Best Buy Co., Inc.

Best Buy Co., Inc.April 232015ADMIN 404: STRATEGIC MANAGEMENT Assignment 1

EXECUTIVE SUMMARY

Best Buy is the largest consumer electronics retailer in the US. It accounts for 19 percent of the US market, and operates around 4,000 stores globally.Best Buy distinguishes itself from competitors by initiating a strategic transition to a customer-centric operating model which operates under a differentiation strategy rather than a low price strategy. It includes a portfolio of retail stores under Geek Squad, Napster, Speakeasy, Magnolia Audio Video, Pacific Sales, the Carphone Warehouse, and Future Shop. Despite significant growth and success in grasping various segments of consumer, Best Buy still faces many competitive forces from existing large brick and mortal rival companies like Walmart. Along with the growth of Internet, the trend of consumers to research products online and shop around for lowest price possible also makes e-commerce store like Amazon, EBay is a threat to Best Buy. Some other challenges including the economic downturn and increased competition have put negative pricing pressure on the company. In order to stay competitive in the market, Best Buy needs to improve its differentiation strategy or even consider changes in its business model. Though pricing is one of the main factor that influence shoppers choice, Best Buy does not need to compete directly on pricing structure due to the companys operating model, but instead slower the expansion and focus only on profitable products.This report will provide a brief history of the company, its business vision and objectives. Also, the impact of external environment on the company will be analyzed using Porters Five Forces Model and SWOT analysis. Finally, brief solutions for the company will be developed after reviewing the companys strength and weaknesses.

404 - I would have liked to see more explanation of analyses used in the report as well as some more detail on what you discovered.

INTRODUCTION & COMPANY OVERVIEW

Best Buy started in 1966 as a retailer of audio components under the name Sound of Music. The company was founded by Richard Schulz, and later changed its name to Best Buy Co, Inc. (Best Buy) after its expansion to retail more variety of products. DISTINCT BRANDSPRODUCTS AND SERVICE OFFERED

Best BuyVariety of Consumer electronics, home office products, entertainment software, appliances and related services

Best Buy MobileStand Alone Stores offer a wide selection of mobile phones, accessories, and related eservices

Geek SquadResidential and commercial product repair, support and installation services both in store and on site

Magnolia Audio VideoHigh end audio and video products and related services

NapsterOnline provider of digital music

Pacific SalesHigh end home improvement products primarily including appliances, consumer electronics and related services

SpeakeasyBroadband, voice, data, and information technology services to small business

As the company constantly seeks improvement in promoting their products to gain profits, it began operating as a big-box store and using mass marketing techniques to attract consumers. Over the years, Best Buy has expanded its reach among consumers both domestically and internationally through a series of acquisitions of Magnolia Hi-Fi Inc., Future Shop, Geek Squad, Pacific Sales Kitchen and Bath Centers Inc., Speakeasy, and Napster. These acquisitions not only are a value-added competitive advantage against its strongest competition such as Circuit City, and Walmart, it also helped Best Buy to gain more profits by targeting various segments of consumer.The company carries a variety of products and services. With the added product/services from its acquisitions, Best Buys competitive advantage is further enhanced through its multiple channels of distribution, such as being able to provide consumers with end to end services like installation, technical support, and other related services.[footnoteRef:1] [1: Best Buy Co., Inc. (2009). Form 10-K]

Despite leading the big box retail industry, the company experiences 2% revenue decline which resulted from market competition and industry gradual price deflation.[footnoteRef:2] [2: Best Buy Co., Inc. (2009). Form 10-K]

The analysis and recommendations of this case study might contain several limitations given limited statistical information, proof of verification such as real feedback of customer on Best Buys business, and the lack of adequate evidence to support the solutions. The assumptions of the companys strengths, weaknesses or internal/external analysis listed in the paper are solely explored by the report given, along with the support of textbook theories; therefore, the statement are developed based on logics and reason, without measurable verification. Lastly, textbook theories also influence the development and implement of the analysis process.

404 well done above

MANDATE

Mission/Core PurposeBest Buys mission is to be the leading provider that sustained growth, earnings, and makes technology deliver on its promises to customers.

Vision/Major GoalsBest Buys vision is to change the compensation structure for sales associates and applied a customer-centric operating model to provide end-to-end services. Its current business strategy and objectives include offering consumers with the widest range of product and service at the lowest price, increasing revenue by growing its customer base, gaining more market share by expanding into new international market. Best Buy distinguishes itself by implementing an innovative and different strategy compared to competitors called customer-centricity model.

Values/Ethic[footnoteRef:3] [3: https://secure.ethicspoint.com/domain/media/en/gui/32565/code.pdf]

To be more competitive, Best Buy recognises that the employees need to have more knowledge advantage than competitors. The principle starts within the top management structure and every employee is expected to have the companys vision embedded in their service and attitude. Best Buy also took a step further to engage its customer base by initiating website allowing visitors to start a dialogue on any ethic-related topics.Moreover, Best Buys Code of Conduct provides employees specifically the responsibility guideline to maintain integrity, reputation, honesty and equitableness in each other, customers, shareholders, business partners, and communities.

Stakeholder AnalysisStakeholders hold an important role and have significant impact on the companys performance in making business decision, establishing policy and operation procedure. Best Buys primary stakeholders include shareholders, consumers, employees and suppliers. Customer: Customers are critical to the companys survival and success. The companys survival is only guaranteed when there are purchases from consumers. The footprint or sales statistics also provide feedbacks which enable Best Buy to improve its service and product. Suppliers: Best Buy depends heavily on its vendors to fill customer orders on time. The company depends on the reasonable price, and quality of the supplied products, as well as timely replenishment of the items. If an item in demand is not supplied, it will disrupt the companys entire schedule and causes dissatisfaction within its consumers. Shareholders: They present the capital support for a company in order to sustained growth and expansion. Shareholders also have an active role in voicing their opinion about the businesss strategic direction. Employees: A companys success depends largely on the skills and commitment of its employees. They are the front-line support who work directly with the companys products and interact with shoppers on the daily basis. Their good service and knowledge plays an important role in bringing in purchases and benefit the business.

404 well done above

EXTERNAL ANALYSIS By analyzing Peter Porters five competitive forces confronting Best Buy will help to determine the competitive level within electronic industry and business strategy development

Risk of Entry by Potential Competitors The threat of new entrants is substantially low in the consumer electronics retail industry. The main reason for it is due to the significant upfront capital investments required to enter the market, as well as the fact that market saturation of electronic items continues to rises with major competition. In terms of brick and mortar competitors specifically, the barriers to entry can be considered relatively high because of the massive labor, overheard and property costs of initial investment. Therefore, the risk of entry by potential competitors would most likely come from the rise of ecommerce companies like Amazon.com and Dell.

Intensity of Rivalry among CompetitorsThe intensity of rivalry is considered the most significant force of Porters five forces and ranked high within the electronics retail industry. While Best Buy gained some market share due to Circuit Citys demise in 2009, competition is extremely fierce among retailers within the industry like Walmart, RadioShack, and Amazon. Due to the low switching costs and equally balanced competitors, rivalry between incumbents is intense. Consumers can easily decide to shop at any retail since there is a lack of differentiation in products at almost all of the electronic stores. These retailers also have implemented common competitive strategies such as trade-in programs, frequent promotion activities, and price-matching policy. As the industry only presents steady growth rate, rivals constantly compete by capturing market share from each other which leads to increased competition in price and service. They are relatively balanced in strength, and know to apply tactics for engaging consumers. Moreover, the capital required in maintaining big box store and large inventory leads to high exit barriers for Best Buy. This fixed costs of exit results in a much intense rivalry in the consumer electronics industry. Like Amazon, without the expense of bricks and mortar branches, it is able to maintain a low price advantage compared to Best Buy.

Bargaining power of buyersIn the past, individuals and small business did not have the ability to influence the price of product within the industry due to their low purchasing volume. However, the expansion of low-cost provider like Walmart and the significant growth of online retailers Amazon in recent years has tremendously helped increased the consumers power. With the lack of differentiation sold by big box retailers, consumers are more inclined to go shopping for the lowest price possible. Many people are taking advantage of the available information online using mobile devices to compare one retailer against another. Furthermore, they also use these brick and mortar stores as a showroom for their purchases with online retailers. As a result, nearly all companies are offering price-match program to attract consumers who come for showrooming purposes. The bargaining power of buyers in the industry now is relatively high.

Bargaining power of SuppliersThe bargaining power of suppliers in this market is moderate due to the fact that there are only a number of major suppliers that the market demands from. As technology continues to evolve, it is substantial that retailers have to display the most up-to-date products. Since there are also other electronics retailers, suppliers has the control over pricing of their products and can choose to distribute their products in several different stores. Some example of suppliers are Apple, Samsung, Dell, Sony, LG, Panasonic, Sharp, and many others, their pricing is influenced by the establish relationship between them and retailers, as well as the purchase volume of the wholesalers. Furthermore, depends on contract or the relationships, some retailer can obtain exclusive items which can give them competitive advantage against their competitors. On the other hand, while retailers need to obtain product from suppliers, suppliers also depend heavily on their retailers to bring them revenue. For instance, in order to maximize sales, an item needs to be displayed on shelf to attract consumers to see and check their features. What these retailers bring to the table are massive showrooms, frequent promotional activities, as well as knowledgeable staff to promote these suppliers technology. As a result, even though bargaining power of suppliers in this industry is usually high, large-scale retailers like Best Buy has what it takes to ease off their power.

Threat of Substitute Products The threat of substitute products imposes low threat to the company. Over the past few years, we have seen how technology has taken over the society. Its impact is undeniable and people are highly dependent on electronics. Therefore, there are only a few substitute for electronics that consumers are using such as books, newspaper, magazines, and digital music, movies. Amazon is one of the largest and most powerful online book retailers; there are also Barnes & Nobles and other independent booksellers. Netflix and iTunes are one of the biggest digital content distributers.404 well done above on the Porters Analysis Macro Environment Analysis: Opportunity

The recent joint venture between Best Buy and the Carphone Warehouse is a stepping stone for the company to expand into Europe market. The consumer electronic market in Europe imposes a huge potential for growth, and the management level will have to be careful in expanding across Europe due to the increased debt of the company from this acquisition.As Best Buys largest competitor Circuit city and other competitors have also filed bankruptcy, it poses a significant opportunity for Best Buy to grab the lost market share. Many experts have determined one of the major reason for the companys downfall is the cut of workforce which was the most senior and well-trained staff. On the other hand, Best Buy is widely recognized for its superior training for employees, as well as its reputation for retaining top talent. It is expected that Best Buy will take advantage of this unique resource and will be striving to gain those market shares.[footnoteRef:4] [4: http://www.wikinvest.com/stock/Best_Buy_(BBY)]

ThreatsHere are the challenges that Best Buy is currently facing: The opening of manufacture store of Apple has taken away a large portion of market share from Best Buy. Not only does it suck profits, but setting price standard for the market as well. As a retailer, Best Buy cannot raise the price of their Apple products since the Apple store sell the item at a specific price. Furthermore, many consumers prefer to shop at specialized store, where it offers knowledgeable technical support staff and perks like free setup service. The emergence of digital content, streaming services like Netflix, iTunes continues to replace CDs and DVDs and is a big threat to Best Buy. These services offers instant convenience for consumers to watch contents day, night, anytime they want only with a small amount of monthly fee. It is portable, and you can watch it on your TVs, tables, phones, and laptops. Comparing to these services, DVDs are costly and lacks the portability that consumers are gearing toward as most laptop nowadays are ultraportable and does not included DVD hard drive. Best Buy needs to increase the amount of revenue it derives from every inch of the store by dropping these unprofitable products. Showrooming is a serious issue for retailers. Consumers nowadays have been tempted to check out a new product in brick and mortar store, and then search the Internet for a better deal. There are numbers of consumer electronics retailers that stock similar products as Best Buy. Their low overhead and labor costs are an advantage to keep their price as low as possible to attract customer. This creates a problem for Best Buy as footprint is still recorded high, yet, the company experiences lower revenue. Even though Best Buy has the opportunity to grasp the lost market share of Circuits City, the company are presented with competition from its rival companies and the economic downturn. It is best in Best Buys interest to carefully analyze these threats to either improve existing operating model or execute new strategy in order to remain competitive in the industry.

404 well done above [footnoteRef:5] [5: http://www.retrevo.com/content/bestbuy-competitors-gained-ground]

INTERNAL ANALYSIS [footnoteRef:6] [6: Best Buy Co., Inc. (2009). Form 10-K]

StrengthsBest Buy is still growing steadily and recorded an increased in profits over the years. During fiscal year 2005-2008, the companys sales grew from 27$ billion to $40 billion at a CAGR of 9.90%. In the same period, net income rose from $980 million to $1.4 billion at a CAGR of 9.35%. This increase in profit has allowed Best Buy to acquire 50% of the Carphone Warehouse and officially launched the Best Buy Europe venture. The company implements some successful strategy in international acquisition and their portfolios of products complement each other. Through its operations of approximately 4,000 stores all over the world, Best Buy has built a reputable brand name and significant global presence by offering a wide selection of products and end-to-end services. Despite challenges, Best Buy still remains the top choice among electronics shoppers when it comes to purchases. Its customer share is much bigger comparing to Amazon as the online retailer did not start gaining attention until the year of Circuit Citys demise. Best Buy is a one stop shop for shoppers who is in need of any product category, it also offers loyalty program like price-matching, recycle program and in-store technical service (Geek Squad) during store hours.

Weakness:Best Buys model of a big box store imposes extremely high overhead fixed cost. With the gradual fall of soft goods like CD, DVDs, video games, and even cameras, camcorders, the company does not earn much profit by keeping inventory of these items. Best Buy is creating its own challenge; by offering price match program, it automatically puts negative pressure on the companys financial performance. However, as much as the company needs to be competitive on price, it is a risk for Best Buy to price match online retailers like Amazon since they dont have high expense for physical locations. Best Buy has to invest in people. Despite claiming to have ethical and knowledgeable work force, there have been allegations over Best Buy employee for misrepresenting manufacturers warranty to sell its own product as well as denying price-match request from shoppers. Another weakness for Best Buy is that it mainly depends on a handful of vendors. The choices are still very limited and there is a risk of failing to meet customers demand if one supplier fails to supply the required products. Also, the lack of differentiation from these same suppliers cause increased in competition and price in the market. Not being the leader in stocking exclusive items or new brand is the culprit that deters potential customers to other similar retailers. Moreover, Best Buy seems to focus on the expansion of the retail store, yet, neglect the importance of online website, which is the most effective marketing tool that can attract more customers who prefer instant convenience. Best Buy is currently facing many challenges due to increased debts from its continuous acquisitions and expansion. It was primarily due to the acquisition of Best Buy Europe. While it is vital for a company to expand its presence domestically and internationally, it is evident for Best Buy to stop expanding in the near future in order to focus on wining back the current customer base. With the economic downturn and rival companies, it is best in Best Buys interest to shrink overhead costs by eliminating less profitable soft goods (CD, DVDs), adopt new technology like digital content and movies, and focus on improving its differentiation strategy to compete with low-price retailer like Wal-Mart, and Amazon.

404 be sure to conclude with a strong finishing statement in your work here.

Presentation

DIMENSIONCOMMENTSPOINTS

Technique/Mechanics5

Clarity4

Support5

Appearance4

Executive Summary18

DIMENSIONCOMMENTSPOINTS

Content4

Succinctness4

Independence5

Impact/AuthoritySee Notes on paper4

Introduction17

DIMENSIONCOMMENTSPOINTS

Description/History5

Rationale/Context5

Limitations/Foreshadowing5

Organization5

Mandate20

DIMENSIONCOMMENTSPOINTS

Description5

Analysis5

Use of Concepts5

Conclusions5

External Analysis20

DIMENSIONCOMMENTSPOINTS

Description5

Analysis4

Use of Concepts5

Conclusions4

Internal Analysis18

DIMENSIONCOMMENTSPOINTS

Description5

Analysis5

Use of Concepts5

Conclusions4

Strategic Options19

DIMENSIONCOMMENTSPOINTS

Description0

Analysis0

Use of Concepts0

Conclusions0

Recommendations & Implementation0

DIMENSIONCOMMENTSPOINTS

Description0

Analysis0

Use of Concepts0

Conclusions0

0

Grade Calculation

SECTIONPOINTS / 10WEIGHTMARK

Presentation 9.00 10%9%

Executive Summary 8.50 5%4%

Introduction 10.00 5%5%

Mandate 10.00 20%20%

External Analysis 9.00 30%27%

Internal Analysis 9.50 30%29%

Strategic Options - 0%0%

Recommendations - 0%0%

Overall Mark94%

REFERENCE

1. Best Buy Co., Inc. (2009). Form 10-K2. Best Buy Co., Inc. (2009). Form 10-K3. https://secure.ethicspoint.com/domain/media/en/gui/32565/code.pdf4. http://www.wikinvest.com/stock/Best_Buy_(BBY)5. http://www.retrevo.com/content/bestbuy-competitors-gained-ground6. Best Buy Co., Inc. (2009). Form 10-K

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