Discussion Questions Assignment
jusleag1510
presentation_1.pptxPorter’s 5 Forces model with a focus on Best Buy & the consumer electronics retailing industry
1
The 5 Forces: What are they?
Threat of New Entrants
Threat of Substitutes
Power of Suppliers
Power of Buyers
Rivalry Among Competitors
Five Forces Analysis: Consumer Electronics Industry
Bargaining Power of Suppliers - Low
Large network of suppliers of electronic components/goods across the globe
Main industry for the suppliers revenues
Low cost to switch suppliers as a customer
Suppliers cannot easily forward integrate without significant investment
No readily available substitutes
Bargaining Power of Buyers – Medium/High
Majority of products are relatively undifferentiated
Low switching costs for buyers
Some buyers purchase large quantities ( government, schools, corporations etc.)
Average customer purchases small quantities, and there are many of them
Cannot easily backward integrate without significant investment
The bargaining power of suppliers can hurt the profit potential of a company. If the suppliers have the power to increase price or reduce quality, but maintain demand, their power is high and can negatively effect the firm. Here we identify the supplier as the manufacturers of the components or in some cases the finished good, if contract manufactured, of the electronics. The bargaining power of buyers acts in a similar fashion. If the customers have the power to demand a lower price or better quality, a firm’s profits if cost of production in turn has increased. We identify the buyers as the “traditional customer”, that is the end-user. However for the consumer electronics industry we can also identify large corporations, government agencies, schools etc. as buyers.
3
Five Forces Analysis: Consumer Electronics Industry (Cont’d)
Threat of New Entrants - Low
High capital investment to enter
Buyers have brand loyalty
Incumbent firms can have preferential access to new technology, distribution channels, desirable locations etc.
Current firms can see economies of scale benefits
Low network effects
Threat of Substitutes – Low/Medium
No direct substitutes in another industry
Low cost to switch - if one arises
The threat of new entrants to an industry, if high, can result in either lower prices from current firms to detract them from entering a “desirable” market, or promote spending more to create value for customers but keeping the price the same. Both of these result in lower profits for the firms in the industry. Incumbent firms have the upper hand as economies of scale, brand loyalty and the need for high capital requirements will deter new entrants. The threat of substitutes is high if a substitute from another industry has a better price and performance, and the cost to the customer to switch is marginal. For the consumer electronics industry there is no known substitute. The product and service (maintenance, customer service etc.) that this industry offers does not have a direct substitute from another industry. One could argue a day planner, board game, painting a scene (versus taking a photo), or even hand washing dishes (versus a dish washer) is a substitute but we would have to analyze on an individual product and service basis. Since we analyze the “industry” online and retail stores can be grouped together, whatever is provided by the firms in that industry now.
4
Five Forces Analysis: Consumer Electronics Industry (Cont’d)
Rivalry Among Competitors – High
Many competitors, few of similar, larger size
Exit barriers high
Current firms highly committed and invested
Industry growth is high
Summary & Profit Potential
Low power of suppliers
Medium/High power of buyers
Low threat of new entrants
Low/Medium threat of substitutes
High rivalry
Overall – Potential for above average profits and ability to sustain a competitive advantage
Rivalry among competitors is dictated by many things, including the structure of the competition, how fast or slow the industry is growing, if large investments, or commitments are needed to compete in the industry, and the level of exit barriers. Rivalry is being discussed more in the other groups project. However, there are many smaller firms in the industry as well. Overall the five forces when analyzed can give a snapshot on the profit potential a firm has when entering an industry. This industry is desirable as Porter’s Five Forces are generally weak, which means “the greater the industry's ability to earn above-average profits, and correspondingly, the greater the firm's ability to gain and sustain a competitive advantage” (Rothaermel, p. 80). The industry has also seen a boom over the past ten years, and in only five years saw a 20% increase from 2011 to 2016. (Rothaermel, p. 609). However, as determined through the Five Forces Model, the incumbent firms reign supreme in terms of capturing this growth and in turn the high profit potential.
5
Competitive Advantage?
Customer Experienece
“Customer Centricity” data analysis and implementation for specific regions and segments per store
Geek Squad - exclusive brand for Best Buy which is a team of technicians that service and install home products
Ongoing training and staffing of sales associates to provide superior service and knowledge for customers
Wide variety of products that customers can touch, feel, see and demo
Customer accessibility- Best Buy has the most big box electronics retail stores in USA, Mexico, and Europe
6
Strategic Positioning
Focused Differentiation
Exclusive Brands (Insignia, Dynex, Init, Rocketfish, and others)
Geek Squad
1-2 year 0% financing
Customer Centricity
Best Buy’s strategic positioning in the market is focused around defferentiation from other big box competitors in the market. Best Buy plans to sell exclusive brands of portable electronics and accessories. This will help eliminate “showrooming” which is when customers come to learn about and test a particular product in a Best Buy brick and mortar store and then turn around and buy it online for the cheapest price. Geek Squad is something Best Buy will continue and is the only big box store that offers that kind of service. Along with customer centricity and offering up to 2 years free financing, these exclusive services will be a driving force in the company’s strategic positioning in the market.
7
Recent Performance
Industry Effects
Strong customer programs that other companies lack
Geek squad- providing in home services and warranties in house.
Firm Effects
Management pushes for training of products to make salespeople more knowledgeable.
Personnel are specially trained in specific store areas (computer, TVs, gaming, etc.)
The 6th Force: Complements?
A complement is a product, service, or competency that adds value to the original product offering when the two are used in tandem. (Rothaermel, p.81)
The consumer electronics retailing industry is greatly influenced by complements!
Google/Samsung
iTunes/iPhone
An interesting aspect to the electronics industry is that as more things go “online” and/or become digital, the complements are increasingly virtual. (other than hardware like physical computers, protective cases, internet capable appliances, etc.)
Best Buy and other electronics stores benefit as the “internet of things” grows and as the compatibility of software and hardware become more intuitive.
As technological capabilities advance, successful companies like Amazon, Apple, and Google are beginning to experience industry convergence, where companies are becoming brands within themselves, serving a larger range of customer needs, and instead of complementing Best Buy’s business, they’re quickly becoming competitors.
Porter’s 5 Forces: Practical Applications
The hunt for a good laptop for grad school that I experienced two years ago shows the high power for buyers, low for suppliers and low threat of substitutes. Identifying myself as the customer, I had many suppliers to choose from. The product I was after was not too different (i.e. a Dell model versus an ASUS comparable model) that was offered by each supplier, and some offered the same product (i.e. same laptop different retailer). I had high power, and the suppliers had low power, as at this point I could chose based on price, customer service, warranty and protection plans etc. Unfortunately, there is no substitute for a laptop and what it can do to fulfill my needs. In the end, I chose a Dell laptop from Office Depot who had the best promotional price and best protection plan for the computer.
In my profession the most experience I have with the 5 forces model is with the rivalry among competitors. There are roughly 13 competitors in the telecommunications field that work for the same vendors providing installation and maintenance services. The process of bidding for jobs from these vendors is very competitive as the companies range in size and often companies will take a loss just to keep their employees working and have the ability due to the number of employees and jobs they can bid. The rivalry is seen when vendor training classes are offered and we are all in the same classes. I would consider the companies in telecommunications installation as monopolistic competition, there are many firms ranging in sizes and there is some power in pricing based on the quality of work a company might excel in. Often we will work on a network that another company has previously worked or had a hand in designing, the rivalry shows when quality of previous work is critiqued across industry standards. The competition to provide the best quality work and the most projects under schedule is ultimately to control the market share and grow as a company. Recently my company has grown from 12 technicians 2 years ago to 21 this year which allows us to compete with the bigger of our rivals.
10
Ask.
1. Consider complementary businesses and products and industry convergence. Are there times when attempting to be “all things to every customer” isn’t beneficial to the company or conducive to growth? Or should a company always try and expand offerings and services? Explain your reasoning.
3. The consumer electronics industry when analyzed through Porters Five Forces Model made the assumption that the online retailer, is not a substitute, but a competitor (i.e. Amazon to Best Buy), since Best Buy offers e-retailing now. Do you agree? Can you identify any other potential substitutes to this industry or will we have to wait for the next technological (product or service) advancement for a true substitute?
2. How has the internet changed Best Buy? How has Amazon changed the way the industry approaches online sales?
How would you quantify a competitive advantage and strategic position? In your professional experience, what data can you provide that shows your companies competitive advantage in it’s corresponding industry?
Citations
Rothaermel, Frank T. Strategic Management. 2nd edition. New York: McGraw-Hill Education, 2015. MHE Connect. Web. 14 Feb. 2016.
Plastow, Jason. "Best Buy Competitive Advantage (with Images) · Jasonplastow." Storify. Web. 16 Feb. 2016.
Fitzsimmons, Kakie. "Best Buy Corporation Strategic Management Analysis." Best Buy Corporation Strategic Management Analysis. Web. 16 Feb. 2016.
