Discussion Questions Assignment
jusleag1510
presentation_2.pptxCase 2: Best Buy
Best Buy – Expert Service. Unbeatable Price.
Best Buy was founded by Richard Schulze in 1966 as Sound of Music.
The company changed it’s name to Best Buy in 1983.
Best Buy became a publically traded company in 1987
Best Buy has more than 1,400 locations and employs more than 125,000 people.
Best Buy had revenue of more than $40 billion in 2015
Case Overview
The Best Buy case outlines a turn-around strategy specific to Best Buy in the dynamic industry of consumer electronics.
This case will look at Best Buy’s competitive advantage and strategic positioning in the market and how these events have affected Best Buy’s recent performance.
We will analyze the rivalry among Best Buy’s competitors in the consumer electronics industry including Amazon and Walmart.
Competitive structure of the industry will be discussed including industry dynamics, industry convergence and the consumer electronics industry life cycle.
A strategic group map for the consumer electronics retailing industry has been plotted for this case. Included are details of how industry forces affect strategic groups differently in areas including profitability.
Competitive Advantage Best Buy’s “Renew Blue” strategy focused on leadership, customers, employees, and differentiating products. Through this, they were able to gain a competitive advantage in 4 areas.
Business model
attracting transformational leaders
Creating the ultimate experience for customers
Energizing employees
Investing in private –label brands.
Scale
Largest firm of big box electronics retail industry in terms of sales and market cap.
Does strategic expansions to complement ecommerce sales and deliveries.
Value Creation
The showrooms have useful information that eliminates having to have salesperson for every customer.
Largest selection of electronics inventory in stores.
The number of physical locations .
Market Dominance
They have over 1400 locations globally and offer support and know how that other retailers can’t provide.
They are price matching to eliminate customers shopping their showroom and purchasing from rivals.
Strategic Positioning, Leader in Electronic Sales
Internal Forces
Workforce
Developing a highly trained tech support system in Geek Squad
Investing in floor employee trainings
Financial Positioning
Increased revenue from $12.5 billion to $50 billion
Mitigating costs
Closing several stores
Employee layoffs
External Forces
Competitors
Walmart – The declining electronic sales and reduction in department space (retailer)
Circuit City – The price war attributed to the demise of business (retailer/similar business model)
Amazon – The emergence of online superstores has jeopardized the existence of physical locations (online retailer)
Threat to position as electronics leader
Economy
Positive economic conditions
Increased consumer confidence in spending
Recent Performance
| 2015 | 2014 | 2013 | 2012 | |
| Best Buy Net Sales or Revenues | 40.34B | 42.41B | 45.09B | 50.71B |
| Cost Of Goods Sold (COGS) | 31.29B | 32.72B | 34.44B | 38.13B |
| Best Buy Gross Profit | 9.05B | 9.69B | 10.65B | 12.57B |
| Best Buy Net Income (Profit/Loss) | 1.23B | 532M | -441M | -1.23B |
| Best Buy Earnings Per Share Diluted Net | 3.49 | 1.53 | -0.73 | -3.36 |
| Dividend Per Share Common | 0.72 | 0.68 | 0.66 | 0.62 |
Recent Performance
Best Buy’s competitive advantages have drastically increased net income.
Through the firm effects “Renew Blue” focused on customers, employee, leadership, and private labels, which allowed them to sustain a competitive advantage.
The firm effect has totally transformed Best Buy. The strength in leadership, the knowledge of the sales team, and private labels are areas that helped provide this transformation.
Consumer Electronics Industry Rivalry
The Competitive Rivalry is low in the consumer electronics industry, which is evident by the following:
The industry is made up of only a few competitors.
Brand Loyalty is significant to customers.
Retailers in the industry, such as Best Buy and Walmart, will match prices from other retailers, so there’s reduced pressure to offer the lowest price.
Companies in the industry offer differentiated products to set themselves apart from others.
Competitive Structure of Industry
Best Buy is in an oligopoly industry. An oligopolistic industry is characterized by few, large firms who have some pricing power, differentiated products and high entry barriers.
Best Buy is in a market that is dominated by a few, large firms such as Walmart, Amazon and Target.
Best Buy exhibits pricing power by matching competitors’ prices, therefore challenging their competitors to do the same.
Best Buy offers differentiated products in the form of exclusive brands and customer service options such as Geek Squad.
High entry barrier in industry due to established customer and brand loyalty. Also, the investments of real estate to open stores and investment of electronics is costly for new ventures to open stores and provide products and services.
Industry Characteristics
Industry Dynamics
Industry dynamics are evolving giving Best Buy incentive to increase their profitability and reduce number of competitors.
Best Buy is trying to keep up with industry changes by aligning customer’s needs and wants with their strategy plan, i.e. offering two-day shipping and store to store pick up options.
Industry Convergence: a process whereby formerly unrelated industries begin to satisfy the same customer need.
Retailers that are not known specifically for specializing in electronics sales such as Amazon, Walmart, Target and Costco, are now able to provide products similar to Best Buy and satisfy consumer needs.
Best Buy offers the option of a subscription to its library of content to customers who purchase their web-connected televisions, similar to Amazon video.
Best Buy offers two day and faster shipping without a membership, similar to Amazon Prime members.
Industry Life Cycle (Growth vs. Mature)
The consumer electronics industry in which Best Buy is a part of is considered mature.
One of the few ways to show growth in the industry is to capture market share
Another way to grow in this mature industry is to capitalize on new technological products and be the retailer consumers go to when electronics become out of date or need replacing.
Strategic Group Map Variants
Competitors
Online Retailers (Amazon, EBay)
Big-box / Large-store Discounters (Wal-Mart, Target, Costco)
Strengths
Locations, Economies Of Scale And Geek Squad
Service (Installation And Advice)
Cost Cutting/ Realignment
Minimize Store Footprints, Align Square Footage With Floor Traffic
Store Space To High-growth Categories
Mobile Phones, Appliances, And Accessories Compared To Declining Low-margin Products, (Music And Movies)
Expand Smaller format/footprint Best Buy Mobile Cell Phone Stores
Expand E-commerce Channel
Go-forward Strategy
Concentrate On Niche (Trained Service Oriented Personnel)
Improve/Match On-line Delivery Time (Group Map)
Continue Cost Cutting And Improved Pricing Strategies
Worldwide Web Sales of Computers and Consumer Electronics ($B’s)
Source: eMarketer, https://www.internetretailer.com/trends/sales/computers-and-consumer-electronics-sales-forecast-//
Leading US Specialty Retailer ($B’s)
Delivery Time (Online Orders, U.S)
Delivery Time (Online Orders, U.S)
* Increased Distribution Centers, combined with utilizing Brick & Mortar stores as mini-Distribution centers has nullified Days to Delivery Variants
Source: Stella Service
Practical/Personal Example
From 2011 To 2014, I Was A Dedicated Amazon Prime Customer
2 Days “Free” Shipping
Wide Variety Of Electronic Goods
Great Value Pricing
100% Of Christmas Presents Bought Thru Amazon
In 2015 , I Found Out About Best Buy 2 Day Shipping
Could Go To Best Buy To Test Drive
Given Excellent Service/Advice
Had A Choice To Buy At Site Or On-line
2015 Christmas Buying Distribution (Electronics), 80% From Best Buy
In Some Cases, Utilized Same Day Shipping To Store (Convenient Location)
Apple Mini-store Kiosk
Knew I Could Return Items To Store
Face To Face Service
Great Pricing
Practical/Personal Example
Competitor Analysis and Strategic Groups
State Farm is the #1 insurance company in the United States and is the leader in auto and fire insurance. According to the 2015 Temkin Experience Rating, State Farm, along with USAA, ranks as having the best customer experience in the insurance industry. Recently, a State Farm policyholder took to social media to voice his growing frustration with his claim handling. GECIO, Progressive, and Allstate reached out to the policyholder for free quotes and checking on the status of his claim. Competitors utilized this exposed weakness in State Farm to strategically position themselves for growing business.
Discussion Questions
Through online retailers and large department stores, the consumer electronics industry has become more commoditized and price-driven. What room is there for smaller service-based stores in this industry?
How important is customer service to your buying experience (both before and after purchase)? How important is test driving/touching your electronic device before purchase? Would these attributes/services drive you to become a Best Buy consumer/customer?
The threat of online superstores such as Amazon threatens Best Buy’s strategic positioning. Could Amazon being solely online offer a comparative advantage to Best Buy?
Best Buy has hundreds of stores, showrooms, a very knowledgeable sales team, and price matching. What do you think is stopping them from gaining market share from Amazon?
What can the consumer electronics industry do to increase the rivalry between it’s competitors? Would this be beneficial to the individual retailers or is it more beneficial to have less of a rivalry?
References
https://corporate.bestbuy.com/about-best-buy/
http://thefinancialbrand.com/52924/state-farm-digital-customer-service-test/
Atherton, A. (2010, February 3). What is the Definition of Online Display. Retrieved from Andy's Blog: http://andyatherton.com/tag/best-buy/
Group, U. o. (2011, January 8). Best Buy Co., Inc. Retrieved from Consumer Goods: http://uoinvestmentgroup.org/wp-content/uploads/2011/01/BBY.pdf
