiza's ecommerce strategy - FT.com The story In May 2011 Magazine Luiza, a family-run Brazilian retail chain for household and electrical goods, had raised R$926m from its flotation on the São Paulo stock exchange. Luiza Helena, the chief executive, wanted to use the money to expand the business further and was looking at ecommerce: Brazil ranked fifth worldwide for total number of internet users, so the potential market was huge. Yet there were concerns over ecommerce becoming the cornerstone of the company's growth. The key to its success was a finely tuned strategy based on care of customers and employees, who typically came from lower-income brackets. Internet users in Brazil were predominantly in the higher-income brackets. One big concern was that moving away from what made the company successful in the first place would ultimately damage the brand. The first question was how the strong customer relationships and high levels of service for which the chain was known could be extended to the online model. Magazine Luiza's highly trained employees, hired from the communities in which the stores are based, have been a significant factor in gaining repeat custom. Two factors limited the growth of ecommerce in Brazil: access to broadband, particularly among lower-income consumers, and consumer credit. Magazine Luiza's store customers were mainly at the lower end of the income scale and were less likely to have internet access. Magazine Luiza invested heavily in ecommerce to attract higher-income customers. A key initiative involved incorporating the company's personalised approach online. This was implemented in three ways: ● A virtual salesperson, called Lu, guided customers through the site. ● Online customers were provided with aftersales support through the network of physical stores, so customers could still get face-to-face contact with well trained sales staff. ● Finally, Magazine Luiza developed the innovative "Magazinevocê" ("You shop") programme. This allowed anyone to create their own virtual store, in which they could sell up to 60 Magazine Luiza products to friends through social networks such as Facebook and Twitter. They would receive a small commission if a friend made a purchase. To maintain relations with traditional customers, the company supplemented the ecommerce strategy with offline initiatives aimed at their particular needs, such as free internet access, staging live concerts and offers of free food. In the stores, sales staff extended credit and offered a range of financial services to consumers who normally did not qualify. The proximity local employees had with customers helped them judge the credit- worthiness of applicants. Financial services became part of the business. The results Magazine Luiza's ecommerce website became one of the fastest- growing in Brazil. More than 70,000 users signed up for the "Magazinevocê" programme in 2012, which far exceeded expectations. It is important to anticipate the different needs of various market segments. Magazine Luiza created a distribution channel to serve new customers while maintaining its traditional base. You can create a highly profitable business model by focusing on providing quality services for lower-income customers - a typically underserved market segment - beyond offering just low-cost products. Magazine Luiza realised these customers have complex needs and met them through being connected to local communities as well as offering financial support and advice. That said, Magazine Luiza will face another challenge soon enough: as more lower-income customers gain broadband access and credit is easier to obtain, the ability to sustain this growth will depend on whether it can meet the needs of both segments through an integrated multi-channel strategy. The writer is professor of marketing at Iese Business School Read more Case Studies at ft.com/management/case-study