Assess Best Buy Global Strategy Marketing Essay

Best Buy is an international retailer of consumer electronics, mobile phones products, electronic appliances, computing and other electronic related services. It was founded in 1966, though the name Best Buy was established in 1983.

Best Buy’s corporate vision places their customers first, then technology and believes in having a happy attitude towards life. The vision is: “People. Technology and the pursuit of happiness.” There four core values are:

*Have fun while being the best.

* Learn from challenge and change.

*Show respect, humility and integrity.

* Unleash the power of our people.

After witnessing huge success in the US market, Best Buy expanded its business to the international market and today it operates retail stores and call centers and perform online retail operations under a range of brand names such as Best Buy, Best Buy Mobile, The Carphone Warehouse, Five Star, Geek Squad, Magnolia, Audio Video, Future Shop, Pacific Sales and The Phone House. Some of The Phone House stores are located in countries such as: France, Germany, Portugal, Spain and Sweden among others. The Carphone stores are located in Ireland and United Kingdom.

Today, Best Buy offers a broad selection of brand names such as: Apple, Samsung, LG, HP and many others in different electronic products categories like entertainment, big and small appliances, mobile phones, cameras and televisions among many other categories.

This report aims to discuss Best Buy performance from 2008, based on the case study assigned for this subject as well as assessing Best Buy recent performance.

Analyze data in tables 1 of US spending on consumer electronics and table 2 of the leading US retailers of 2007. What conclusions do you reach?

Table 1:

Sluggish growth in Consumer spending: Consumer spending fluctuates wildly based on innovation in the category and the stability of the economy. Due to the recent recession, spending declined considerably in 2007 and has been slow to pick up since. Spending increased in 2010 to fall once again in the last 2 years. Innovation has been slow in the category. Smartphones & tablets are the only hot-selling products as all others such as TV, DVD players reach a maturity stage while CD players, VCRs are going into a decline.

Price deflation: As the industry becomes more competitive and flooded with different brand products with high brand parity, price becomes the main differentiating factor. As mass retailers expand into consumer electronics with discounted prices, specialty retailers are forced to retaliate by lowering their margins and prices. As Wal-Mart & Amazon become more popular among electronics consumers, Best-buy has come out with the price-matching policy where they will match the lowest price on offer for a product by an online or physical store if a customer can show proof of the same. This strategy also helps them combat the showrooming issue.

Table 2:

Best buy #1: Best buy has been the top player in the category for more than a decade. Its name is synonymous with electronics, which is why it still has the highest market share. Its profits maybe declining but they have been able to maintain their market share. According to research from Cognizant Best buy has the highest revenues compared to their competitors whose revenues are quite stagnant during 2008 – 2010 (2011)

Figure 1 (Cognizant Reports, 2011)

Competition Gaining faster: However, according to the 4-year CAGR, competitors like Wal-Mart, Apple, Target, Gamestop are increasing market share at a much faster rate between 2003-2007. Even though category growth has slowed down, online retailers are also gaining on market share as they provide the convenience of easy price comparison and shopping.

Why has Best Buy been able to weather the recent economic downturn better than many other retailers?

Best Buy was able to weather the economic downturn better than many retailers. The high price of gasoline, the increasing cost of food, the credit crunch, the slump in the housing market and job and income concerns all have affected the retailer industry. The ultimate result of economic downturn is that consumers become price conscious and they use balance the price-selection equation when they choose a retailer. All the mentioned factors led to increase the competition between the retailers. Some of them were able to survive, while other suffered from bankruptcy and they closed down such as Circuit City. Circuit City was the second largest consumer electronics chain .At the beginning they had a strong growth as results of flood of demand from consumers spending borrowed money that led to open thousands of stores .During the recession they started to face a decline in sales, as result of the radical shift that took place in retailing.

Their chains started to close because they were unable to face the freeze-up in consumer spending and choked by tight credit markets. The economic crisis has sent consumers into hiding, and many of their stores become unneeded .So they started to buy cheap real estate, leases in inferior locations and lying off the company’s most experienced sales staff. The latter saved money, but this cause to lose their most valuable employees and customers. ROSENBLOOM, S( 2009). At the same time, Best Buy was doing well and that’s due to many factors:

• Joint ventures and global expansion: The Company has partially integrated system, they formed joint ventures with existing retailers which allowed them to acquire the local expertise and they got to know the local market in better way also that helped them in saving the capital cost. Best Buy have strong existence in US and they acquired local retailers such as Magnolia, Geek Squad , Musicland, Audivisions .Also, They have joint venture with Future Shop in Canada, Carphone warehouse in Europe and Five star in China. In addition to that they have established their shops in Mexico, Turkey, India and Puerto Rico. (Best Buy: A Brief History through Time: This Week in Consumer Electronics, 2011)

• Wide assortments, exploring new categories and offering leased departments: the company has completed their computer assortment of Dell and they have opened many stores within a store to make sure they offer wide assortments, such as opening Apple departments which is a store within a store (leased departments). The in store shop offers 1000 products. In addition to that, the company invested into private label brand which offers the customers more affordable prices; also they sell their private brand to retailers in countries where best Buy doesn’t operate.

• Customer Centricity: The most important asset of the company is their customers, Best Buy were able to understand the customers need and this helped them in targeting with the right products and this led to achieve an optimal satisfaction. Best Buy has partners with FixYa,(www.Fixya.com) a website that allows customers to seek help without paying any fees. In addition to that they have rewarded the loyal customers with Best Buy Reward Zone loyalty program and the points can be earned and redeemed on future purchases

• Multi-channel strategy, convenient locations and Dual strategy: In addition to the physical stores, the company has online existence through its website( Best Buy.com). They also have specialized stores, Best Buy Mobile, where multiple service providers and many cell phone options are available in one place. The company also has used Dual strategy when they entered China, and they decided to operate under Five star in china and they had their own brand too which allows them to appeal to different consumers, increase their sales and share costs.

• Introducing Best Buy Express store: Best Buy introduced a zoom shop store which is retail store which has an interactive, automated service that uses cutting-edge technology to catch customer s’ attention, answer their product questions, show in-depth product demos, guide shoppers through the buying process and close the sale and also it reports inventory and customer data back to the home office in a flash.(Lambert,2009).

These stores have more than 60 product s.k.u’s such as headphones, chargers, MP3 players, iPods, travel adaptors, tablets and more. And when a new product was introduced to the physical and the online store, they are also brought to these machines to ensure customers and travellers have the best, most up-to-date technology options (Jang, (2013). Now Best Buy Kiosk exists in 200 locations this includes all the high traffic locations such as airports, casinos, malls and college campuses (bestbuymediakit,2013).

Introducing SOP system: The company has introduces a manual for satirized operation in 1996(SOP). This had many benefits such as getting merchandise on the shelves at the right time, having the right employees at the service counter at the right levels within hourly wage budgets, etc and that according to Gibson & Billings(2003,) Although Wong and Pang (2000, pp10 – 16)

As a results of the above tactics, the Best Buy store was one stop shopping store for customer and offered them wide assortment at convenient locations with great service and good understanding of their needs .This led to great customer traffic, generate stock turnover and the mass merchants have relatively low operation cost and this led to achieve economies of scale and attract the price conscious consumers.

Assess Best Buy Global Strategy

After witnessing a huge success in the domestic market, Best Buy planned an aggressive expansion in the international market. The following tables illustrate Best Buy global strategy:

Best Buy Opening

U.S

Best Buy is the world’s largest consumer electronics retailer having stores in United States, Canada, China, Europe and Mexico. They are the 11th largest online retailer and the first in customer loyalty program of its kind having more than 1.6 billion visitors in their stores and website per annual. The company was established by Richard M. Schulze and Gary Smoliak in the year 1966 as an audio specialty store. In 1983, it got renamed and rebranded with consumer electronics.

China

First Chinese Best Buy store opened in Shanghai in the year 2007.

Europe

Best Buy opened its first U.K store in 2010.

Mexico

In 2008, it announced the opening of its first pilot stores in Mexico.

Canada

The first Best Buy store in Canada opened in fall of 2002.

Turkey

Opened its first Best Buy store in Turkey (Izmir) in the year 2008.

plans & partnership

Future Shop

In 2008, Best Buy acquired the Canada based electronics chain, Future Shop which is one of the largest electronic retailers in the country, marking its entrance to the international marketplace.

Five Star

In 2006, Best Buy acquired an interest in the retail chain Five Star, China’s fourth largest appliance chain.

Carphone Warehouse

In 2008, Best Buy agreed to buy a 50% holding in the retail division of Carphone Warehouse, UK best Mobile based operation.

Best Buy announced its joint venture with Carphone Warehouse in 2010, wand that it would open branded superstores in U.K and other European countries.

Best Buy

In 2009, Best Buy became the largest electronics retail store especially after Circuit City went out of business.

Best Buy Mobile

Another division of Best Buy. Developed in concert with Carphone Warehouse, 14 stand alone Best Buy Mobile in operation as of mid-2008.

Report as of 2007-2008

U.S

During 2007, the company opened 101 stores. Best Buy planned to open 85 to 100 new stores & 4 relocations in 2008.

Best Buy planned to open 400 Best Buy Mobile stores in U.S by end of 2009.

In mid-2008 Best Buy operated about 500 store-within-store Apple areas in U.S.

China

Best Buy planned to open up to three stores & up to 16 Five Star appliance stores in 2008. Currently The retailer operates 175 Five Star stores in China, 2007.

In April 2008, Best Buy opened its first Apple store-within-store in China.

Europe

Opened its first four Best Buy location in Britain, 2008. Plans to open up to 20 stores in 2009-2010.

Best Buy expanded its Geek Squad service through its partnership with Carphone Warehouse.

Mexico

Best Buy entered Mexico with two to five stores in the latter part of 2008.

Canada

Six new Future Shop stores, one closure, sic relocations & six Best Buy stores were scheduled for 2008.

Best Buy plans to test a new Future Shop prototype that focuses on home networking to double its market share in appliances:

Following a trial at six Future Shop, Best Buy plans to expand its used games test offering all Future Shops in Canada.

In 2008 Future Shop introduced a new prototype to help customers connect all the gadgets in their homes.

India

Being studied.

Turkey

Intended to open one or two stores in Turkey in 2010.

Best Buy Global expansion strategy of 2011-2012

United States:

Best Buy has plans to close 50 big box retailers by 2013. The retailer reported a profit of $2.47 per share. That was significantly higher than the expected $2.16 per share, from a survey of analysts by Thomson Reuters. Best Buy currently operates 1,103 big-box stores in the U.S. In China, there are 204 stores under the company’s Five Star, she said. The company plans to open 100 standalone Best Buy Mobile shops in the U.S. in year 2013. Best Buy plans to close the stores to decrease costs. The company projects $250 million in savings in 2013; it plans to save $800 million in costs by 2015. www.money.cnn.com

China:

Best Buy announced its closing of its nine Chinese stores. Its problems in China were largely the result of its using same marketing strategy in China as in the United States. Best Buy has high brand recognition in U.S, it is virtually unknown in China. Unlike the U.S market, China’s market for electronics is fragmented with a large number of small electronics retailers. In China, stores are located so close to one another that a new Best Buy store could have three competitors virtually next door. Because Chinese customers are very price sensitive, Best Buy’s U.S based strategy of for high customer service accompanied by higher price levels was inappropriate for the Chinese market (Retail Management, 2012).

Europe:

Carphone Warehouse is to close all of its 11 Best Buy stores across the UK, the company announced. The outlets have failed to make profit. Best Buy in Europe said in a statement, (Since 2008, the consumer electronics marketplace has changed as a result of the economic times, the progress of online retailing and the growth of innovative products like smartphones, tablets and apps). It comes as Best Buy plans to buy its British partner due to its fast growing US mobile phone joint venture for £865 million. The Best Buy Mobile has been benefiting from the high demand for smartphones, such as Apple’s iPhone. www.bbc.com

Mexico:

Planned to serve a market with high growth potential, Best Buy has found its other half in Mexico, where the retailer has made millions of profits. Since the retailer opened its first store in Mexico, it has created some 1,000 jobs and served thousands of customers. Today it operates eight stores in Mexico.

The stable and strong economy in Mexico is the two advantages. “The Mexican economy has great growth and development potential, as well as macroeconomic fundamentals. These factors are important to any healthy business environment,” say company sources. In an environment like this retailers like Best Buy can grow, validate their operations and offer job opportunities. http://negocios.promexico.gob.mx

Canada:

Best Buy has announced it is closing its eight Future Shop and seven Best Buy big box stores across Canada. It was estimated that 900 people may lose their jobs. A news release from the company said “first phase of a long-term transformational strategy to optimize the company’s retail footprint across the country”. Best Buy Canada says it plans to open new Future Shop small-concept “web stores” and Best Buy Mobile locations over the next three years. The company notes it still has over 120 Best Buy and Best Buy Mobile stores and over 140 Future Shop locations in Canada. http://www.straight.com

Turkey:

Best Buy also announced that it will exit their two stores in Turkey to save on Best Buy’s Annual cost.

Best Buy Stores worldwide as of date

Best Buy U.S. Retail Locations: 1,103

Pacific Sales Kitchen and Bath Centers: 34

Magnolia Audio Video: 5

Best Buy Mexico: 8

Best Buy Canada: 77

Future Shop: 149

Best Buy Mobile (U.S.): 305

Best Buy Mobile (Canada): 30

Five Star Appliance: 204

Carphone Warehouse (Europe): 885

Best Buy employees as of date

U.S.: 125,000

Worldwide: 160,000

Why Has Geek Squad done so well?

Geek Squad was a small technical support company when it was acquired by Best Buy in October 2002. Best Buy strategy behind the acquisition is to differentiate itself among competitors with privileged technical services. It enables Best Buy to provide multi- channel technical services across US (i.e. in store, in home, website and 800#). By 2005, every best buy store was provided with technical support services through geek squad. According to them, it was the first company that provides national 24-hour technical supports service via remote access on Internet. Best Buy provides geek squad technical support services in its Puerto Rico, Canada, China, and the United Kingdom stores.

Geek squad has developed its own business style to maintain its growth. They call their staff by Geek squad agents with agent’s uniform and badges and using unified cars that looks like police cars. The company team offers various protection packages services to customers which assure their main message the help is ready to readily available to activate protect and maximize their technology. These pre-paid plans cover computing, home theater, digital imaging, mobile phone, car electronics products, as well as major appliances, and are available exclusively at Best buy stores. Best Buy emphasizes on the importance of serving their customers by reassuring that any malfunctioning device would be taken care of by geek squad team of technicians.

In 2012, Best Buy moved one step further by selling geek squad services. The company has tied up with eBay and Target to provide their customers with Geek Squad services. They have many associations with other partners like Revel system and Verizon. Geek squad will provide technical support services for Revel Systems who have developed a mobile point-of-sale system that works on Apple platform which is optimized for restaurant and retail establishments. Geek squad will operates all Revel installs across the US. It will provide IT Help desk services for Verizon Company where the company designed the solutions and geek squad provides technical services to support small and medium-size businesses.

This strategy of diversification with geek squad services will generate new source of revenues for Best Buy. Another part of its strategy is to restructure the size of its stores to be smaller and to focus on reorganizing the company to compete against other online retailers.

To move toward this direction, in July 2012 Best Buy announced to eliminate 2,400 jobs, out of which 600 of geek squad staff. The cuts represent 1.4% of the company’s total staff of about 167,000.

From retailing point of view, Geek squad done so well for many reasons:

Website: The website is a platform for users and business partners to many facilities varied from new service packages, scheduling appointments, to new products offers and tutorials.

Services are available in Multi-channels; ( blogs, telephone, twitter, email and other traditional channels)

The whole concept of geek squad from the uniform to the car helps to raise awareness of the brand itself and make is easier to present their staff as agents who are always ready to solve your technical problems. They have succeeded because they presented creative, different and smart image of technicians.

The value they are adding with their services is giving the security feeling for users where they give the promise of fixing devices and replacing them for free depends upon each service package.

The geek squad managed to deliver consistent message in every interaction with their customers and clients. This resulted in creating trust and loyal relationship that helps the company to evolve.

The ability to develop and evolve is what makes brands strong, currently; geek squad is focusing on building network of business partners where the company offers its expertise and services to other retailers.

Although Geek Squad is doing very well, there are some areas that need improvements: Geek Squad has focused on the business side of its expansion and not the individual side. Some of their customers consider their services to be overpriced, therefore they need to revisit their pricing strategy or communicate it clearly to their customers. Moreover, Geek squad staffs are paid low wages with part-time contracts, Best Buy need to make sure that their employees are satisfied without comprising on their cutting cost plans.

Does Best Buy do a good job regarding to the retailing concept?

During 2008 Best Buy focused its retailing concept in expanding existing stores domestically and internationally, their main focus was on opening stores in new markets and opening new stores within existing markets.

According to Best Buy, their new retailing strategy will focus on increasing the retail points of presence while reshaping their existing stores by decreasing their sizes. One of Best Buy major mistakes in their retailing concept was the format of their big box stores or (stores within stores) that are now considered by consumers to be outdated and confusing. The result of this mistake is costing Best Buy a lot of money but to continue their retailing success and to increase their market share they are forced to re-design their store retailing concept and format to what they call now ” connected stores” which are a smaller format of their show rooming concept.

Although the brand has faced many ups and downs, as a retailer Best Buy is doing fairly good first by being responsive to the economic conditions around them and by offering competitive advantages such as: integrated stores and online channels, wide branded product assortments, diverse store formats and a wide range of value-added services. Here is some of Best Buy competitive advantages explained in details:

Effective control of business nature: Best Buy business is like many consumer electronics retailers, a seasonal business. As consumers in the US, Europe and China tend to buy electronic products such as mobile phones, tablets and others during the holiday season to receive the advantages of the offers by retailers and mainly because they spend more during holiday season buying gifts for family members, friends and themselves. Most of Best Buy revenue comes from the holiday shopping season during the fourth quarter of the year. In 2012, customers camped out of Best Buy stores in the US six days in advance on Black Fridays to benefit from Best Buy special offers during the holiday season (appendix 1). As a retailer Best Buy utilized the nature of its business effectively by offering consumers discounts and other special offers on hot merchandise during the holiday season. Best Buy also used effective advertising techniques to attract customers, the advertising are sales driven and use sacristy appeal (appendix 2) Best Buy also focused on the online communication with the customers during the holiday season, in 2005 it launched the website (www.askablueshirt.com) as a platform for customers to engage with the customer service team which will answer any of their inquiries and during the holiday season the website offers gift ideas and wish lists among other services to help customers pick the right gift for their loved ones.

Competitiveness: Best Buy faces a fierce competition from retailers who follow a price leadership strategy such as Wal-Mart and Target; it also faces competition from online stores who are able to offer low prices due to their business format that does not require operation and employee costs such as Amazon. To tackle this problem and stay ahead of the game Best Buy carefully monitor the pricing strategies offered by its competitors and therefore they constantly alter their own pricing to match with competitors by focusing on cutting costs at every stage of their operations and by leveraging their economies of scale.

The effective use of Technology ; Best Buy has invested a lot in information system by providing its customers state of the art in- store and in-home information system support through Geek Squad services. Geek Squad provides customers with 24/7 technical support, anti-virus programs, and all kinds of repairing services. Repairing might take few minutes or sometimes few days if the parts are not available in store, and this is the only main disadvantage of this service. However, as the techonolgy is evolving fast Best Buy should adapt new forms of technology as fast as possible to win over the competition.

Flexible return and exchange policy :Best Buy provides its customers with excellent after sales services such as the (no questions) return policy that allows its customers to exchange or refund any of the items purchased within 15 days with no questions asked. During the holiday season Best Buy made the return policy much easier and more attractive to the customers by introducing the no-receipt policy to allow those who did not like their Charismas gifts the opportunity to exchange them.

Customer Service excellence: One of the sustainable competitive advantages of Best Buy is their dedicated and knowledgably employees. Best Buy offer multichannel connections with the customer service team; through phone calls, live chat on the website, community forums, and Geek blogs among others. In 2013, Best Buy focused their communication messages on this competitive advantage and invested in celebrity (Amy Poehler – an American actress) to endorse the brand recently.

Specialty products and services: Best Buy offers its products and services to the business sector as well, by offering their products and services to small medium enterprises through Geek Squad services. This strategy will help Best Buy to gain a larger market share from business to business market.

What can any retailer learn from this case?

Predicting market conditions: Best buy advanced with aggressive growth and expansion plans during recession with setting up in new countries, investing in new partnerships and adding new categories & services. However, at this time, many country’s economies were and are still not stable. Within US itself CE sales for black Friday deteriorated by 5.6% following previous year’s fall of 4% (Heller, 2012). Moreover, sales at physical stores have been dropping an average of 2.6 per year in the last five years according to market research firm Ibis World (Clifford, 2012) During recession, most brands focus on their core strength and continue to invest in products that will survive the downturn (Grail Research, 2009), yet Best buy did the opposite.

Adapting to changing market needs:

Trending smaller stores: Their aggressive expansion plans of 2008 have backfired causing them to close down 50 stores in US, 77 in Canada, 8 in Mexico and 9 in China (Loeb, 2012). The trend of big box stores was more prevalent in the last decade and now Best buy has to bear the burden of having large stores with products like TVs & computers that have reached a maturity stage (Heller, 2012) driving their overheads up and propelling their profits down. Their restructuring strategy of converting big box into smaller, more targeted stores comes as a relief (Heller, 2012).

Rising competition: Electronics have become commodities as competition & drives the prices down. Wal-mart, Target, Costco and even “overhead-free Amazon” are undercutting Best Buy prices (Riper, 2012). Hence, focus is now on prices rather than customer service.

Rise in online shopping and “Showrooming”: Showooming is” when customers go into a store to test out products, then go online to make their purchases” (Bhasin, 2012). According to Best buy, only 40% of their customers who walk-in make a purchase; furthermore, 67% regularly shop after comparing prices on their mobile devices and 38% used Amazon’s price-check app (Goodfellow, 2012). Nowadays, consumers prefer the convenience of shopping online. Best buy’s website is not well-designed for browsing, writing up reviews or buying online at which Amazon is a master (Rosenbaum, 2012).

Differentiation is important: Retailers for the longest time believed that in-store customer service along with shopper’s need for instant gratification would drive them (Tuttle, 2013). In a competitive market, where price wars occur commonly, differentiating and providing added value can make or break an organization. Previously, Best buy added value by buying or partnering with firms that can provide consumers with assistance they require in the category. However, as price becomes the main component in of buying electronics, Best buy has lost its focus and the value proposition.

What must Best Buy do in the future to stay ahead of Wal-Mart?

Continue innovating: Innovation in this field is paramount as retailers struggle to maintain market share from fierce online competitors. Wal-Mart has initiated a service which transfers Blu-Rays & DVDs on to their cloud storage space which allows the user to view it on any device streaming. This service takes the declining DVD sales a boost as buyers can own this film digitally (Evangelista, 2013).

Cutting costs: Sales and profits have been declining for Best Buy for the past 5 years and they are expected to further decline for the next 2 years. In such a situation, it is imperative that Best buy cut costs not only when selling but in every stage of the retailing process. The first stage is already in action as best buy invests in restructuring their stores into smaller, more mobile & targeted stores.

Step-up E-commerce: Best Buy needs to update and integrate their online portal with their current brick and mortar structure. Include price comparisons apps, reviews from buyers and easy way to buy products. Research shows that 25% of online shoppers visit Best buy. Com and 31% buy something while 41% visit Amazon and 81% buy something (Gruley & McCracken, 2012). By integrating online portal in-store, consumers can come in to check out products and then buy them online through the portal – thus combating the showrooming effect.

Embrace showrooming: Unless the retailing concept changes, this phenomenon is here to stay. Therefore, instead of fighting it, Best buy can use it to their advantage by letting innovating companies showcase the future of technology by displaying and presenting their latest products. For instance, HP could have a stall in there showcasing their technology, interacting, as well as, helping their customers.

Finding a niche market thr