Best Buy Co. Inc Essay Example

increase in price profits. In March 1998 the company decided to adapt the e-commerce way of doing business, and launched a music store on bestbuy. com. Later that year the company introduced a concept IV format for its stores. This format included a more spacious layout, more variety of high-tech products, and products were organized in different departments in different sections of the store. It also decided to add cash registers to different parts of the store rather than only in the front.

When asked about the new concept CEO Richard Schluze stated, "The new format reinforces our brand position as the destination for new technology in a fun, informative and no-pressure shopping environment. " The transformation turned out to work in favor for Best Buy. Revenues jumped 21 percent allowing the company to hit the $10 billion mark. Currently, Best Buy is still one of the top electronic consumer outlets with yearly revenue totaling over $16. 5 billion. Best Buy’s Business Model Best Buy makes most of its revenue domestically through entertainment software and televisions.

In the 2010 Fiscal year Best Buy earned 8. 5 billion dollars in revenue, 6. 5 of which came from domestic sales. Best Buy Co. also has family brands which help to generate revenue. These include brands such as Best Buy, Audiovisions, Best Buy Mobile, The Carphone Warehouse, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, Napster, Pacific Sales, and The Phone House. Collectively, Best Buy and these partnerships generate more than $50 billion in annual revenue. Competitive Environments Best Buy Co Inc. is in the services sector, operating in the electronics stores industry.

Best Buy lacks immediate comparable competitors; however, it

still faces a wide array of indirect competitors from:

• Unspecialized discount retailers such as Wal-Mart, Target and Costco;
• Online retailers such as Dell, Amazon. com, and eBay;
• Entertainment software stores such as GameStop; and
• Office supply stores such as Staples, OfficeMax, and Office Depot;
• among others.

Internal rivalry is the most significant force of Porter’s Five Forces and it is very high in the consumer electronics retail industry.

According to Yahoo Finance, there are approximately 7 major companies that are traded publically and sell predominately electronic products. With a market capitalization of over $10 billion, Best Buy is the dominant player in this industry. Competition in this industry is high primarily because there is little to no switching costs if a buyer chooses to shop somewhere else.

Likewise, products are not set apart: buyers can get comparable products at almost all of the different electronic stores. As a result, companies like Best Buy have to compete on prices and non-tangibles, such as customer service and friendliness.

The threat of potential new entrants into the consumer electronics retail industry is relatively low. Best Buy has forged a reputation for selling mid- to high-end product and excellent customer service. It would be difficult for an entrant to challenge the company. Furthermore, it would be difficult to undercut incumbent firms who have already established relationships with suppliers to purchase merchandize at the lowest prices. The substitute products, that may take a portion of the market share away from the consumer electronics retail industry, do not create a huge or direct hazard.

Today’s society and culture place a big emphasis on technology and it is highly reliant on electronics. The bargaining power of buyers

for electronic products is extremely low because the buyers primarily consist of a weak and divided group of individuals, and technology has became a vital need for most people. The suppliers for companies in the market have relatively high bargaining power mainly due to the fact that there are only a few numbers of suppliers that the market demands from. Among the pool of suppliers include major manufacturers such as Sony, Samsung, LG, Panasonic and Toshiba.

These suppliers provide the latest state-of-the-art technology and companies like Best Buy must purchase from them in order to keep its inventory current and satisfy its customers.

Strategy

Internal Processes

One of Best Buy's main competitive strategies has been to emphasize on customer service, something that the company has done better than any national electronics retailer in the past. That translates into selling product warranties, help with installing a home theater, configuring a computer, etc.

Best Buy has taken a customer-centric strategy approach, which has helped the company survive in the fierce consumer-electronics marketplace and succeed against its competitors. The company believes in the loyalty of its customers. The company takes the time to understand who its customers are and what they need, and has started selling solutions instead of products. The company did some research and discovered that many of its customers were women and that many of them disliked strongly their shopping experience at the stores.

While men looked for a specific product at a discount price, women wanted not just a digital camera, but also a printer, cable, and other accessories. Best Buy discovered women care far more about these things than price. Equally important, they want help with installation, while most

men prefer to try to put things together by themselves. Accordingly, after doing this type of research and some more, Best Buy adopted mostly common-sense solutions. Related products were bundled together. For instance, in many stores, kids now have special play areas while their moms look around.

To help with installation and other services, the company acquired Geek Squad, the blue-shirted tech support staff; something that sets Best Buy Inc. apart from its rivals. Supply Chain Best Buy is one of the companies that use radio-frequency identification (RFID) as part of its supply chain. For more than 4 years Best Buy has been using this kind of technology in the pallet, case, and product level. At the beginning of the implementation of RFID tagging systems, the company increased its revenue 18. 7 %, and there was a 14. 1 % increase in the number of units that were tested and sold with the tags.

Since then, the company has been improving its supply chain to reduce costs and increase effectiveness. Best Buy has 20 large suppliers that provide 65% of the merchandise that is sold in the stores. The other percentage is based on other suppliers and the exclusive merchandising that Best Buy offers which are produced in Southeastern Asia. Best Buy has 24 distributions centers located among 17 states in the United States territory. There are a total of 1038 stores and 177 Mobile stores in the United States. In the international market Best Buy has over 2855 locations.

They are regular stores, mobile stores, and five star stores. This company relies on its informational system to share the information across the supply chain. With the help

of the RFID system, the company has an effective way of restocking the sales floor. It is crucial for Best Buy that this system works because its model is 90/10, which means that 90 % of its sales are from 10% of its products. For this reason the company needs to have a fast process of restocking and delivering in order to make sure that its cash flow will be consistent.

Future at Best Buy As a multinational retailer leader, Best Buy has an increasing number of competitors outside of the United States. With stores in China, Mexico, Canada, and Europe, Best Buy has felt the impact of the down shift of the economy around the world. There are multiple strategic moves that the company is working on that will benefit its revenue in the long run. Some of those moves are focusing on online sales, cellphone sales/services expansion, close or renewal of stores, and the improvement of its of supply chain.

This company has decided to focus on improving the online sales since customers are using more often the company website to search and purchase products. According to Shari Ballad, executive vice president of Best Buy, 60% of the sales that occur at the store are searched in the website first, and 40% of online purchases are picked up at stores. The new generation has a completely different way of buying products because they use internet more often. This is an opportunity to cut back on the physical expenses at stores locations, and a good reason to stop the expansion of new stores in the country.

We can see how the company is taking advantages of this

situation based on the extended day of Internet sales for cyber-Monday that made the company the winner of this online sale event. There is saturation in the retail market of the United States, and Best Buy wants to look for more markets outside of the country. The company is thinking of opening just six to eight stores during the 2012 fiscal year in the United States. It plans to open more stores in Canada, United Kingdom, and Mexico.

The company is going to focus on new stores and upgrading the old stores in China due to the increasing Chinese retail market. The company is taking the right path with these strategic movements. Best Buy needs to take advantage of the loyalty of its customer, and focus on online business because they are going to reduce cost, and at the end, it is what customers want. Exploring the cellphone market is another great move since there are just few other companies that do this, and this is a perfect example of the blue ocean strategy that we discussed in class.

Best Buy is adding new products to its stores to increase the options for potential customers, and some of those are cell phones and smart phones. The competitive environment is going to get more aggressive since there are going to be more companies trying to do what Best Buy plans to do. The major challenge that the company faces is to keep increasing the gap between its operational effectiveness and the ones from its competitors. Best Buy needs to keep innovating so that the company can surpass the competition that continues to grow. Best Buy needs to use

the holiday season as an opportunity to increase its customer base.

It needs to do some kind of discounts or special benefits for Best Buy customers in order to have great results, such as the ones that the company had the past black Friday and cyber Monday. This will help the company bring more customers to check its products, which at the end will result in an increase in sales. Another opportunity that will likely emerge is the introduction of more products created by the company. These products will bring more profit to the company since they will have reduced cost compared to other named brands products.

Best Buy should take more advantage of its store and website as a platform for its own products. It is very common to see this in other retail stores like HEB, Wal-Mart, etc.

Recommendations

We are part of the current loyal customer base of Best Buy. We have a very strong opinion about this company, and we feel it is a great company that serves its customers in the best way possible. If we had some extra funds we would buy some of the company’s stock because we trust in its goals and the services that are given to its customers.

Best Buy is one of the first options that we think when we need to buy any kind of new technology, and we sure we are not the only one who feel that way. Also, based on the graph 1, the stock market is increasing after the good results of the past black Friday and cyber Monday. This holiday season is going to bring good revenue to the company so we believe

it will be the best time to invest in this company.

Best Buy Stock Performance (Reproduced from Yahoo Finance) A recommendation that we think the company should explore is the smart phones apps.

The company should launch an application that will speed the process of searching and purchasing products. There are some applications but they are not related to the purchasing process at the store. We feel the company should do an implementation of the quick response code on the sales floor products. This will help customers compare products by seeing them in person and at the same time in their phones. Our generation uses internet and the same technology to shop. Best Buy should take advantage of this trend and insert this kind of elements to help or improve the purchasing process.

We are aware that a person can do this on the website, but it will be helpful for the customer to do it right before he or she does a purchase in the store. Even thought the online sales are increasing, Best Buy needs to keep having a great customer service in its locations. The company should not expand if it is not strictly necessary because it will face straddling problems. There is a great deal of competition, and the saturation of the retailing market is getting to its maximum. So the company should invest and improve its supply chain frame to increase the effectiveness of its online sales.

The implementation of a membership for loyal customers can be a possible strategic move to increase the customer base. People can be more interested in buying at Best Buy if they can count in some special deal

that the company can offer to them. An example of this strategy is the one at Sam’s Club. Also, the company can use the data generated by this membership to make the correct decisions about when should be the right time to do any kind of promotion. Not only can the company focus on promotions, but it can look also into the products that are more popular, and use them in a better layout design in the store to increase sales.

It is clear that if Best Buy invests in its online system, smart phones apps, QR code implementation, and the use of data collected by a membership program, the company should be able to improve the effectiveness of its supply chain. The strategy should focus on operational effectiveness. Improving the company’s current supply chain to be more effective should be one intelligent move for the company. In the long term, the company should think about doing deals with big universities. We feel that that there is a market that companies have not explored with students.

If the company decides to bring specific discounts for students at a specific university, students will be more interested on purchasing their products. Best Buy should think about bringing some kind of mobile store, such as a truck with products, because it will be more convenient for the students. In addition to this idea, we think Best Buy should try to explore markets in South America or other parts of the world. Best Buy already has stores in Mexico, but they have not explored any profitable market in some countries of South America or other parts of the world.