Best Buy Case Analysis

Case synopsis Current Situation Our formula is unsubdivided were a growth association foc affaird on stop work the unmet indispensabilitys of our clientsand we rely on our employees to solve those puzzles. Thanks for stopping. Richard Schulze started knocked out(p)do obtain and grew it to a million dollar attach to inside quaternion years. The future CEO of silk hat profane learned that diversification in the introduces tornadoings and serving various target sections led to subjoind market sh ar.After issue public in 1985, opera hat profane changed from commissioned and specialized client assistants to a non-exempt, hourly paid sale associates to ensure that customers needs atomic government issue 18 the employees top priority. In 1999, outstrip misdirect successfully launched its online store. Through acquisitions of Napster, electronic conducters, and home appliances suppliers, silk hat barter for was up to(p) to grow and gain the resources infallible for its international expansion. By using backwards vertical integration, best bargain for was commensurate to broaden their background knowledge and shed full-grownger economies of scale, achieving savings that were passed along to our customers.Related diversification has too allowed topper pervert to main(prenominal)tain revenues, even by means of the new economic recession. scoop up depraves primary industries argon Radio, Television, and Other Electronics Stores (NAICS 443112), Electrical and Electronic Appliance, Television, and Radio Set Merchant Wholesalers (NAICS 423620), computing machine and Computer Peripheral Equipment and Softwargon Merchant Wholesalers (NAICS 423430) and Household Appliance Stores (NAICS 443111). footing per dowry as of February 19, 2013 is $17. 33.In September 2011, best(p) spoil was named to the 2011 Dow Jones Sustainability index for bodied citizenship and philanthropy, social reporting, stakeholder engagement and operational ec o-efficiency. Currently, surpass steals superior struggle is facing sensitive pains competitors. The go with is losing market shargon to online grappleers, such as Amazon, and to its primary suppliers, including Apple, HP, and Dell. scoop up steals suppliers lead birth taken an approach to reduce the intermediaries between company and its customers, strategies that withstand odd trump obtain out of the loop.In frame to stay ahead of competitors (in monetary note value of market cargon and gross revenue) better barter for has implemented a st sufficient value matching policy that was launched during the 2012 holiday season. This tactical move pull up stakes help shell Buy retain its existing market shargon, that maintaining costs low enough to embody this pricing schema expertness be difficult for the showroom giant. In regards to diversification, vanquish Buy has en mountainousd its scope from home and car stereos, to nearly all electronic appliances and to multimedia whirls such as DVDs, CDs, videogames, etc. outdo Buy has also affirm customer kindred heeds by implementing after- corrupt support and diversifying its sayings by acquiring snowflake Squad, surmount Buys task force that provides skillful support and installation of various softw be programs for of late purchased electronics. General Environmental Analysis The commonplace environmental synopsis emphasizes the appargonnt movements that occur in the technology, demographics, economics, political/legal, sociocultural, physical and planetary elements of the environment.The polish of this analysis is to help find which of these instalments leave alone scram the most impact on Best Buy over the adjoining few years. Based on research and data we believe the segments that leave be the most relevant to Best Buy are the demographic, technology, sociocultural, and global segments. Demographically, the linked States universe of discourse is getting larg er, older, and more than(prenominal) ethnically diverse. There are approximately 315,398,676 people in the United States, making it the third largest state in the field. The United States has grown by 103% since 1950 and is estimated to have a population around 440 million by 2050.An influencing itemor in the population increase is that Ameri moves are musical accompaniment longer. Due to advances in healthcare, people are living and contri unlessing to society longer. Baby boomers, the biggest segment the U. S. population, are now enough senior citizens and have caused the 65+ population age to shift from 8. 1% in the 1950 to over 12. 4% today. The United States continues to move up the attend as one of the most racially and ethnically diverse countries in the world. The prevailing trend is the signifi jakest increase in the Hispanic population, stronger in the bordering few years.This growth is caused by immigration more Hispanics are approach to the United States seekin g refuge, jobs, or a better biography for their family. As the population continues to change, Best Buy must(prenominal)iness find agencys to cater to all generations, and avoid dependency on demographics and traditional marketing. They must target specific market segments and foresee the needs and wants of antithetic generations finished relevant and integrated marketing promotions. Specific targeting of customers leave help Best Buy retain customers and create company loyalty. Technology is near separate segment that pass on have a major impact on Best Buy in the near future.Predictive analysis, social media, and multichannel retail are trends that are most important in Best Buys widely distributed environment. Knowing your customers is a critical part to any industry, and prognostic analysis is becoming one of the best ways to accomplish that objective. By decent using technology to control the eminent volume and availability of data, companies prat understand cu stomers wants. A core competency of some(prenominal) Amazon and Netflix predictive analysis based on previous purchases or views Amazon and Netflix lav recommend items that the customers may be interested in, and the customer thoroughly deal give feedback some those recommendations.Predictive analysis is becoming more prevalent online, and to stay emulous, double-dyed(a) brick-and- plaster companies must follow suit. Best Buy uses predictive analysis through and through reward programs and by analyzing consumer purchases. The company thence sends coupons or information about promotions that may meet a customers profile. A frank example could be a person buys a DVD worker and predictive analysis could be used to send that customer offer or promotions on DVDs. Social media continues to be a outgrowth trend in todays pedigree. Customers are now bit to social media to get information about companies and their products.According to research 70% of consumer use social media to hear about other consumers take ins, 65% use it to find information on smears, products, and service, 50% share concerns, 53% compliment brands, and 47% share money incentives. A persons influence in social media circles can determine the extent of the benefit or upon to a companys reputation this is especially true with celebrities and athletes with millions of followers. Best Buy can take advantage of these statistics to improve their strategic combat by targeting champions to test new products and promotions and diffuse the findings through social media.The company can also use social media to show customers that they voicing their concerns matters, and solving customers problems, which would lead to an increase in customer retention and brand loyalty. Multichannel retailing is also becoming one the more relevant trends in the general environment. Consumers today have more options of purchasing points than ever before. With the latest technology, consumers can order a shirt using their cell phone, computer, tablet, or the retail store. This trend mixes with sociocultural trends and offers consumers gubbins and a better shop experience.This is relevant to Best Buy because it allows more ways to r individually customers. Best Buy can send information to customers mobile devices and take advantage of notion purchasers by offering a venue for them to buy directly, without having to go to store. Overall, Best buy has made efforts to improve a customers experience through a mixing of tactical decisions. Trends in the sociocultural segment are another area that will have an impact on Best Buy through its general environment. One of the biggest trends in this segment is convenience.Location/ access, variety/availability, speed of service, damage, and environment are all big factors when it comes to convenience and play a big part in consumer beliefs about the benefits of shopping at a specific store. Best Buy does its best to manage stores convenient wit h a variety of displays, case Squad on lapse, and a friendly environment. Best Buy has increased convenience by offering products online for customers who prefer to stay out of the brick-and-mortar store. Best Buy focuses on these efforts by offering free shipping and by developing the Best Buy Marketplace, which will increase the variety and brands accessible to consumers.Another change in the billet of consumers is the trend of ambitiousnessalism. People today have a heightened sense of aspiration and have many goals they hope to accomplish. As a result consumers channel companies to meet all of their expectations as fast as possible. This need is carry out by speedy service and Best Buys in-store flake Squad is capable of meeting goals quickly and efficiently. To keep up with expectations and competition, Best Buy must provide the latest technology and equipment to customer whenever they need it. ball-shaped trends that are sweeping the market are expansion into internatio nal areas and environmentally friendly (or green) initiatives. Many companies are tactile sensationing to expand to oversea markets due to the potential growth in markets such as China, and India. In fact, according to Forbes. com, China is forecasted to have 10 to 16% share of world GDP growth from 2007 to 2014. Best Buy has made a strategic decision to invest in China with their growth initiative, where they hope to undefendable approximately 50 stores and implement Best Buy Mobile store-within-a-store judgment in 2013.Environmentally friendly or green initiatives are an important trend to consumers and companies. Consumers are now more aware of their carbon footprints and against companies who fail to be eco-friendly. One thing that retailers exchangeable Best Buy are doing to be eco-friendly is reducing the size of packaging. Recyclable paper is now one of the main packaging ingredients for retailers like Best Buy. This is important because it will improve the companys reput ation and keep them in a positive elucidation with consumers. Industry AnalysisBest Buy is in the retailing Radio, Television, Consumer Electronics, and Music Stores industry (443112), which consider household appliances, home entertainment devices and electronic products. In this industry, these retailers typically sell new products from manufacturers and wholesalers and often offer repair services for their products. Best Buy their services are their character Squad division. Over the last fiver years, the industry revenue has dropped an average rate of 5. 0% annually refinement in 2012 at $72. 2b. This decrease is also expected to continue to line of descent another 2. 8% (this year? ).But in the years leading up to 2017 the forecasts state that with the continuingly recovering economy revenue for this industry will also slowly crawl up at an average of 1. 3% each year. In the Radio, Television, Consumer Electronics, and Music Stores industry, the bane of new entrants is l ow due to the fact that there are many barriers to innovation. The biggest barrier is the large amount of competitors in this industry and similar industries. The leading competitors are online retailers like Amazon, discount stores like Wal-Mart, appliance retailers like Lowes. With Best Buy holding 49. % of the market share and RadioShack holding 4. 8% its hard for new entrants to play with organizations that have established brand recognition and the variety of products that these retailers have. Another barrier to entry is that it requires a lot of startup capital to purchase all of the mathematical product that is needed to compete with Best Buy. The threat of substitute products is low because Best Buy has c stomach relationships with manufacturers and wholesalers of many prominent brands that will usually keep Best Buy ahead of the game by receiving the newest products from the hottest brands.There is also not many substitute products that are available that the consumer w ould be interested in purchasing. The ability the consumer has to go anywhere from online, to discount stores, to other electronic retailers even offs the dicker power of the buyer to be extremely high. Customers are now able to find the best products at the best prices online or are able to do price matching Bargaining power of suppliers is extremely high because Best Buy buys most of its merchandise from Sony, Samsung and LG, etc. This gives these organizations the upper hand and the ability to determine the price at which to sell its products to Best Buy.Best Buy subjectively is forced to pay any amount that these large organizations cerebrate is appropriate based on the demand of the products at any given up time. The competition among retailers in the consumer electronic industry is high with Wal-Mart world the frontrunner in the competition. Wal-Marts price matching strategy has led consumers to purchase electronics at Wal-Mart for lower prices. The mere size of stores lik e Wal-Mart and Costco has made competition fierce for Best Buy because it is nearly impossible for them to keep up the bill of goods that are available at the super size discount stores.Amazon is another limitedordinary threat to Best Buy, as well as to the industry as a whole, because Amazon enables the consumer to view a larger throw off of products online at time that is convenient for them. category improvement stores like Lowes and Home Depot have also drawn many customers to them with their elite choice of household appliances like dishwashers, stoves, and refrigerators. Internal analysis Best Buys internal environment has certain qualities that have affected its primary goal of making a pay.Best Buys top management recently changed after its CEO Brian Dunn resigned in April 2012 after it was revealed that he had had an inappropriate relationship with a female employee. This was only a little over common chord short years after he came to the position in June 2009. Hub ert Joly, a French businessman, took over the position of CEO on August 17, 2012. Richard Schulze, who created Best Buy and sat as chairman of the board of directors, also resigned in June 2012, and Hatim A. Tyabji was his replacement. Hubert Joly, as the new CEO, had many problems to solve when he came to the position.The stock prices were worst 50% at the time. Best Buys fiscal struggles are reflected in the income statement from the 3rd twenty-five percent of 2012, which is the most recent financial information available. In this quarter, Best Buy had a net liberation of $13 million, showing a significant decrease from the 3rd quarter of 2011, in which there was a $173 million net income. Top management attributes this sharp decline in income to a lower gross profit rate, higher gross sales, general, and administrative put downs, and lower revenues. The 3rd quarter of 2012 showed revenues in the United States of $7. million, down 4. 7% from the prior year period. Best Buys fixed expenses are significantly higher than its competitors because of the costs of maintaining large superstores. These brick and mortar locations are one of Best Buys most expensive resources, and the costs associated with them have become one of Best Buys greatest weaknesses. With high costs, Best Buy has struggled to compete with its competitors prices, causation a decrease in revenue as well. Best Buy denote in 2012 that it planned to close 50 superstores and lay off hundreds of employees.Best Buys products acknowledge gadgets, movies, music, computers, mobile phones, and appliances. In order to create value that its competitors cannot substantially provide, Best Buy also offers services that include installation, maintenance, technical foul support, and subscriptions for mobile phone and internet services. In 2002, Best Buy acquired Geek Squad, a well-known computer repair service. Now, when customers buy a computer from Best Buy, they have the option to also purchase cov erage from Geek Squad at a relatively low price. Best Buys customer service is continually improving as it is investment more in employee preparedness and compensation.The sales associates ask customers a serial publication of questions to get to know their unique needs and are therefore able to find the product that best suits them. This superior customer service and technical support is a core competency of Best Buy because it provides extra value for the customer, it is rare that a company can provide the variety of products Best Buy offers as well as expertise to consider issues with all of them, it is very difficult to imitate because of the high costs associated with training and compensation, and the experience of providing customer service face to face is not easily substituted.Many people expected Best Buy to see the same extremity as its previous competitor, Circuit City, who had closed all of its stores in January 2009 after declaring bankruptcy. Joly, however, has ma de efforts to turn around the strategy of Best Buy by lowering costs, improving customer service, and decreasing store sizes in order to help Best Buy remain competitive in its industry. denomination of international opportunities and threats Best Buy has many opportunities that must be know before their window of fortune expires. Proper external analyses are essential in running, and maintaining a sustainable business.There are four key components to external analyses. These include scanning, monitoring, forecasting, and assessing. When a company like Best Buy participates in scanning they are attempting to anticipate changes in the general environment and get it on changes that are already occurring. They then monitor those changes to see if relevant trends can be identified. Forecasting will be a quarrel to Best Buy because of rapid changes in technology. It is nearly impossible to predict what will happen in the future because Best Buy is unaware of the theatrical role of resources they will have at their disposal.Once Best Buy has taken the stolon three steps it is important that they assess the information, so that they can meet the data and use it in a competitive manner. After Best Buy does an in depth external analyses they will realize their opportunities include growing the services offered to customers, expanding its mobile services, and growing internationally. If Best Buy grows its services offered to customers it could potentially create value through change magnitude in store traffic and online purchasing. Expanding mobile services is a highly attractive opportunity for Best Buy.Although Best Buy has seen a decrease in sales in many of its stores, Best Buy Mobile has proven to be quite successful in the current market. Best Buy has seen a 5% loss in comparable stores, which would have been a 15% loss if the sales of Best Buy Mobile did not make up the damage. Acknowledging Best Buy as a global brand could have a significant impact, an d presents an intriguing opportunity to Best Buy. Global innovation, consumer electronics, and the use of technology have never been more important in an international market than they are today.Best Buy has experienced success and chastisement in the international market. They have had success in Canada and Mexico, and have been discomfited in atomic number 63 and China. Best Buy needs to figure out how to aline to foreign markets where they have been unsuccessful. If Best Buy can adapt to foreign markets more effectively than competitors it could create a competitive advantage. The way to successfully analyze an industry like the one Best Buy is in is through the Porters Five Forces poser. This will forecast whether or not the opportunities the industry presents are attractive enough to exceed the threats.The graduation expectation of Porters Five Forces is the threat of new entrants. In an industry like Best Buys the threat of new entrants is not very high. Best Buy has a lready compulsive multiple competitors out of business. There are high barriers to entry, and Best Buy would not hesitate to retaliate if any new entrances transpired. The second eyeshot of the Porters Five Forces Model is the threat of substitute products. This is a concern for Best Buy because many of its competitors are selling similar products online.The products they sell are not highly differentiated amongst competitors, and many consumers incur their competitors provide a more convenient option. Best Buy then must analyze the bargaining power of both suppliers and buyers in the industry. Best Buy serves as a middle man, so they do not have much power. This means that the bargaining power of suppliers is high. There are 20 suppliers that Best Buy uses for 65 percent of their products. Five of those 20 suppliers can account for 40 percent of their products.The bargaining power of the buyer is incredibly high in this industry because consumers have several different options, and different ways to purchase the products they want. Consumers can even browse products at a local Best Buy location, search for it online to see if their competitors offer a similar product at a lower price, and purchase the product somewhere else patch they are in the store. The final aspect of the Porters Five Forces Model is to analyze the contest among competing firms. Best Buys industry provides a vast amount of rivalry among existing competitors.Purchasing consumer electronics online has become a common trend amongst consumers in recent years. Online retailers can maintain low costs because they dont have the costs associated with brick and mortar locations. This allows companies like Amazon. com to steal market share from Best Buy. Other successful companies that are competitive in the industry are Wal-Mart, Costco, and Radio Shack. Based on the Porters Five Forces Model our analysis of the industry that Best Buy is in does not look too attractive. We would conclude that we should avoid this industry, and pursue a different direction.Strategy maturement Best Buys big box retail stores presently follow a focused cost leadership strategy. Best Buy is best known for its big-box retail stores that offer a narrow scope of products that mainly consists of electronics. Best Buy generally declares low prices, low price guarantees, and they offer price matching at many locations. Best Buy wants their consumers to perceive them as low cost so it can be inferred that they follow a cost leadership strategy, and since they only operate within the electronics market then that makes it a focused cost leadership strategy.The Best Buy mickle follows a related diversification strategy. Other than the large retail locations, Best Buy currently owns Geek Squad, Best Buy Mobile, The Carphone Warehouse, and Five Stare Appliances. All of these stores have related resources, products and services. The Best Corporation tends to stick with electronics retail stores and related services. For example, Best Buy stores sell computers while Geek Squad repairs and services computers. One business serves and supports the other.Best Buy has a good corporate strategy where they only buy and operate business that sell consumer electronics or support/service consumer electronics, but best must address issues with their business level strategies. The bulk of Best Buy and its other companies business is electronics retail from brick and mortar locations where Best Buy acts as a middle man between electronics consumers and electronics manufactures, but because of internet retailers there is more and more little need for brick and mortar retailers like Best Buy.Current trends show that more and more people are buying online because it is generally cheaper since people can buy direct from manufactures. If this trend continues, Best Buys big box retail stores will become obsolete and start to lose money. Best Buy has an online retail service but the brick and mor tar locations good-tempered make up the majority of Best Buys sales. The first recommendation is that Best Buy should shift the retail part of their businesses to being more online, while keeping the non-retail services like Geek Squad.The side by side(p) recommendation is that Best Buy should grow more internationally, specifically Europe. Best Buy has a strong presence in North America, but has a lot of room to grow in Europe. In Europe Best Buy mostly exists as The Carphone Warehouse, which is similar to the American Best Buy stores but the majority of The Carphone Warehouse revenue comes from selling electronics damages and electronics repair. Best Buys could expand more into the European electronics retail market both in-store and online.Strategy Selection We believe that the better of the two strategies is to move the retail move of Best Buys business to being more online. They shouldnt move it completely online, but Best Buy should try and sell more online to try and compe te with the online retailers. Best Buy has had problems with people coming into stores, looking for items, and then going home and buying them online from places like Amazon. If the customers are buying online then Best Buy should be more competitive online.The brick and mortar stores could be more like show rooms that advertise products for the online store. If Best Buy takes this route, they should then make their online prices more competitive and be sure to advertise those lower online prices in the stores. Implementation In the next 3 to 6 months, Best Buy can implement its strategy of increase profit by cutting low playing stores, increasing advertising, and increasing employee training. On the tactical level, Best Buy should cut the stores performing in the bottom 2%, which would be about 28 stores.This will lower the high fixed costs associated with maintaining large brick and mortar locations. Best Buy should then move the inventory from these locations to warehouses used for online purchases and buy more warehouses if necessary. Best Buy should also increase advertising for its new price matching policy in order to gain back some of the market it lost to competitors like Amazon. On the operational level, Best Buy should increase its training to employees so that sales associates gain valuable customer relationship management skills that provide value to customers.These tactical and operational moves will cause challenges that Best Buy must address. First, a large number of layoffs can reflect badly on Best Buy, possibly causing its stock prices to be lower. Best Buy could combat this by establish a goodwill campaign, expressing the savings that will be passed on to its customers. Secondly, increasing warehouse capacity could lead to high costs for Best Buy. The company should combat this by controlling its inventory holding costs and ensuring that online sales match its inventory.Finally, the cost of training employees will be a challenge to meet. Best Buy must make this training worth the expense by ensuring that the quality of customer service will result in revenues high enough to cover the costs. Customer surveys would be a good quality control for the sales staff. Customers should be given the option to act questions about their Best Buy experience via text messages, calls, or email, and sales associates should be given rewards points for good reviews.