Best Buy

Co., Inc.
ADMIN 404: STRATEGIC MANAGEMENT

Assignment 1

EXECUTIVE SUMMARY
Best Buy is the largest consumer electronics retailer in the US. It accounts for 19 percent of the
US market, and operates around 4,000 stores globally.
Best Buy distinguishes itself from competitors by initiating a strategic transition to a customercentric operating model which operates under a differentiation strategy rather than a low price
strategy. It includes a portfolio of retail stores under Geek Squad, Napster, Speakeasy, Magnolia
Audio Video, Pacific Sales, the Carphone Warehouse, and Future Shop.
Despite significant growth and success in grasping various segments of consumer, Best Buy still
faces many competitive forces from existing large brick and mortal rival companies like
Walmart. Along with the growth of Internet, the trend of consumers to research products online
and shop around for lowest price possible also makes e-commerce store like Amazon, EBay is a
threat to Best Buy. Some other challenges including the economic downturn and increased
competition have put negative pricing pressure on the company. In order to stay competitive in
the market, Best Buy needs to improve its differentiation strategy or even consider changes in its
business model.
Though pricing is one of the main factor that influence shoppers choice, Best Buy does not need
to compete directly on pricing structure due to the companys operating model, but instead
slower the expansion and focus only on profitable products.
This report will provide a brief history of the company, its business vision and objectives. Also,
the impact of external environment on the company will be analyzed using Porters Five Forces
Model and SWOT analysis. Finally, brief solutions for the company will be developed after
reviewing the companys strength and weaknesses.

404 - I would have liked to see more explanation of analyses used in the report as well as some
more detail on what you discovered.

Page 1

INTRODUCTION & COMPANY OVERVIEW

Best Buy started in 1966 as a retailer of audio components under the name Sound of Music. The
company was founded by Richard Schulz, and later changed its name to Best Buy Co, Inc. (Best
Buy) after its expansion to retail more variety of products.
As the company constantly seeks improvement in promoting their products to gain profits, it
began operating as a big-box store and using mass marketing techniques to attract consumers.
Over the years, Best Buy has expanded its reach among consumers both domestically and
internationally through a series of acquisitions of Magnolia Hi-Fi Inc., Future Shop, Geek Squad,
Pacific
Kitchen

DISTINCT BRANDS

PRODUCTS AND SERVICE OFFERED

Best Buy

Variety of Consumer electronics, home office

Bath
Inc.,

products, entertainment software, appliances and

Best Buy Mobile

related services
Stand Alone Stores offer a wide selection of mobile

Geek Squad

phones, accessories, and related eservices

Residential and commercial product repair, support

Magnolia Audio Video

and installation services both in store and on site

High end audio and video products and related

Napster
Pacific Sales

services
Online provider of digital music
High end home improvement products primarily

Sales
and
Centers

including appliances, consumer electronics and

Speakeasy

related services
Broadband, voice, data, and information
technology services to small business

Speakeasy, and Napster. These acquisitions not only are a value-added competitive advantage
against its strongest competition such as Circuit City, and Walmart, it also helped Best Buy to
gain more profits by targeting various segments of consumer.
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The company carries a variety of products and services. With the added product/services from its
acquisitions, Best Buys competitive advantage is further enhanced through its multiple channels
of distribution, such as being able to provide consumers with end to end services like installation,
technical support, and other related services.1

Despite leading the big box retail industry, the company experiences 2% revenue decline which
resulted from market competition and industry gradual price deflation.2

1 Best Buy Co., Inc. (2009). Form 10-K

2

Best Buy Co., Inc. (2009). Form 10-K

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The analysis and recommendations of this case study might contain several limitations given limited
statistical information, proof of verification such as real feedback of customer on Best Buys business,
and the lack of adequate evidence to support the solutions. The assumptions of the companys strengths,
weaknesses or internal/external analysis listed in the paper are solely explored by the report given, along
with the support of textbook theories; therefore, the statement are developed based on logics and reason,
without measurable verification. Lastly, textbook theories also influence the development and implement
of the analysis process.

404 well done above

MANDATE

Mission/Core Purpose
Best Buys mission is to be the leading provider that sustained growth, earnings, and makes
technology deliver on its promises to customers.

Vision/Major Goals
Best Buys vision is to change the compensation structure for sales associates and applied a
customer-centric operating model to provide end-to-end services. Its current business strategy
and objectives include offering consumers with the widest range of product and service at the
lowest price, increasing revenue by growing its customer base, gaining more market share by

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expanding into new international market. Best Buy distinguishes itself by implementing an
innovative and different strategy compared to competitors called customer-centricity model.

Values/Ethic3
To be more competitive, Best Buy recognises that the employees need to have more knowledge
advantage than competitors. The principle starts within the top management structure and every
employee is expected to have the companys vision embedded in their service and attitude. Best
Buy also took a step further to engage its customer base by initiating website allowing visitors to
start a dialogue on any ethic-related topics.
Moreover, Best Buys Code of Conduct provides employees specifically the responsibility
guideline to maintain integrity, reputation, honesty and equitableness in each other, customers,
shareholders, business partners, and communities.

Stakeholder Analysis
Stakeholders hold an important role and have significant impact on the companys performance
in making business decision, establishing policy and operation procedure. Best Buys primary
stakeholders include shareholders, consumers, employees and suppliers.

Customer: Customers are critical to the companys survival and success. The companys
survival is only guaranteed when there are purchases from consumers. The footprint or
sales statistics also provide feedbacks which enable Best Buy to improve its service and

product.
Suppliers: Best Buy depends heavily on its vendors to fill customer orders on time. The
company depends on the reasonable price, and quality of the supplied products, as well as
timely replenishment of the items. If an item in demand is not supplied, it will disrupt the
companys entire schedule and causes dissatisfaction within its consumers.

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Shareholders: They present the capital support for a company in order to sustained
growth and expansion. Shareholders also have an active role in voicing their opinion

about the businesss strategic direction.

Employees: A companys success depends largely on the skills and commitment of its
employees. They are the front-line support who work directly with the companys
products and interact with shoppers on the daily basis. Their good service and knowledge
plays an important role in bringing in purchases and benefit the business.

404 well done above

EXTERNAL ANALYSIS
By analyzing Peter Porters five competitive forces confronting Best Buy will help to determine
the competitive level within electronic industry and business strategy development

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Risk of Entry by Potential Competitors

The threat of new entrants is substantially low in the consumer electronics retail industry. The
main reason for it is due to the significant upfront capital investments required to enter the
market, as well as the fact that market saturation of electronic items continues to rises with major
competition.
In terms of brick and mortar competitors specifically, the barriers to entry can be considered
relatively high because of the massive labor, overheard and property costs of initial investment.
Therefore, the risk of entry by potential competitors would most likely come from the rise of
ecommerce companies like Amazon.com and Dell.

Intensity of Rivalry among Competitors

The intensity of rivalry is considered the most significant force of Porters five forces and ranked
high within the electronics retail industry. While Best Buy gained some market share due to
Circuit Citys demise in 2009, competition is extremely fierce among retailers within the industry
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like Walmart, RadioShack, and Amazon. Due to the low switching costs and equally balanced
competitors, rivalry between incumbents is intense. Consumers can easily decide to shop at any
retail since there is a lack of differentiation in products at almost all of the electronic stores.
These retailers also have implemented common competitive strategies such as trade-in programs,
frequent promotion activities, and price-matching policy. As the industry only presents steady
growth rate, rivals constantly compete by capturing market share from each other which leads to
increased competition in price and service. They are relatively balanced in strength, and know to
apply tactics for engaging consumers. Moreover, the capital required in maintaining big box
store and large inventory leads to high exit barriers for Best Buy. This fixed costs of exit results
in a much intense rivalry in the consumer electronics industry. Like Amazon, without the
expense of bricks and mortar branches, it is able to maintain a low price advantage compared to
Best Buy.

Bargaining power of buyers

In the past, individuals and small business did not have the ability to influence the price of
product within the industry due to their low purchasing volume. However, the expansion of lowcost provider like Walmart and the significant growth of online retailers Amazon in recent
years has tremendously helped increased the consumers power. With the lack of differentiation
sold by big box retailers, consumers are more inclined to go shopping for the lowest price
possible. Many people are taking advantage of the available information online using mobile
devices to compare one retailer against another. Furthermore, they also use these brick and
mortar stores as a showroom for their purchases with online retailers. As a result, nearly all
companies are offering price-match program to attract consumers who come for showrooming
purposes. The bargaining power of buyers in the industry now is relatively high.

Bargaining power of Suppliers

The bargaining power of suppliers in this market is moderate due to the fact that there are only a
number of major suppliers that the market demands from. As technology continues to evolve, it

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is substantial that retailers have to display the most up-to-date products. Since there are also
other electronics retailers, suppliers has the control over pricing of their products and can choose
to distribute their products in several different stores. Some example of suppliers are Apple,
Samsung, Dell, Sony, LG, Panasonic, Sharp, and many others, their pricing is influenced by the
establish relationship between them and retailers, as well as the purchase volume of the
wholesalers. Furthermore, depends on contract or the relationships, some retailer can obtain
exclusive items which can give them competitive advantage against their competitors. On the
other hand, while retailers need to obtain product from suppliers, suppliers also depend heavily
on their retailers to bring them revenue. For instance, in order to maximize sales, an item needs
to be displayed on shelf to attract consumers to see and check their features. What these retailers
bring to the table are massive showrooms, frequent promotional activities, as well as
knowledgeable staff to promote these suppliers technology. As a result, even though bargaining
power of suppliers in this industry is usually high, large-scale retailers like Best Buy has what it
takes to ease off their power.

Threat of Substitute Products

The threat of substitute products imposes low threat to the company. Over the past few years, we
have seen how technology has taken over the society. Its impact is undeniable and people are
highly dependent on electronics. Therefore, there are only a few substitute for electronics that
consumers are using such as books, newspaper, magazines, and digital music, movies. Amazon is
one of the largest and most powerful online book retailers; there are also Barnes & Nobles and
other independent booksellers. Netflix and iTunes are one of the biggest digital content
distributers.
404 well done above on the Porters Analysis

Macro Environment Analysis:

Opportunity

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The recent joint venture between Best Buy and the Carphone Warehouse is a stepping stone for
the company to expand into Europe market. The consumer electronic market in Europe imposes
a huge potential for growth, and the management level will have to be careful in expanding
across Europe due to the increased debt of the company from this acquisition.
As Best Buys largest competitor Circuit city and other competitors have also filed bankruptcy, it
poses a significant opportunity for Best Buy to grab the lost market share. Many experts have
determined one of the major reason for the companys downfall is the cut of workforce which
was the most senior and well-trained staff. On the other hand, Best Buy is widely recognized for
its superior training for employees, as well as its reputation for retaining top talent. It is expected
that Best Buy will take advantage of this unique resource and will be striving to gain those
market shares.

Threats
Here are the challenges that Best Buy is currently facing:
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The opening of manufacture store of Apple has taken away a large portion of market
share from Best Buy. Not only does it suck profits, but setting price standard for the
market as well. As a retailer, Best Buy cannot raise the price of their Apple products since
the Apple store sell the item at a specific price. Furthermore, many consumers prefer to
shop at specialized store, where it offers knowledgeable technical support staff and perks

like free setup service.

The emergence of digital content, streaming services like Netflix, iTunes continues to
replace CDs and DVDs and is a big threat to Best Buy. These services offers instant
convenience for consumers to watch contents day, night, anytime they want only with a
small amount of monthly fee. It is portable, and you can watch it on your TVs, tables,
phones, and laptops. Comparing to these services, DVDs are costly and lacks the
portability that consumers are gearing toward as most laptop nowadays are ultraportable
and does not included DVD hard drive. Best Buy needs to increase the amount of revenue

it derives from every inch of the store by dropping these unprofitable products.
Showrooming is a serious issue for retailers. Consumers nowadays have been tempted to
check out a new product in brick and mortar store, and then search the Internet for a
better deal. There are numbers of consumer electronics retailers that stock similar
products as Best Buy. Their low overhead and labor costs are an advantage to keep their
price as low as possible to attract customer. This creates a problem for Best Buy as
footprint is still recorded high, yet, the company experiences lower revenue.

Even though Best Buy has the opportunity to grasp the lost market share of Circuits City, the
company are presented with competition from its rival companies and the economic downturn. It
is best in Best Buys interest to carefully analyze these threats to either improve existing
operating model or execute new strategy in order to remain competitive in the industry.

404 well done above

5

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INTERNAL ANALYSIS 6

Strengths
Best Buy is still growing steadily and recorded an increased in profits over the years. During
fiscal year 2005-2008, the companys sales grew from 27$ billion to $40 billion at a CAGR of
9.90%. In the same period, net income rose from $980 million to $1.4 billion at a CAGR of
9.35%. This increase in profit has allowed Best Buy to acquire 50% of the Carphone Warehouse
and officially launched the Best Buy Europe venture. The company implements some successful
strategy in international acquisition and their portfolios of products complement each other.
Through its operations of approximately 4,000 stores all over the world, Best Buy has built a
reputable brand name and significant global presence by offering a wide selection of products
6 Best Buy Co., Inc. (2009). Form 10-K
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and end-to-end services. Despite challenges, Best Buy still remains the top choice among
electronics shoppers when it comes to purchases. Its customer share is much bigger comparing to
Amazon as the online retailer did not start gaining attention until the year of Circuit Citys
demise. Best Buy is a one stop shop for shoppers who is in need of any product category, it also
offers loyalty program like price-matching, recycle program and in-store technical service (Geek
Squad) during store hours.

Weakness:
Best Buys model of a big box store imposes extremely high overhead fixed cost. With the
gradual fall of soft goods like CD, DVDs, video games, and even cameras, camcorders, the
company does not earn much profit by keeping inventory of these items. Best Buy is creating its
own challenge; by offering price match program, it automatically puts negative pressure on the
companys financial performance. However, as much as the company needs to be competitive on
price, it is a risk for Best Buy to price match online retailers like Amazon since they dont have
high expense for physical locations. Best Buy has to invest in people. Despite claiming to have
ethical and knowledgeable work force, there have been allegations over Best Buy employee for
misrepresenting manufacturers warranty to sell its own product as well as denying price-match
request from shoppers. Another weakness for Best Buy is that it mainly depends on a handful of
vendors. The choices are still very limited and there is a risk of failing to meet customers demand
if one supplier fails to supply the required products. Also, the lack of differentiation from these
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same suppliers cause increased in competition and price in the market. Not being the leader in
stocking exclusive items or new brand is the culprit that deters potential customers to other
similar retailers. Moreover, Best Buy seems to focus on the expansion of the retail store, yet,
neglect the importance of online website, which is the most effective marketing tool that can
attract more customers who prefer instant convenience.
Best Buy is currently facing many challenges due to increased debts from its continuous
acquisitions and expansion. It was primarily due to the acquisition of Best Buy Europe. While it
is vital for a company to expand its presence domestically and internationally, it is evident for
Best Buy to stop expanding in the near future in order to focus on wining back the current
customer base. With the economic downturn and rival companies, it is best in Best Buys interest
to shrink overhead costs by eliminating less profitable soft goods (CD, DVDs), adopt new
technology like digital content and movies, and focus on improving its differentiation strategy to
compete with low-price retailer like Wal-Mart, and Amazon.

404 be sure to conclude with a strong finishing statement in your work here.

Presentation
DIMENSION
Technique/
Mechanics

COMMENTS

POINTS
5

Clarity

Support

Appearance

Executive Summary
DIMENSION

18
COMMENTS

POINTS

Content

Succinctness

Independence
Impact/
Authority

5
See Notes on paper

Introduction
DIMENSION
Description/
History
Rationale/
Context

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17
COMMENTS

POINTS
5
5

Limitations/
Foreshadowing

Organization

Mandate
DIMENSION

20
POINTS

COMMENTS

Description

Analysis
Use of
Concepts
Conclusions

5
5
5

External Analysis
DIMENSION

20
POINTS

COMMENTS

Description

Analysis
Use of
Concepts
Conclusions

4
5
4

Internal Analysis
DIMENSION

18
POINTS

COMMENTS

Description

Analysis
Use of
Concepts
Conclusions

5
5
4

Strategic Options
DIMENSION

19
POINTS

COMMENTS

Description

Analysis
Use of
Concepts
Conclusions

0
0
0

Recommendations & Implementation

DIMENSION

0
POINTS

COMMENTS

Description

Analysis
Use of
Concepts
Conclusions

0
0
0

Grade Calculation
SECTION
Presentation
Executive Summary
Introduction
Mandate
External Analysis
Internal Analysis
Strategic Options
Recommendations

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POINTS / 10

WEIGHT

MARK

9.00
8.50
10.00
10.00
9.00
9.50
-

10%
5%
5%
20%
30%
30%
0%
0%

9%
4%
5%
20%
27%
29%
0%
0%

Overall Mark

REFERENCE

1.
2.
3.
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5.
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Best Buy Co., Inc. (2009). Form 10-K

Best Buy Co., Inc. (2009). Form 10-K
https://secure.ethicspoint.com/domain/media/en/gui/32565/code.pdf
http://www.wikinvest.com/stock/Best_Buy_(BBY)
http://www.retrevo.com/content/bestbuy-competitors-gained-ground
Best Buy Co., Inc. (2009). Form 10-K

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