A New Focus:Best Buy
By: Christiana Nartey, Ian Cary, Kaixuan Wang, and Nan Ni
Key Problems
●Lack of clear positioning strategy
●Slow to move from brick & mortar to online in the early 2000s
Rapid growth through acquisitions
●Inability to compete with competitors prices in many product offerings
External Analysis of Key Issues
Economic Factors
●Interest rates have been low since the 2008 recession.
●Growth rate of 1.5% from 2010 to 2014
●Millennials have difficulty obtaining credit
●Ever falling prices in the industry creates pressure to differentiate products
Best Buy’s Competitive rivalry
Wal-Mart, Target, and Amazon:
Have more product categories.
Sell at cheaper prices.
Have their own brand products.
● Apple:○ Have private brand in different categories.○ High-end product line.○ Have own exclusive shops.○ Supplies products to other retailers.
A Turning Point for Best Buy
- In the early of 1990s, the technology of internet came into the market.
- In 1995, Amazon.com was founded.
- In 1998, Amazon entered the consumer electronics industry by selling music CD online.
- In 2000, Best Buy built its own website.
Best Buy’s late movement changed their relationship with its suppliers and buyers.
Supplier Power
- Also competitors.- Have own shops, physical or virtual.
Barriers against New Entrants
- Customer recognition
- Economies of Scale
SWOT and the Industry as a Whole
- Strong brand recognition- Sufficient physical stores- Customer service: Geek Squad
- High dependence on suppliers- Declining comps
- Growing online sale- New consumer electronic products
- Difficulty to cut costs - Other retailers offering cheap prices
Critical Point: Cost Leadership or Differentiation?
Differentiation strategy:
- Customer behavior has changed.
- Best Buy’s service is not as valuable as before.
Cost leadership strategy:
- High retail price is unrealistic.
- Reducing costs is hard.
Solution
A Focus on Smart Home Technology
Gradual entry to the smart home technology market through partnership and investment
By combining entrepreneurial & ricardian actions:
Using existing core competencies in retail & IT; geek squad
Existing market share can be tapped for new target market
Brand awareness & existing infrastructure both physical warehouse locations & online
Expand into govcon to maximize profits as technology improves
Why narrow their focus?
The technology is at the introductory stages
Strong incumbents but low competition
Needs more R&D
Successful companies who switched industries:
Berkshire Hathaway from textile to diversified holdings
3M from mining to Post-It-Notes
Raytheon from refrigeration technology to defense contracting.
Profitability of the Smart Home Industry
● Smart home market will reach $71B in revenue by 2018 - Juniper research
● Peter Thiel & Mitt Romney invested $100M in Vivint- industry incumbent.
● Investments now will provide Best Buy with big benefits later.
Cost-Benefit Analysis
Cost
Allocate $1B to investment into chosen start ups
Allocate $500M in marketing and rebranding
Market testing 3-6 months
Execution of new strategy approximately a year
Benefit
Rebrand Best Buy
Maximize profit
An established foothold in the up and coming smart home market
Best Buy currently has $3.9B in cash and cash equivalents.
ConclusionA once rock solid business plan can fall
apart in today’s day and age.
Best Buy has reached a place where they need a home run type of shakeup, or else their future will be in jeopardy.
Keep up with the competition, don’t be late to the game, and take more risks.
Citations● http://www.forbes.com/sites/michaelwolf/2013/12/31/5-smart-home-companies-to-wat
ch-in-2014/#3a78ace21ebe
● https://www.statista.com/outlook/279/109/smart-home/united-states#
● https://www.cbinsights.com/blog/smart-home-market-map-company-list/
● http://www.businessinsider.com/vivint-smart-home-from-peter-thiel-solamere-2016-4● Brentani & Kleinschmidt, 1999● http://marketrealist.com/2015/01/best-buy-largest-consumer-electronics-retailer/● http://mediamatters.org/research/2013/07/24/right-wing-medias-history-of-attacking-the-mini/1950
26● http://www.bestbuy.com/● http://investors.bestbuy.com/investor-relations/financial-info/annual-reports-and-proxy-statements/
default.aspx● https://nrf.com/2016/global250-table