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BEST BUY 2010
COOK’S CONSULTANTS Specializing in Consumer Electronics Industry
Bert Van Den Hooff Lisa Fischer
Shahar Abrams Megan Brolley Furkan Cizmeci
OVERVIEW
1. Strategic Issues A. Corporate Strategy B. Industry Analysis C. Competitive Strategy D. SWOT Analysis E. Strategic Challenges
2. Strategic Alternatives + Evaluation A. Possible Alternatives B. Evaluation of Alternatives C. Selected Alternatives !
3. Action Plan !
4. Questions
IN REVIEW: THE YEAR 2009
CORPORATE STRATEGY
CUSTOMERS
CORPORATE STRATEGY
Individual Consumers
Age 16-35 Age 35-60
“Technology Novices”
Small Businesses
CORPORATE STRATEGY
BUSINESS + BUSINESS FIT
Electronic Repairs
DiscretionaryConsumer Electronics
AppliancesEntertainment Platforms
CORPORATE STRATEGY
SUBSIDIARIES
MAGNOLIA AUDIO VIDEO
GEEK SQUAD
FUTURE SHOP
PACIFIC SALES
CORPORATE STRATEGY
CORPORATE GOALS
“Make technology deliver on its promises to customers”
Sustained growth and
earnings
Leader in service
1 2 3
CORPORATE STRATEGY
CORPORATE STRATEGY
CONCENTRIC DIVERSIFICATION
• Common Customer • Common Technology • Common Channels • Customer Centricity Strategy
INDUSTRY ANALYSIS
INDUSTRY GROUP MAP
INDUSTRY ANALYSIS
HIGH
PRICE
PRODUCT LINE BREADTH MANY
GameStop Dell
Best Buy Circuit City
RadioShack
LOWFEW
Amazon WalMart
BARRIERS TO ENTRY
INDUSTRY ANALYSIS
Economies of Scale
Differentiation
Total Capital Requirements
Switching Costs: Individual
Switching Costs: Business
Advertising
High High High Low High High
BARRIERS TO ENTRY
INDUSTRY ANALYSIS
Economies of Scale
Differentiation
Total Capital Requirements
Switching Costs: Individual
Switching Costs: Business
Advertising
High High High Low High High
HIGH BARRIERS TO ENTRY
BARRIERS TO EXIT
INDUSTRY ANALYSIS
Specialized Assets
Fixed Costs
Management Commitment
Contractual Commitment
High High Low High
BARRIERS TO EXIT
INDUSTRY ANALYSIS
Specialized Assets
Fixed Costs
Management Commitment
Contractual Commitment
High High Low High
HIGH BARRIERS TO EXIT
RIVALRY
INDUSTRY ANALYSIS
Concentration
Growth Rate
Fixed Costs
Differentiation
Switching Costs
Exit Barriers
High Steady High High Low High
Low Rivalry
Low Rivalry
High Rivalry
Low Rivalry
High Rivalry
High Rivalry
RIVALRY
INDUSTRY ANALYSIS
Concentration
Growth Rate
Fixed Costs
Differentiation
Switching Costs
Exit Barriers
High Steady High High Low High
Low Rivalry
Low Rivalry
High Rivalry
Low Rivalry
High Rivalry
High Rivalry
MODERATE-LOW RIVALRY
SUBSTITUTES
INDUSTRY ANALYSIS
Amazon eBay
WalMart Target Costco
iTunes Netflix
ElectronicE-commerce
Retailers
Big Box GeneralMerchandise
Retailers
Digital Content Distributers
COMPLEMENTORS
INDUSTRY ANALYSIS
• Computer Software (Computers) • Video Games (Video Game System/TV)
Complementors Within Itself
Technology
Payment Processing Industry
ShippingAcquisition of Geek Squad
INTERNAL EXTERNAL
INDUSTRY GLOBALIZATION
INDUSTRY ANALYSIS
HIGH
Forces ForGlobal
Coordination/Integration
MANYLOW
FEW
MULTINATIONAL
Forces ForResponsiveness/
Differentiation
TRANSNATIONALGLOBAL
INDUSTRY GLOBALIZATION
INDUSTRY ANALYSIS
NATIONAL GLOBAL
Economies of Scale Customer Needs
Competition Channels
Transportation Costs Product Standards
(country vs. industry)
BUYER + SUPPLIER POWER
INDUSTRY ANALYSIS
Relative Industry Concentration
Switching Costs
Availability of Substitutes
BUYER SUPPLIERelectronics consumers
BUSINESS LEVEL
STRATEGY
BUSINESS LEVEL STRATEGY
STRATEGIC RESOURCES + CAPABILITIES
Main store + acquisitions Employees
Customer data Info
Brand equity Reputation
Geek Squad Employee knowledge Multiple brand names
INTANGIBLETANGIBLE
Customer Centricity strategy
Brand name + reputation
Acquisitions
SUSTAINABILITY
BUSINESS LEVEL STRATEGY
COMPETITIVE ADVANTAGE
• no commission • investment in employee training • employees are product experts/consumer educators • acquisitions that match customer lifestyle groups • industry-wide strategic target • product variety • high economies of scale
BUSINESS LEVEL STRATEGY
CUSTOMER SERVICE ORIENTED
COMPETITIVE DISADVANTAGE
BUSINESS LEVEL STRATEGY
COMPETITIVE DISADVANTAGE
Not as many store locations
BUSINESS LEVEL STRATEGY
COMPETITIVE DISADVANTAGE
Not as many store locations
No low cost structure
BUSINESS LEVEL STRATEGY
COMPETITIVE DISADVANTAGE
Not as many store locations
No low cost structure
Not as specialized
BUSINESS LEVEL STRATEGY
COMPETITIVE DISADVANTAGE
Not as many store locations
No low cost structure
Not as specialized
A lot of branches
Best Buy ACQUISITIONS
BUSINESS LEVEL STRATEGY
GENERIC BUSINESS STRATEGY
UniquenessBroad Target Market
BUSINESS LEVEL STRATEGY
GENERIC BUSINESS STRATEGY
UniquenessBroad Target Market DIFFERENTIATION
BUSINESS LEVEL STRATEGY
WSO T
Internal
External
WSO T
S
• Differentiation strategy • Expansive reach (& financial performance) through acquisitions • Customer information database • Extensive level of service • Large global presence • Increase in net income • Steady increase in sales
SWOT ANALYSIS
Internal
SSWOT ANALYSIS
Internal
WSWOT ANALYSIS
• Shorter product life cycles increase training costs • Decline in operating margins • Fewer stores relative to competitors (ie. WalMart + GameStop) • A LOT of money needs to go into research • Relatively new CEO, Brian Dunn (2009) • Large debt and reduced available cash
Internal
WSWOT ANALYSIS
Internal
OSWOT ANALYSIS
• Provide more value-added services in store
• Increase global presence as domestic market matures
• Move into digital streaming space by acquisitions or expansions
• Increasing complexity and functionality of new technology
• Products plays into competitive advantage.
External
External
TSWOT ANALYSIS
• Information available to consumers = direct threat to Best Buy’s strategic model and core competency
• Downward price pressure on technology products = less consumer purchase decision time
• Shorter tech product life cycles increases employee training costs • Regulation changes about deferred interest financing could have a
large negative effect on revenues. • Price Matching Controversy
GLOBAL MARKET STRATEGY
KEY STRATEGIC CHALLENGE
“How can Best Buy continue to have innovative products, top-notch employees, and superior customer serv ice wh i le fac ing increased competition, operational costs, and financial stress?”
ALTERNATIVES !
EVALUATIONS+
STRATEGIC ALTERNATIVES + EVALUATIONS
DIGITAL ACQUISITIONS
MARKETING INITIATIVE
ALTERNATIVES
ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE
GLOBAL EXPANSION
1 2
3 4
STRATEGIC ALTERNATIVES + EVALUATIONS
CONSISTENT WITH STRATEGY + CORE COMPETENCIES
GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
VIABILITY MATRIX OF ALTERNATIVES
POINT VALUE SCALE 1-4
X—
100%50%
0%
POINT %433221
STRATEGIC ALTERNATIVES + EVALUATIONS
ALTERNATIVE 1
DIGITAL ACQUISITIONS
STRATEGIC ALTERNATIVES + EVALUATIONS
ALTERNATIVE 1
• Anticipates growth in online
streaming/gaming market • Differentiates product portfolio
from competitors
CONSPROS• Requires large capital investment • Could cannibalize brick and mortar
compact-disc sales
DIGITAL ACQUISITIONS
STRATEGIC ALTERNATIVES + EVALUATIONS
CONSISTENT WITH STRATEGY + CORE COMPETENCIES
GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
TOTAL 9.5
EVALUATION OF ALTERNATIVES
DIGITAL ACQUISITIONS 1
—
X—
—
STRATEGIC ALTERNATIVES + EVALUATIONS
ALTERNATIVE 2
!
• Customer Oriented Online Shopping Assistance • Live online sales representatives • Online tutorials • Business cards with usernames
ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE
STRATEGIC ALTERNATIVES + EVALUATIONS
ALTERNATIVE 2
• Enhance customer experience • Maintain online competitive advantage • Lowers HR costs
• Challenges with not face-to-face
teaching • Customer is not able to ‘sample’
product
CONSPROS
ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE
STRATEGIC ALTERNATIVES + EVALUATIONS
CONSISTENT WITH STRATEGY + CORE COMPETENCIES
GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
TOTAL 12
EVALUATION OF ALTERNATIVES
ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE2
X
——
STRATEGIC ALTERNATIVES + EVALUATIONS
ALTERNATIVE 3
GLOBAL EXPANSION
STRATEGIC ALTERNATIVES + EVALUATIONS
ALTERNATIVE 3
CONSPROS
GLOBAL EXPANSION
• Large untapped demand • High potential growth • Consistent with strategy and core
competency • Established presence and knowledge
base
• Expensive and risky
• Cultural barriers
• Competition from large global
competitors
STRATEGIC ALTERNATIVES + EVALUATIONS
CONSISTENT WITH STRATEGY + CORE COMPETENCIES
GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
TOTAL 10
EVALUATION OF ALTERNATIVES
GLOBAL EXPANSIONS 3
—
——X
STRATEGIC ALTERNATIVES + EVALUATIONS
ALTERNATIVE 4
MARKETING INITIATIVE
STRATEGIC ALTERNATIVES + EVALUATIONS
ALTERNATIVE 4
• Allows for re-energization of Best Buy brands
• Gives rationale for higher prices • Fulfilling corporate goals
CONSPROS
• Expensive • People already familiar with Best
Buy
MARKETING INITIATIVE
STRATEGIC ALTERNATIVES + EVALUATIONS
EVALUATION OF ALTERNATIVES
MARKETING INITIATIVE 4
CONSISTENT WITH STRATEGY + CORE COMPETENCIES
GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
TOTAL 9
——X—
CONSISTENT WITHSTRATEGY + CORE COMPETENCIES
GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
TOTAL 9.5 12 10 9
EVALUATION OF ALTERNATIVES
1 2 3 4
—
X—
— X
——
—
——X
——X—
CONSISTENT WITHSTRATEGY + CORE COMPETENCIES
GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
TOTAL 9.5 12 10 9
EVALUATION OF ALTERNATIVES
1 2 3 4
—
X—
— X
——
—
——X
——X—
STRATEGIC ALTERNATIVES + EVALUATIONS
SELECTED ALTERNATIVE
STRATEGIC ALTERNATIVES + EVALUATIONS
SELECTED ALTERNATIVE
ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE
STRATEGIC ALTERNATIVES + EVALUATIONS
SELECTED ALTERNATIVE
Year E-commerce Revenue
% change Total Commerce
2006 2,972 13.9% 6.8%
2007 3,333 12.15% 5.0%
2008 3,704 11.13% 5.0%
2009 3,371 8.99% 10.9%
WHY SHIFT TO E-COMMERCE?
ACTION PLAN
ACTION PLAN
WHO IS RESPONSIBLE?
• Information Technology
ACTION PLAN
• VP of Human Resources
• VP of Operations • eCommerce
SENIOR EXECUTIVES DEPARTMENTS
TIMELINE
TIMELINE
3 MONTHS
• Which stores to close
• Outsource? • Operational +
HR logistics
1 RESEARCH
TIMELINE
5 MONTHS
2• Development • Training • Create marketing
campaign
PREPARATION
3 MONTHS
• Which stores to close
• Outsource? • Operational +
HR logistics
1 RESEARCH
TIMELINE
5 MONTHS
2• Development • Training • Create marketing
campaign
PREPARATION
3 MONTHS
• Which stores to close
• Outsource? • Operational +
HR logistics
1 RESEARCH
3• Employee familiarity
with system • Check for platform
glitches/problems
BETA TESTING
4 MONTHS
TIMELINE
5 MONTHS
2• Development • Training • Create marketing
campaign
PREPARATION
3 MONTHS
• Which stores to close
• Outsource? • Operational +
HR logistics
1 RESEARCH
4 LAUNCH!
1 YEARfrom start date
3• Employee familiarity
with system • Check for platform
glitches/problems
BETA TESTING
4 MONTHS
MAJOR IMPEDIMENTS
• Potential loss of excellent customer service (not same as in person face-to-face) !
• Limited ‘barrier to entry’
• Potential competition with Amazon and other online/digital companies
ACTION PLAN
CONTINGENCY PLANS
• Patents • If all fails, dissolve BestBuy U and redistribute
employees to brick and mortar stores
ACTION PLAN
CONCLUSION
ACTION PLAN
“How can Best Buy continue to have innovative products, top-notch employees, and superior customer service while facing
increased competition, operational costs, and financial stress?”
Solidify customer service value proposition
Continue to differentiate from competitors and potential new entrants
Accomplish this through innovative online platform (BestBuy U)
1 2 3
THANK YOU