By investing in sales staff training, employees have a clear understanding of the products they sell, and are better equipped to provide consistent and guaranteed quality service. These two factors, customer service and employee training, underwrites Best Buy’s recognized superior service. This unique shopping experience integrates, and engages their customers, creating positive returns for the stakeholders.
The identification of Best Buy’s strategic opportunities and threats within their operating environment are identified by assessing the consumer electronics industry, the competitive environment, and the socioeconomic and macroenvironment. Distinct competencies, resources and capabilities are processes used to create value and profit for the company. Best Buy has claimed sustained competitive advantage as they have been the ongoing industry leader in the consumer electronics industry.
Superior innovation, quality, and customer responsiveness continue to be the sources of Best Buy’s competitive advantage. Introduction and Company Overview Founded in 1966, Best Buy was formerly known as Sound of Music, and is headquartered in Richfield, Minnesota. The company entered the retail electronics market offering audio components, expanding into the video and videocassette recorder market. In 1983, the company changed its name to Best Buy Co. Inc. , followed by a change in operations to a “superstore” concept with an expanded product line, and a non-commission sales staff.
With continued industry growth and technological advancement, Best Buy became the consumer electronics industry leader, with physical and e-commerce sites in the United States, Canada, Mexico, China, and Turkey. Historical developments are detailed in Appendix II. A few product segments, including televisions, gaming, mobile, smart phones and blue-ray players, drive company sales. Retail and online sites operate under seven distinct domestic brands, and other international brands, including Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video, Napster, Pacific Sales, and Speakeasy.
Appendix III provides details on the specific products offered by each of these brands. Mandate Company objectives include sustained growth and earnings by marketing their portfolio of products based on a customer centricity operating model, addressing the needs of various lifestyle groups, being a leader in technological advances, and meeting customer needs during and after purchases. Mission Statement/Core Purpose The focus is on being a growth company that offers customers a unique shopping experience, with the latest in technology and entertainment products.
Their competitive price strategy, along with a non-commission, well-trained sales staff, provides customers with the products and services to satisfy the need for connectivity to technology, while keeping pace with technological change. Vision/Major Goals In order to achieve continued industry growth, Best Buy focusses on their ability to help customers realize their connectivity needs, and offer the desired products in a world of increasing connectivity.
Goals include ongoing monitoring of customer specific needs and behaviours by addressing the needs of various lifestyle groups, meeting customer needs with end-to-end solutions, being a leader in technological advances, and marketing their portfolio of products based on a customer centricity operating model. These goals help the company focus on being able to continually offer new products and products that complement one another. This allows Best Buy to capture new market growth through innovation. Core Values/Guiding Principles
Best Buy approaches the consumer electronics industry by educating their customers with a highly trained sales force. Educating customers with product features allows for informed buying decisions from a diverse product range. This is referred to as the customer centricity model, and is illustrated in Appendix IV. The company also provides installation service, product repair and on-going customer support that contribute towards the core value of end-to-end customer solutions. Valuable experience was gained through the successful acquisition of companies and employees.
Acquisition gave Best Buy the ability to determine where expansion should take place, and was the key in distinguishing itself from its competition in the consumer electronic market. The knowledge base of high calibre employees was recognized as another core value in the company’s strategy and success. Best Buy’s global presence provided awareness of any global trends, and access into developing markets to foresee customer needs. Best Buy values a well-trained employee base in order to provide customers with a superior customer experience.
This is an exclusive resource in the consumer electronics industry since technology is frequently changing, making this the foundation of their competitive advantage. Stakeholder Analysis By leading the company into the world of increased connectivity by being a great company, and a good corporate citizen, will underwrite Best Buy’s top objectives of sustained growth and earnings. Strong corporate governance and ethics will increase the return on invested capital (ROIC) to satisfy the investors.
Their investment is a key to Best Buy’s existence. Internal stakeholders include customers, employees, and shareholders, along with external stakeholders that include vendors, communities, the environment and government. Stakeholders count on effective strategies to increase shareholder value by continually monitoring their performance, developing organizational strategies, and having effective employee supervision. Without the integrated support of the stakeholders, Best Buy would not exist. External Analysis
The identification of Best Buy’s strategic opportunities and threats within their operating environment are identified by assessing the consumer electronics industry, the competitive environment, and the socioeconomic and macroenvironment. Although the financial crisis in 2008 negatively impacted the world economy, the consumer electronics industry grew with record sales of $694 billion. However, in 2009, sales dropped for the first time in 20 years, with a 2% decrease. Sales are driven by the television, gaming, mobile phone, and blue-ray player segment, specifically the LCD television component.
The company is optimistic that there will be tremendous growth in the gaming segment, and developments within the smartphone segment predict elevated growth that will impact the entire industry. The competition will come from unspecialized discount retailers such as Wal-Mart and Target, specialty retailers like GameStop Corp. , and RadioShack Corp. , the wholesale retailers Costco and BJ’s, internet retailers such as Amazon. com, Inc. , and Netflix, Inc. , as they focus on gaining market share within the consumer electronics industry.
Even with this competition, there is considerable expansion potential into the global market, as untapped markets in developing countries will play a major role in contributing toward economic growth within the consumer electronics industry. Porter’s Five Forces The use of Porter’s Five Forces Model identifies the five significant strategic influences that will limit Best Buy’s ability to raise prices to generate increased profitability within the consumer electronics industry. Appendix V illustrates how the role of the macroenvironment shapes competition within the industry.
Rivalry Rivalry is the most significant force in Porter’s model, and is high within the consumer electronics retail industry. There are other retailers that serve specific niche markets, as in the gaming sector, but Best Buy is the dominant player within the industry. Competition between the unspecialized discount and wholesale retailers occupy a significant share of the consumer electronics market. Competition is high primarily as there is low product differentiation, and minimal switching costs involved when a buyer shops elsewhere.
Customers have the opportunity to purchase similar products at a variety of stores that results in price competition. But, the intangibles found in Best Buy’s customer service, research and development, and goodwill are difficult to match. Threat of Potential Competitors The power of competitors to enter the consumer electronics retail industry is relatively low. Low market capitalization suggests it would not be difficult to enter the industry based solely on capital, however, it would be difficult to overcome brand reputation and customer service.
The costs associated with real estate acquisition would be an entry barrier. Online competitors are the most likely candidates to enter the market, offering product price savings with selection and diversification. This could allow strong market growth and positioning. Although the threat of entry is low, there is potential for online electronics retailers. These online retailers are the most likely candidates to enter the consumer electronics retail market if they already have an existing inventory, can offer extensive experience, and have the ability to establish customer relationships.
Threat of Substitutes The power of customers to purchase alternative products moderately affects the consumer electronics retail industry. Our society and culture places a lot of emphasis on technology, as we are dependent on electronics in our day to day lives. As a result, there are limited substitutes to satisfy consumer demand. Bargaining Power of Buyers The power of customers to drive down prices is low as buyers typically do not purchase in large quantities. It is usual for consumers to purchase one specific item, from any one brand, which would not influence pricing.
When looking at a household budget, electronics do not occupy a large percentage, unlike a major real estate or automobile purchase. It is debatable as to whether products in this industry could be considered more of a luxury item, considering the emphasis society places on technology. Although consumer demand increases supply and should affect pricing, buyers in the electronic retail market do not hold substantial bargaining power or price influences over the market leaders. Most notably, the majority of buyers are unable to build their own electronic devises, or establish an independent retail shop.
However, it must be mentioned that the industry is dependent on buyers and realize that customers have the option of where they will spend their money. Bargaining Power of Suppliers The power of suppliers to drive up the prices of materials is relatively high in the industry as there are limited suppliers that the market demands, giving them substantial influence over pricing. Major manufacturers like Sony, Panasonic, LG, Samsung and Toshiba provide the latest and greatest in technology that must be kept on the shelf, in order to satisfy customer demand and to stay competitive in the industry.
There are factors that lower the bargaining power of suppliers. These suppliers rely on the retailers to stock their products, and rely on the sales associates to sell the products. Best Buy can partially reduce the bargaining power of suppliers, as they are effective in creating the sales by being the industry leader. As well, as there is intense competition between suppliers in this industry, they create less bargaining power between themselves. PESTEL Analysis Changes in one or more of the forces within the macroenvironment can affect Porter’s Five Forces, and Best Buy’s industry advantage.
By examining the political, economic, societal, technological, environmental, and legal licenses to operate, Best Buy can identify where changes are taking place outside of the company boundaries. Political Changes in Federal Reserve regulations placed restrictions on deferred interest financing. These political mandates were created to address changes in the economic environment, and is discussed below. Economic The products that are sold within this industry are considered discretionary items, rather than necessities.
When changes occur within the economic environment, consumers adjust their spending habits. To increase revenues during an economic downturn, Best Buy was able to offer customers a low interest financing option via their own private credit card. With Federal Reserve regulations imposing restrictions on deferred interest financing, Best Buy revenues will be negatively impacted. Societal The growing online marketplace poses a threat to the retail industry. Consumers are better equipped to search for specific product information, and conduct price comparisons without having to visit a physical store.
Best Buy is addressing this issue by providing value-added in store services including repairs, interactive product displays, along with their excellent customer service. Technological Technological development and product innovation are key contributors towards Best Buy’s continued growth in the market. Environmental Recycling fees have been established to ensure proper disposal of electronics, and is deemed as being environmentally responsible. Legal The technology environment has created an opportunity for unsolicited activity.
Laws have been established to protect individual privacy, personal information, and legal consequences for spam, identity theft, fraud and electronic crime issues. Product Life Cycle Changes in product life cycles adjust with technological improvements, decreasing prices and profit margins. As technology change is frequent in this industry, the shorter the product life cycle becomes, the more frequent training costs occur. These changes in technology can also create economic opportunities, as customers want the latest and greatest in electronic products.
With the availability of the internet, customers will increase their on-line visits that could lead to a physical store visit to take a product ‘test drive’. Appendix VI illustrates the stages in the product life cycle, placing Best Buy in a perpetual growth stage, as technology advancements contribute to ongoing industry growth. Internal Analysis Managers must understand Best Buy’s distinct competencies, resources and capabilities as a process to create value and profit for the company.
Best Buy has had the sustained competitive advantage as they have been the ongoing industry leader in the consumer electronics industry. The importance of superior efficiency, innovation, quality, and customer responsiveness are the sources of Best Buy’s competitive advantage, and are illustrated in Appendix VII. Distinctive competences are firm-specific strengths that will allow Best Buy to gain its competitive advantage by differentiating its products from its rivals, and develop from their resources and capabilities. Tangible resources include buildings, technology, equipment and their people.
Although buildings can be viewed as a weak source of their competitive advantage, their highly trained sales staff are a valuable resource that create a strong demand for their products, and is a distinct competency that leads to their sales success. The intangible resources that are difficult to replicate, but continue to be an investment of their time include ongoing community involvement, goodwill, and research and development. The latter allows the company to offer specific products, at specific locations, that correspond to customer needs.
Their capabilities are expressed by their skills in coordinating and using their resources, and are a part of their organizational structure, processes, and control systems. They are the best source of their competitive advantage, creating customer utility. A differentiation strategy is used to establish their identity in the consumer electronics market. Best Buy offers a variety of different products under the same name into a particular product category, like televisions. This exposure to a wide range of products is directed towards different segments of the consumer electronics market.
By positioning a brand in such a way as to distinguish it from the competition, while providing their value added approach to customer service, allows the company to stand out from its competitors. The Value Chain Analysis Best Buy follows a chain of activities that transforms inputs into outputs that customers place a value on. The process is compiled of primary and support activities that add value to Best Buy’s products. Primary activities include research and development, production, marketing and sales, and customer service.
Customers inadvertently place a value on the research and development and marketing and sales aspect of the value chain as this is what allows Best Buy to address the needs of customer lifestyle groups, meet customer product needs, and be at the forefront of technological advances. Customers place a value on the end-to-end customer solutions by enjoying the positive experiences during their initial purchase and afterward. Support activities include company infrastructure, information systems, materials management, and human resources. Customers place a value on the human resource objectives.
These objectives ensure consumers are provided with accurate product and service knowledge by an ethical and knowledgeable sales force. Appendix VIII illustrates the chain of activities on the value chain. Functional Strategies: The Building Blocks of Competitive Advantage Operating within their distinct competencies allows Best Buy to shape the company’s functional strategies: innovation, quality, efficiency and customer responsiveness. These strategies lead to building and sustaining their competitive advantage, and superior profitability.
The root of their competitive advantage includes superior innovation, quality, and customer responsiveness, illustrated in Appendix IX. Innovation is the key to sustaining their competitive advantage as this shows product adaptability. Best Buy provides customers with quality, reliable electronics that are at the forefront of technological advances, and have a higher perceived value compared to its competitors. Best Buy identifies and satisfies the needs of their customers better than their competitors.
Customer response to new products, service, and after sales support differentiates Best Buy’s products and services, that leads to brand loyalty and superior product value. Appendix I: SWOT Analysis: Strengths industry leader in the consumer electronics market demonstrated financial strength consistent recorded growth reputable brand name widely recognized for superior service expansive product offerings expansion through acquisition reach economies of scale advantages with advertising budget Weaknesses increased long-term debt potential risk for bad debt losses declining operating margins high training costs Opportunities global marketplace potential gain market share with the exiting of Circuit City growth segments technological developments.
Threats reduced capital requirements with the introduction of the internet on-line, specialty and discount retailers competitive environment economic impacts with financial crisis and disposable income Federal Reserve regulations Appendix II: Best Buy: Historical Developments Since 2000 2000 Acquisition of Magnolia Hi-Fi, Inc. – a high-end retailer of audio and video products and services becomes Magnolia Audio Video in 2004 This acquisition allows Best Buy access to a demographic of upscale customers 2001
Acquisition of Future Shop Ltd. – a leading consumer electronics retailer in Canada This allows Best Buy to: enter the international market increase revenues gain market share leverage operational expertise Purchased Musicland – a mall centered music retailer 2002 Acquisition of Geek Squad – a computer repair service provider Helps develop a technological support system for customers 2005 Opens first Magnolia Home Theater – store within a store 2006 Acquisition on Pacific Sales Kitchen and Bath Centers Inc. Develops a new customer base – builders and remodelers Acquisition on 75% stake in Jiangsu Five Star Appliance Co.
Ltd. – based in China and gains access to the Chinese retail market 2007 Opens the first Best Buy China store Acquisition of Speakeasy, Inc. – a broadband, voice, data and information technology services provider 2008 Through a strategic alliance with the Carphone Warehouse Group, a UK based mobile phone, accessories and related service provider, Best Buy Mobile is developed Acquisition on Napster – a digital download provider 2009 Acquisition of the remaining 25% of Jiangsu Five Star Best Buy Mobile moves into Canada Appendix III: Best Buy: Specific Products offered by Brands Best Buy
Offers a wide variety of consumer electronics, home office products, entertainment software, appliances, and related services. Best Buy Mobile Stand-alone stores offer a wide selection of mobile phones, accessories, and related e-services in small-format stores. Geek Squad Provides residential and commercial product repair, support, and installation services both in-store and on-site. Magnolia Audio Video Offers high-end audio and video products and related services. Napster An online provider of digital music. Pacific Sales Offers high-end home improvement products primarily including appliances, consumer electronics and related services.
Speakeasy Provides broadband, voice, data and information technology services to small businesses. Appendix IV Best Buy: Customer Centricity Operating Model Appendix V Porter’s Five Forces Model with PESTEL: Appendix VI Industry Life Cycle: The Industry Life Cycle Model analyzes the affects of industry evolution on competitive forces over time and is characterized by five distinct cycle stages: Embryonic The industry is just beginning to develop Rivalry is based on perfecting products, educating customers, and opening up distribution channels Growth
First-time demand takes-off with new customers Low rivalry as the focus is on keeping up with high industry growth Shakeout Demand approaches saturation Rivalry intensifies with emergence of excess productive capacity Mature Market is totally saturated with low to no growth Industry consolidation is based on market share, driving prices down Decline Industry growth becomes negative Rivalry further intensifies based on the rate of decline and exit barriers Appendix VII Competitive Advantage.