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Best Buy Company Inc. Case Analysis
Best Buy Company Inc. Case Analysis
Introduction
Understanding the business environment of an organization is critical for formulating sustainable corporate strategies and gaining a competitive advantage (Madsen & Ulhøi, 2021). The business environment of an organization is multidimensional as it involves some factors that are exclusive of the firm's control and others that are wholly within the firm's ambit and therefore controlled internally. This report provides a meticulous analysis of Best Buy Company Inc. using managerial tools such as PESTEL analysis, SWOT analysis, and Porter's Five Forces Model to understand the company’s operations. The report will also evaluate the challenges facing Best Buy Company and provides alternatives course of action and recommendations to help the company deal with identified challenges.
Organizational Background
Best Buy Company is a global consumer electronic retail firm founded in Richfield, Minnesota, United States. The company was initially incorporated in 1966 by James Wheeler and Richard Schulze, and it formally operated as an audio specialty store under Sound of Music (Cohan, 2020). The retail establishment is responsible for most of the company's revenue, with mobile devices, including tablets, mobile phones, computers, and home appliances making up its top revenue generator.
Situation Analysis
Even though Best Buy company has been in the global retail market for a long time, some challenges the company is battling include other sustainability and preserving its footprint in the market. Another concern that is confronting the company is the lack of digital presence. In contrast, the competitors of Best Buy Company, such as Walmart and Amazon, have bypassed it because the company still uses the more conventional method of providing customer service. The company’s customer services involve the use of call centers that field customer inquiries and the possibility that a customer may be required to physically present themselves at one of the company's chain stores to speak with a representative from the company's customer service team. The situation analysis of Best Buy Company further indicates that it has not initiated programs that increase its market share, thus creating a chance for other retail firms to dominate and control the industry. For instance, companies like Amazon implemented market expansion strategies such as its merger with Whole Foods, allowing customers to have a broad base for support and faster delivery of products. Another bottleneck facing Best Buy Company from the case study is its slow supply chain. It can take even two weeks for the company to meet the orders placed by a customer (Paché, 2022). This often makes customers not make repeated purchases, thus reducing the company's ability to generate enough cash flow and profits.
From the industry perspective, Best Buy Company is facing intense competition from other established global retail chains that have spread their operations because of adopting and embracing technology. A case in point is Amazon.Com, which has grown to become a global consumer electronics retail powerhouse with a market capitalization of $ 1.184Trillion. Besides, Walmart and Alibaba are the other fierce competitors with vast portfolios and operations that have enabled them to establish unparalleled presence and dominance in the consumer electronics retail industry (Volpe & Boland, 2022). For instance, Walmart has a total asset value of $ 244.9Billions, while Alibaba’s total assets are estimated to be $ 267.47Billions.
PESTEL Analysis
Political Factors.
Best Buy Company is strictly liable for defective products, including repairs and warrantees, should the users of its products sustain injuries or death from using their products. The occurrence of damages arising from the company's faulty products could lead to a lawsuit, which may affect its brand image and revenues.
Economic Factors
The company's significant revenue sources of electronic products are luxury products whose demand can fall during an economic meltdown. During an economic recession, consumers will most demand necessities at the expense of electronic products, thus affecting Best Buy's revenue streams.
Social Factors
The company provides BestBuy Mobile with a shop for contracts, mobile phones, and accessories. Besides, Best Buy has a team of dedicated employees known as Geek Squad, primarily responsible for fixing electronic devices, mostly laptops and computers (Gotsch et al.,2021).
Technological Factors
The company allows its customers a 24 hours access to its new technology. Best Buy has made some of its purchases exclusively online, thus increasing access to its electronic products to a broad market.
Environmental
The company has implemented an environmental sustainability campaign known as greener that is focused on recyclable and reducing energy costs. The campaign involves collecting electronic waste to reduce environmental threats.
Legal Factors
The company was initially accused and faced lawsuits relating to gender discrimination. For one time, Best Buy battled with a case in California for allegedly discriminating against women.
SWOT Analysis
|
Strengths |
Weakness |
|
· Brand Loyalty · Product testing to enhance customers' confidence
|
· Declining sales · Limited online competitive power |
|
Opportunities |
Threats |
|
· The increasing popularity of electronic media such as live streaming · Increased development of new models of electronic products which attract customers |
· Aggressive competition from companies such as Walmart · The shift of many customers from brick and mortar stores to online shopping |
Porter’s Five Forces Model
|
The Five Forces |
Influence on Best Buy Company |
|
· Bargaining power of suppliers |
Low |
|
· Bargaining power of Buyer |
High |
|
· Threats of new entrants |
Low |
|
· Threats of Substitutes |
Low |
|
· Competitive rivalry |
Moderate |
Problem
The fundamental issue with Best Buy is that its website does not offer a particularly engaging level of customer connection. Their primary focus is face-to-face or over-the-phone interactions with consumers through the company's customer service team. Amazon and other mega-corporations have shown that the consumer market is prepared for novel modes of communication, as seen by their rapid expansion. Best Buy Company’s stock price and revenue will likely decline if they continue relying on in-house services. Relying on traditional customer engagement techniques such as call centers and in-house customer services has proved inefficient and reduces customer engagement. This approach has resulted in diminishing the recognition of Best Buy Company as other consumer electronics retailers such as Walmart and Amazon have taken the lead in the industry.
Alternatives
Alternative 1
Implement online presences by setting up well-integrated online sales to reduce high operating costs associated with brick and mortar operations. Although this alternative may be costly in the short run, Best Buy will reap long-term benefits associated with efficient customer engagement and increased sales.
Alternative 2
Reduce inventory holding costs and other overhead expenses associated with having many electronic products in their brick and mortar stores. Since electronic products are luxury costs meaning they cost a lot of money thus, having a lot of unsold inventories reduces cash flow.
Alternative 3
Consider merger as a way of diversifying to reduce the risk of relying on one revenue stream. As noted in the PESTEL analysis during economic recessions, Best Buy is most likely to report declined sales as demand for electronic products falls.
Recommendation and Implementation
The best alternative to be implemented by Best Buy Company is to set up an online sales platform to reduce brick-and-mortar operating costs and increase its global reach. Covid 19 pandemic has shown that relying on brick-and-mortar stores can result in huge losses and, eventually, the closure of businesses (Babenko & Nehrey,2021). For instance, e-commerce transactions increased by over 43% during the pandemic, closing at $ 815.4Billion in 2020. This trend shows more significant opportunities in the online market that can help Best Buy Company turn around its fortunes. To achieve this objective, Best Buy Company should rebrand itself to give itself an online brand name that will appeal to the customers. Because online stores such as Walmart has a firm grip on the market, for Best Buy to create its niche in the online market ecosystem will require rebranding. The strategy should also increase its brand products to ensure that online customers will be exposed to various products to make the company a one-stop retail store.
Conclusion
The global consumer electronic retail sector has experienced a shift from traditional stores to online sales. This trend has threatened companies such as Best Buy, which still relies on brick-and-mortar sales outlets. This analysis has shown the need for the Best Buy Company to change its strategy to remain sustainable. Several alternatives are available for the company to implement; however, the most viable and more promising option is to increase its online presence and sales. E-commerce has proved cost-effective and efficient; thus, Best Buy should leverage this opportunity.
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References
Babenko, V., & Nehrey, M. (2021). Complex Risk Analysis of E-Commerce Companies Related to COVID-19. The Impact of COVID19 on E-Commerce, 91-104.
Cohan, P. S. (2020). Consumer Electronics. In Goliath Strikes Back (pp. 17-32). Apress, Berkeley, CA.
https://link.springer.com/chapter/10.1007/978-1-4842-6519-2_2
Gotsch, M. L., Lienhard, S. D., & Schögel, M. (2021). Leadership at Best Buy.
https://www.alexandria.unisg.ch/264329/
Humphrey, S. J. (2021). The Effect of E-Commerce on Retail Supply Chains (Doctoral dissertation, California Southern University).
Madsen, H. L., & Ulhøi, J. P. (2021). Sustainable visioning: Re-framing strategic vision to enable a sustainable corporate transformation. Journal of Cleaner Production, 288, 125602.
https://www.sciencedirect.com/science/article/pii/S0959652620356481
Paché, G. (2022). Examining the Roots of Logistical Failures: Four Illustrations From the World of Retailing. Journal of Management Policy and Practice, 23(1), 42-51.
Volpe, R., & Boland, M. A. (2022). The Economic Impacts of Walmart Supercenters. Annual Review of Resource Economics, 14.
https://www.annualreviews.org/doi/abs/10.1146/annurev-resource-111820-032827
