Case Study Powerpoint

Running head: BEST BUY CASE ANALYSIS 1

BEST BUY CASE ANALYSIS 4

Best Buy Case Analysis

Ashley Jackson

Columbia Southern University

Professor Freeborough

Unit II Case Analysis

Introduction

Best Buy Inc. is a consumer electronics company which started in the 1966 and has expanded over the years. The case study talks about the major milestones made by the company that have impacted the company positively and negatively. The consumer electronics industry is a highly competitive industry with very many strong competitors such as Amazon, Walmart, Target, Apple Inc. among others. The company has been able to stay among the top brands in the industry but the main concern in the case study is what measures the company should implement to make sure that it is highly competitive in the long run.

Organizational Background

The company’s history started in 1966 when Richard Schulze opened sound of Music which was an electronics store that specialized in the sell of stereos in Minnesota. The company was able to make $1 million in revenue and $58,000 in profits over the first year. By the year 1981 the company had acquired over ten other stores and was the largest and most profitable. However, the company suffered great losses that year because it was hit by a tornado resulting into great losses for the company. The company was renamed as Best Buy two years later when it was making $10 million in annual revenue. The company continued to grow and made significant growth in the 2000s. Best Buy is now considered as one of the top sellers in the consumer electronics industry.

Situation Analysis

The issue in this case is competition in the consumer electronics that continues to intensify over the years. According, to the case Best Buy unlike most of the other electronics companies is doing well and has very minimal chances of extinction. However, the consumer electronics industry keeps evolving and the company will need to have a strategy which will ensure the company maintains its performance for years to come.

Competitors

The main competitors of Best Buy are Apple Inc., Amazon and Walmart. Apple competes with the company because they sell laptops and computers which are the main products that are sold by Best Buy and the main difference between Apple and Best Buy is that Apple targets high end customers; they sell high quality products which are slightly expensive. Amazon is a chain of retail stores and has a huge market presence when compared to Best Buy (Bryson & George, 2020). Walmart also competes with the company because it offers more variety of products and thus when customers come to the store, they are guaranteed of getting to purchase most of the products needed in their homes.

Industry analysis- Five forces model

The consumer electronics industry can be analyzed by the five forces model by establishing the strategic significance of each of the forces. The first force is internal rivalry which has high strategic significance. The industry is made up of very large and established companies that compete against each other. There are almost ten publicly traded companies that are in the industry and a wide range of privately held companies as well (Bryson & George, 2020). The competition is more intense because the customers incur little to no switching costs in case, they decide to move from one seller to the next.

The threat for new entrants into the market is relatively low. Despite the industry being open the amount of capital which is needed to establish a consumer electronics company are estimated to be about $35 billion. With this huge capital, there are is a very low possibility of new companies with significant impact coming into the industry. If a new company is able to penetrate the market and offer customers quality and affordable pricing, it will exert a lot of pressure on existing firms.

The threat of substitute products has a very huge strategic significance. As seen in the case study, there are wide range of companies that offer consumer electronics to customers and hence customers have a wide range of stores from which they can buy the electronics from. The force has a huge significance because of the low switching costs as earlier indicated that makes it easy for customers to move to their preferred companies.

The buyers in the consumer electronics have a very low bargaining power. This is because the consumption of electronics makes up a very small proportion of the customers’ expenditure. Most of the customers even consider the purchasing of electronics as a luxury; items which are not basic necessities. For this reason, the buyers have no significant impact on the products produced in the industry and in the prices, which are set by the consumer electronics companies. This means that the sellers; consumer electronics companies have more control over the pricing of the products which makes it possible for them to fluctuate prices without the customers complaining since they consume the products once in a while. Most of the customers also associate the high prices of electronics with high quality.

The bargaining power of the suppliers in the consumer electronics market has a very huge and significant impact on the industry. The huge bargaining power of the suppliers is due to the fact that there are only a few suppliers in the market which the companies purchase from. For this reason, the suppliers have so much control over the prices set for the materials which they sell to the companies. The companies however have an opportunity of regulating the power through forming long-term relationships with the suppliers so that they form contracts that will ensure they get good pricing.

Problem

The main issue in the case is competition and the competitive nature of the competitors which Best Buy has in the industry. The company is competing against companies such as Amazon and Apple which are well established and have significant influence in the industry (Lynch, 2018). The company has been able to beat the competition over the years and the main concern is what strategies the company should use to make sure that it does not get to extinction.

Alternatives

The following are three alternative competitive strategies which could be very helpful to Best Buy.

Cost leadership

Cost leadership is one of the generic competitive strategies which the company can implement in its operations. Cost leadership refers to a strategy through which the company will be able to sell to customers at a relatively lower price compared to the competitors in the industry. This strategy will involve the company coming up with a way to produce their products at lowest costs of production. The company can take advantage of economies of scale and get products from suppliers at a discount to help it sell at lower prices (Bogers et al., 2019). The advantages of the strategy include attracting more customers and making more sales. A disadvantage of the strategy is that the pressure to sell at lower prices could result into the company compromising on the quality of the products sold.

Product differentiation

As seen in the case study, there are various companies which offer consumer electronics in the market and hence the company through product differentiation can add features and attributes to their products that will help make the company products unique and preferred. Some of the advantages of the strategy is that it will create additional value to the customers and can help foster brand loyalty (Fuertes et al., 2020). The disadvantage of the strategy is that it is not always guaranteed that the customers will find the value that differentiates the products from others in the market. Additionally, pursuing a product differentiation strategy will use up much of the company resources, energy and time.

Niche/ focus marketing

In niche/focus marketing, the company can identify a specific market segment which consumes more of the company products and focus its efforts towards selling to that specific group. This requires intensive market research to ensure that the selected market segment is the best for the company. The niche marketing will help the company focus more on the segment that performs the best and improve efficiency and productivity (Bogers et al., 2019). The strategy can also help Best Buy eliminate competition through venturing into a market segment that is not explored by competitors as much. However, the strategy has low economies of scale since the market has a low number of customers with specific needs.

Recommendation and Implementation

The best strategy that could help the company be successful is being a cost leader. As much as the consumer electronics are not consumed everyday by the average consumer, customers will be attracted to prices which a lower when they walk into the store (Valeri, 2021). The first step that the company should take is form partnerships with its major suppliers and make contracts to help the company get discount when it purchases supplies in bulk. This will be very helpful as it will ensure that the company minimizes costs of production as much as possible. One consideration that the company should make when selecting these suppliers is the quality of supplies, they provide. After that the company should then move to price setting. In this stage the company should conduct research on the prevailing prices so that it is able to sell at lower prices that will still get the company profits (Valeri, 2021). After that the company will start distribution of the cheaper products and observe the performance of the company over time, if the strategy is unsuccessful, it can then switch strategies.

Conclusion

Best Buy is a consumer electronics organization that prevails in a highly competitive market. The company is facing competition from large organization and this creates a threat of the company becoming extinct or shutting down. The company over the years has used a range of competitive strategies and this assignment suggested a few alternatives that the company can use. The recommendation for the company is that it should use a cost leadership strategy. This strategy is ideal for the company since it will make sure that customers get affordable prices, grow the sales revenue and foster customer loyalty.

References

Bogers, M., Chesbrough, H., Heaton, S., & Teece, D. J. (2019). Strategic management of open

innovation: A dynamic capabilities perspective. California Management Review, 62(1), 77-94.

Bryson, J., & George, B. (2020). Strategic management in public administration. In Oxford

Research Encyclopedia of Politics.

Fuertes, G., Alfaro, M., Vargas, M., Gutierrez, S., Ternero, R., & Sabattin, J. (2020). Conceptual

framework for the strategic management: a literature review—descriptive. Journal of Engineering, 2020.

Lynch, R. (2018). Strategic management. Pearson UK.

Valeri, M. (2021). Organizational Studies: Implications for the Strategic Management. Springer

Nature.