Arnold_Case_Study_3__5_7_ lecture notes 2015.pdf

Appendix A: SWOT Analysis: Best Buy

Strengths

Largest consumer electronics retailer/ Reputable Brand Name: Diversified portfolio of product offerings,

International business acquisitions

Reputation for excellent customer satisfaction;

Geek Squad: Service, Training, Support

Strong leverage of Social Media

Weaknesses

Marketing goals too broad

Weakened financial position

Top leadership turnover at crucial time (need for increase in connectivity strategy)

Many (11) brand names

Weak skills in Cloud computing

Deterioration of strong ethical culture touted by company

Incongruent pricing structure

Logistics/Product availability

China 22%, Middle East 20%, Russia 20%, South America 17%

A more knowledgeable, savvy, consumer base willing to use the internet for product purchases

Dissolution of number one competitor; Circuit City

New business ventures i.e.; Best Buy and Car phone Warehouse

Further expansion of chain through “mobile stores”

Moderate to high bargaining power of suppliers

Rising labor wages

Regulations negatively impacting private-label credit cards i.e.; decreasing revenue streams on domestic

sales

Domestic market for consumer electronic products maturing i.e.; flat panel television market

Long life of TV sets

Strengths

Best Buy’s most significant strength is their position as the largest electronic retailer in

North America. Today, Best Buy has more than 2,900 stores and locations, including large-

format and Best Buy Mobile stores (Bowie, 2013). The company also offers technical support

under the Geek Squad brand. This is another attribute in favor as the Geek Squad technical

service division has seen a large surplus of success in the mainstream market assisting customers

with installation and technical support for Best Buy products. The company also has an excellent

customer service satisfaction rate, as consumers flock to the new deals and offers on the table

customer. The company’s strong market presence and wide consumer base provides a

electronic retail industry is differentiated from other industries that sell electronics based on the

physical size of the store. Best Buy proved to be dominant in this category largely to their

success in opening more stores than their competitors in more states and countries.

Weaknesses

Best Buy’s weakened financial position has plagued its success in recent years, making it

more difficult for the brand to gain back the customers that have left for competitors or financial

recession. Although the company is the nation's number 1 consumer electronics retailer, it has

recently closed 30 of its more than 1,000 stores since 2011, including superstores in Deerfield,

Addison, Mundelein and West Dundee, Illinois (Lorange, 2014). These closings have been based

longevity amongst their suppliers is not good for business, as products begin to shift in and out of

the store, making it difficult for the consumer to trust that the company can meet their needs and

that were “Reward Zone” members, without obtaining prior consent in violation of the TCPA and

Washington’s Automatic Dialing and Announcing Act (Bowie, 2013). This settlement hurt the

company massively as they were forced to settle outside of court with almost 4.5 million dollars

in damages and penalization fees. Action lawsuits take away from best buy’s budget, leading to

more money having to go into legal costs and fees instead of marketing, production and

distribution areas of focus.

Opportunities

The increased growing of global demand for electronics has remained one of Best Buy’s

most significant opportunities. For example, HDTVs has seen a recent surge in sales due to the

will continue to be a major source of revenue, it’s increasingly showing signs of becoming more

where consumers are snatching up television and mobile devices in mass. Given their massive

Rising labor wages prove to be one of the biggest threats towards Best Buy’s earnings

due largely to the fact the franchise has a surplus of stores opened in the United States and

abroad. With a large store population, a company must monitor their labor wages and costs

closely to stand clear of loss in overall annual revenue. The budget is also affected in this regard

due to the fact that hiring, training and ultimately paying employees out costs companies a large

percentage of money and resources. Best Buy currently has nearly 190,000 employees in total,

and with economy currently bouncing back from recession, a raise in minimum wage or other

spike in labor wage could force Best Buy to focus more of their budget on this area. As part of

yet another restructuring plan, the company intends to close fifty of its big box stores and fire an

The BCG Matrix allows Best Buy to determine what priorities should be given in the

product portfolio of the company. Generally, a company should possess portfolios that contain

both high-growth products in need of cash inputs and low growth products that general mass

Best Buy’s stars consist of Televisions, Home Theater Accessories and Technical Repair

that is included in final sales of the product to ensure hassle-free installations and repair

programs for the consumer.

Cash Cows

Cash cows are market leaders and generate cash for the organization. In evaluating Best

Buy’s current production line, appliance seems to be the only product that is keeping up with the

stars in this analysis. In terms of sales and profit, Best Buy’s appliances bring in the second

highest annual growth each year. This could be mainly due to the fact that the company carries a

large selection of household and outdoor appliances for the consumer.

Question Marks

Companies that exist within this category have relatively high growth prospects, but low

Kantar Media, In the first half of 2014, overall measured media spending fell 26% to $116

million, compared to the first half of 2013, during the same period, TV spending plummeted

69% to just $17 million (Khanfar, 2011), which is a surprisingly low figure for a marketer as

Gaming and entertainment accessories are both best Buy’s products that hold generally

relatively low profitability, along with its lapse in annual revenue being directly reflected by

these decreases, one can conclude that these products belong in the dogs category of this

analysis.

Competitive Forces Analysis

Best Buy’s direct competitors are Apple Incorporated, WalMart, Target and Radio Shack,

while its indirect competitors are EBay, Amazon, and HHGregg. Although the company has been

the leading electronic retailer in the world today, the retail industry still operates in the midst of a

customer revolution. Consumers are now seeking a more integrated shopping experience across

all channels and expect retailers to deliver this experience (Zimmerman, 2013). The key drivers

capital expenditures on 300 new stores, remodeling projects to existing stores, and upgrading its

information technology infrastructure (Buchta, 2012). The amount of initial investment to open a

large electronic retailer is well over $15 million, which is significant enough to deter new

2011), as well as carrying exclusive items in special arrangement with suppliers. For example,

the new Xbox One and PS4 gaming consoles can be purchased in “special editions” that include

exclusive video games

Power of Buyers. The majority of items sold by this company is undifferentiated and are

available in other retails stores and online. As a result, buyers are inclined to go for price

shopping and play one vendor against the other in terms of who will get the most exclusive

items. When shopping for electronics, 81% of consumers go to a company’s website for

information versus 61% of consumers that go back to the brick and mortar store (Zimmerman,

2013). To aid in keeping away harmful information regarding pricing and products, the industry

locations and staff to support each sale, these firms are often able to offer goods at lower prices

than Best Buy and other big box electronic retailers.

Rivalries among existing competitors. Within this company’s analysis, the intensity of

The key factors for Best Buy’s competitive success in the industry weigh heavily on the

positioning of the company during times of recession or financial strains. Appendix F displays

the success factors and ratios that Best Buy and its competitors are facing in the industry this

latest quarter. Price and Financial Position are two key factors that Best Buy has strongly begun

focusing its infrastructure around. The chart shows that Best Buy is the closest to meeting their

goals amongst their competitors with a composite score of 3.05, while Walmart concluded with a

3.1 and Target with a 2.6. The company now operates 1,475 stores in the United States and 468

stores in Canada and Mexico (Hanford, 2013). This is another point to make towards its

progression against its competitors, as declining companies like Radio Shack and Circuit City

reveal its numbers to the public, with a market cap of 751.10B a year, the competitor forecasts