best buy (1)

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