Having vanquished an array of conventional competitors, consumer electronics retailer Best Buy is now being chased by Dell and Wal-Mart. What the company fears most is that it will end up in the "unprofitable middle" -- unable to attract either affluent or price-sensitive shoppers.

To avoid that fate, the company has launched an initiative to distinguish its "angel" (most profitable) customers from its "devil" (unprofitable) customers. Working with Larry Selden, a professor at Columbia University's Graduate School of Business, Best Buy has begun to organize itself as a "portfolio of customers" as opposed to product lines. The company CEO, Brad Anderson, has embraced Selden's theory that future shareholder growth will increasingly depend on reorganizations of this sort.

According to a piece today in the Wall Street Journal, "Best Buy has rolled out its new angel-devil strategy in about 100 of its 670 stores. It is examining sales records and demographic data and sleuthing through computer databases to identify good and bad customers. To lure the high-spenders, it is stocking more merchandise and providing more appealing service. To deter the undesirables, it is cutting back on promotions and sales tactics that tend to draw them, and culling them from marketing lists."

It turns out that Best Buy's devils are quite devilish. "They buy products, apply for rebates, return the purchases, then buy them back at returned-merchandise discounts," states the Journal. "They load up on 'loss leaders,' severely discounted merchandise designed to boost store traffic, then flip the goods at a profit on eBay. They slap down rock-bottom price quotes from Web sites and demand that Best Buy make good on its lowest-price pledge."

Best Buy has since taken steps to deter these unprofitable customers -- and now it is focused on its highest growth clients. Having analyzed customer purchasing behavior and histories, the company has identified five distinct groups that represent strong potential: upper-income men, suburban mothers, small-business owners, young family men, and technology enthusiasts. These customers are now identified by sales specialists at the pilot stores and directed to newly designed areas that match their interests and criteria.

Best Buy's pilot stores, it turns out, are heavily outperforming conventional stores. "Through the quarter ended Aug. 28, sales gains posted by pilot stores were double those of traditional stores," noted the Journal. "In October, the company began converting another 70 stores." It plans to customize the rest of its stores over the next three years.