Best Buy Co., Inc. ADMIN 404: STRATEGIC MANAGEMENT
Assignment 1
EXECUTIVE SUMMARY Best Buy is the largest consumer electronics retailer in the US. It accounts for 1 9 percent of the US market, and operates around 4,000 stores gloally. Best Buy distinguishes itself from competitors y initiating a strategic transition to a customer! centric operating model "hich operates under a differentiation strategy rather than a lo" price strategy. It includes a portfolio of retail stores under #eek S$uad, %apster, Speakeasy, &agnolia Audio 'ideo, (acific Sales, the )arphone *arehouse, and +uture Shop. espite significant gro"th and success in grasping -arious segments of consumer, Best Buy still faces many competiti-e forces from eisting large rick and mortal ri-al companies like *almart. Along "ith the gro"th of Internet, the trend of consumers to research products online and shop around for lo"est price possile also makes e!commerce store like Ama/on, Bay is a threat to Best Buy. Some other challenges including the economic do"nturn and increased competition ha-e put negati-e pricing pressure on the company. In order to stay competiti-e in the market, Best Buy needs to impro-e its differentiation strategy or e-en consider changes in its usiness model. hough pricing is one of the main factor that influence shoppers2 choice, Best Buy does not need to compete directly on pricing structure due to the company2s operating model, ut instead slo"er the epansion and focus only on profitale products. his report "ill pro-ide a rief history of the company, its usiness -ision and o3ecti-es. Also, the impact of eternal en-ironment on the company "ill e analy/ed using (orter2s +i-e +orces &odel and S* analysis. +inally, rief solutions for the company "ill e de-eloped after re-ie"ing the company2s strength and "eaknesses.
404 - I would have liked to see more explanation of analyses used in the report as well as some more detail on what you discovered.
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INTRODUCTION COM!ANY OVERVIE"
Best Buy started in 1955 as a retailer of audio components under the name Sound of &usic. he company "as founded y 6ichard Schul/, and later changed its name to Best Buy )o, Inc. 7Best Buy8 after its epansion to retail more -ariety of products. As the company constantly seeks impro-ement in promoting their products to gain profits, it egan operating as a ig!o store and using mass marketing techni$ues to attract consumers. -er the years, Best Buy has epanded its reach among consumers oth domestically and internationally through a series of ac$uisitions of &agnolia i!+i Inc., +uture Shop, #eek S$uad, (acific :itchen
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'ariety of )onsumer electronics, home office
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products, entertainment soft"are, appliances and
Inc., Best Buy &oile
related ser-ices Stand Alone Stores offer a "ide selection of moile
#eek S$uad
phones, accessories, and related eser-ices 6esidential and commercial product repair, support
&agnolia Audio 'ideo
and installation ser-ices oth in store and on site igh end audio and -ideo products and related
%apster (acific Sales
ser-ices nline pro-ider of digital music igh end home impro-ement products primarily
Sales and )enters
including appliances, consumer electronics and Speakeasy
related ser-ices Broadand, -oice, data, and information technology ser-ices to small usiness
Speakeasy, and %apster. hese ac$uisitions not only are a -alue!added competiti-e ad-antage against its strongest competition such as )ircuit )ity, and *almart, it also helped Best Buy to gain more profits y targeting -arious segments of consumer. Page 2
he company carries a -ariety of products and ser-ices. *ith the added product;ser-ices from its ac$uisitions, Best Buy2s competiti-e ad-antage is further enhanced through its multiple channels of distriution, such as eing ale to pro-ide consumers "ith end to end ser-ices like installation, technical support, and other related ser-ices.1
espite leading the ig o retail industry, the company eperiences <= re-enue decline "hich resulted from market competition and industry gradual price deflation.<
1 Best Buy Co., Inc. (2009). Form 10-K 2
Best Buy Co., Inc. (2009). Form 10-K
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he analysis and recommendations of this case study might contain se-eral limitations gi-en limited statistical information, proof of -erification such as real feedack of customer on Best Buy2s usiness, and the lack of ade$uate e-idence to support the solutions. he assumptions of the company2s strengths, "eaknesses or internal;eternal analysis listed in the paper are solely eplored y the report gi-en, along "ith the support of tetook theories> therefore, the statement are de-eloped ased on logics and reason, "ithout measurale -erification. ?astly, tetook theories also influence the de-elopment and implement of the analysis process.
404 – well done above
MANDATE
Mission/Core Purpose Best Buy2s mission is to e the leading pro-ider that sustained gro"th, earnings, and makes technology deli-er on its promises to customers.
Vision/Major Goals Best Buy2s -ision is to change the compensation structure for sales associates and applied a customer!centric operating model to pro-ide end!to!end ser-ices. Its current usiness strategy and o3ecti-es include offering consumers "ith the "idest range of product and ser-ice at the lo"est price, increasing re-enue y gro"ing its customer ase, gaining more market share y
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epanding into ne" international market. Best Buy distinguishes itself y implementing an inno-ati-e and different strategy compared to competitors called customer!centricity model.
Values/Ethic3 o e more competiti-e, Best Buy recognises that the employees need to ha-e more kno"ledge ad-antage than competitors. he principle starts "ithin the top management structure and e-ery employee is epected to ha-e the company2s -ision emedded in their ser-ice and attitude. Best Buy also took a step further to engage its customer ase y initiating "esite allo"ing -isitors to start a dialogue on any ethic!related topics. &oreo-er, Best Buy2s )ode of )onduct pro-ides employees specifically the responsiility guideline to maintain integrity, reputation, honesty and e$uitaleness in each other, customers, shareholders, usiness partners, and communities.
Stakeholder Analysis Stakeholders hold an important role and ha-e significant impact on the company2s performance in making usiness decision, estalishing policy and operation procedu re. Best Buy2s primary stakeholders include shareholders, consumers, employees and suppliers.
)ustomer@ )ustomers are critical to the company2s sur-i-al and success. he company2s sur-i-al is only guaranteed "hen there are purchases from consumers. he footprint or sales statistics also pro-ide feedacks "hich enale Best Buy to impro-e its ser-ice and
product. Suppliers@ Best Buy depends hea-ily on its -endors to fill customer orders on time. he company depends on the reasonale price, and $uality of the supplied products, as "ell as timely replenishment of the items. If an item in demand is not supplied, it "ill disrupt the company2s entire schedule and causes dissatisfaction "ithin its consumers.
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Shareholders@ hey present the capital support for a company in order to sustained gro"th and epansion. Shareholders also ha-e an acti-e role in -oicing their opinion
aout the usiness2s strategic direction. mployees@ A company2s success depends largely on the skills and commitment of its employees. hey are the front!line support "ho "ork directly "ith the company2s products and interact "ith shoppers on the daily asis. heir good ser-ice and kno"ledge plays an important role in ringing in purchases and enefit the usiness.
404 – well done above
EXTERNA# ANA#YSIS By analy/ing (eter (orter2s fi-e competiti-e forces confronting Best Buy "ill help to d etermine the competiti-e le-el "ithin electronic industry and usiness strategy de-elopment
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Risk of Entry by Potential Copetitors he threat of ne" entrants is sustantially lo" in the consumer electronics retail industry. he main reason for it is due to the significant upfront capital in-estments re$uired to enter the market, as "ell as the fact that market saturation of electronic items continues to rises "ith ma3or competition. In terms of rick and mortar competitors specifically, the arriers to entry can e considered relati-ely high ecause of the massi-e laor, o-erheard and propert y costs of initial in-estment. herefore, the risk of entry y potential competitors "ould most likely come from the rise of ecommerce companies like Ama/on.com and ell.
!ntensity of Ri"alry aon# Copetitors he intensity of ri-alry is considered the most significant force of (orter2s fi-e forces and ranked high "ithin the electronics retail industry. *hile Best Buy gained some market share due to )ircuit )ity2s demise in <009, competition is etremely fierce among retailers "ithin the industry Page
like *almart, 6adioShack, and Ama/on. ue to the lo" s"itching costs and e$ually alanced competitors, ri-alry et"een incuments is intense. )onsumers can easily decide to shop at any retail since there is a lack of differentiation in products at almost all of the electronic stores. hese retailers also ha-e implemented common competiti-e strategies such as trade!in programs, fre$uent promotion acti-ities, and price!matching policy. As the industry only presents steady gro"th rate, ri-als constantly compete y capturing market share from each other "hich leads to increased competition in price and ser-ice. hey are relati-ely alanced in strength, and kno" to apply tactics for engaging consumers. &oreo-er, the capital re$uired in maintaining ig o store and large in-entory leads to high eit arriers for Best Buy. his fied costs of eit results in a much intense ri-alry in the consumer electronics industry. ?ike Ama/on, "ithout the epense of ricks and mortar ranches, it is ale to maintain a lo" price ad-antage compared to Best Buy.
$ar#ainin# po%er of buyers In the past, indi-iduals and small usiness did not ha-e the aility to influence the price of product "ithin the industry due to their lo" purchasing -olume. o"e-er, the epansion of lo"! cost pro-ider like *almart and the significant gro"th of online retailers Ama/on in recent years has tremendously helped increased the consumers po"er. *ith the lack of differentiation sold y ig o retailers, consumers are more inclined to go shopping for the lo"est price possile. &any people are taking ad-antage of the a-ailale information online using moile de-ices to compare one retailer against another. +urthermore, they also use these rick and mortar stores as a sho"room for their purchases "ith online retailers. As a result, nearly all companies are offering price!match program to attract consumers "ho come for sho"roomingC purposes. he argaining po"er of uyers in the industry no" is relati-ely high.
$ar#ainin# po%er of Suppliers he argaining po"er of suppliers in this market is moderate due to the fact that there are only a numer of ma3or suppliers that the market demands from. As technology continues to e-ol-e, it
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is sustantial that retailers ha-e to display the most up!to!date products. Since there are also other electronics retailers, suppliers has the control o-er pricing of their products and can choose to distriute their products in se-eral different stores. Some eample of suppliers are Apple, Samsung, ell, Sony, ?#, (anasonic, Sharp, and many others, their pricing is influenced y the estalish relationship et"een them and retailers, as "ell as the purchase -olume of the "holesalers. +urthermore, depends on contract or the relationships, some retailer can otain eclusi-e items "hich can gi-e them competiti-e ad-antage against their competitors. n the other hand, "hile retailers need to otain product from suppliers, suppliers also depend hea-ily on their retailers to ring them re-enue. +or instance, in order to maimi/e sales, an item needs to e displayed on shelf to attract consumers to see and check their features. *hat these retailers ring to the tale are massi-e sho"rooms, fre$uent promotional acti-ities, as "ell as kno"ledgeale staff to promote these suppliers2 technology. As a result, e-en though argaining po"er of suppliers in this industry is usually high, large!scale retailers like Best Buy has "hat it takes to ease off their po"er.
&hreat of Substitute Products he threat of sustitute products imposes lo" threat to the compan y. -er the past fe" years, "e ha-e seen ho" technology has taken o-er the society. Its impact is undeniale and people are highly dependent on electronics. herefore, there are only a fe" sustitute for electronics that consumers are using such as ooks, ne"spaper, maga/ines, and digital music, mo-ies. Ama/on is one of the largest and most po"erful online ook retailers> there are also Barnes D %ole2s and other independent ooksellers. %etfli and iunes are one of the iggest digital content distriuters. 404 – well done above on the Porters Analysis
M$c%o En&'%on(ent An$)ys's: 'pportunity
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he recent 3oint -enture et"een Best Buy and the )arphone *arehouse is a stepping stone for the company to epand into urope market. he consumer electronic market in urope imposes a huge potential for gro"th, and the management le-el "ill ha-e to e careful in epanding across urope due to the increased det of the company from this ac$uisition. As Best Buy2s largest competitor )ircuit city and other co mpetitors ha-e also filed ankruptcy, it poses a significant opportunity for Best Buy to gra the lost market share. &any eperts ha-e determined one of the ma3or reason for the company2s do"nfall is the cut of "orkforce "hich "as the most senior and "ell!trained staff. n the other hand, Best Bu y is "idely recogni/ed for its superior training for employees, as "ell as its reputation for retaining top talent. It is epec ted that Best Buy "ill take ad-antage of this uni$ue resource and "ill e stri-ing to gain those market shares.
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&hreats ere are the challenges that Best Buy is currently facing@ 4 htt!""***.*#;#n5est.com"stoc;"Best
he opening of manufacture store of Apple has taken a"ay a large portion of market share from Best Buy. %ot only does it suck profits, ut setting price standard for the market as "ell. As a retailer, Best Buy cannot raise the price of their Apple products since the Apple store sell the item at a specific price. +urthermore, many consumers prefer to shop at speciali/ed store, "here it offers kno"ledgeale technical support staff and perks
like free setup ser-ice. he emergence of digital content, streaming ser-ices like %etfli, iunes continues to replace )s and 's and is a ig threat to Best Buy. hese ser-ices offers instant con-enience for consumers to "atch contents day, night, anytime they "ant only "ith a small amount of monthly fee. It is portale, and you can "atch it on your 's, tales, phones, and laptops. )omparing to these ser-ices, 's are costly and lacks the portaility that consumers are gearing to"ard as most laptop no"adays are ultraportale and does not included ' hard dri-e. Best Buy needs to increase the amount of re-enue
it deri-es from e-ery inch of the store y dropping these unprofitale products. Sho"rooming is a serious issue for retailers. )onsumers no"adays ha-e een tempted to check out a ne" product in rick and mortar store, and then search the Internet for a etter deal. here are numers of consumer electronics retailers that stock similar products as Best Buy. heir lo" o-erhead and laor costs are an ad-antage to keep their price as lo" as possile to attract customer. his creates a prolem for Best Buy as footprint is still recorded high, yet, the company eperiences lo"er re-enue.
-en though Best Buy has the opportunity to grasp the lost market share of )ircuit2s )ity, the company are presented "ith competition from its ri-al companies and the economic do"nturn. It is est in Best Buy2s interest to carefully analy/e these threats to either impro-e eisting operating model or eecute ne" strategy in order to remain competiti-e in the industry.
404 – well done above %
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INTERNA# ANA#YSIS *
Stren#ths Best Buy is still gro"ing steadily and recorded an increased in profits o-er the years. uring fiscal year <00E!<00F, the company2s sales gre" from
and end!to!end ser-ices. espite challenges, Best Buy still remains the top choice among electronics shoppers "hen it comes to purchases. Its customer share is much igger comparing to Ama/on as the online retailer did not start gaining attention until the year of )ircuit )ity2s demise. Best Buy is a one stop shop for shoppers "ho is in need of any product category, it also offers loyalty program like price!matching, recycle program and in!store technical ser-ice 7#eek S$uad8 during store hours.
(eakness) Best Buy2s model of a ig o store imposes etremely high o-erhead fied cost. *ith the gradual fall of soft goods like ), 's, -ideo games, and e-en cameras, camcorders, the company does not earn much profit y keeping in-entory of these items. Best Buy is creating its o"n challenge> y offering price match program, it automatically puts negati-e pressure on the company2s financial performance. o"e-er, as much as the company needs to e competiti-e on price, it is a risk for Best Buy to price match online retailers like Ama/on since they don2t ha-e high epense for physical locations. Best Buy has to in-est in people. espite claiming to ha-e ethical and kno"ledgeale "ork force, there ha-e een allegations o-er Best Buy employee for misrepresenting manufacturer2s "arranty to sell its o"n product as "ell as denying price!match re$uest from shoppers. Another "eakness for Best Buy is that it mainly depends on a h andful of -endors. he choices are still -ery limited and there is a risk of failing to meet customers demand if one supplier fails to supply the re$uired products. Also, the lack of differentiation from these Page 13
same suppliers cause increased in competition and price in the market. %ot eing the leader in stocking eclusi-e items or ne" rand is the culprit that deters potential customers to other similar retailers. &oreo-er, Best Buy seems to focus on the epansion of the retail store, yet, neglect the importance of online "esite, "hich is the most effecti-e marketing tool that can attract more customers "ho prefer instant con-enience. Best Buy is currently facing many challenges due to increased dets from its continuous ac$uisitions and epansion. It "as primarily due to the ac$uisition of Best Buy urope. *hile it is -ital for a company to epand its presence domestically and internationally, it is e-ident for Best Buy to stop epanding in the near future in order to focus on "ining ack the current customer ase. *ith the economic do"nturn and ri-al companies, it is est in Best Buy2s interest to shrink o-erhead costs y eliminating less profitale soft goods 7), 's8, adopt ne" technology like digital content and mo-ies, and focus on impro-ing its differentiation strategy to compete "ith lo"!price retailer like *al!&art, and Ama/on.
404 – be sure to conclude with a stron finishin statement in your work here.
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