Best Buy Case Analysis

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Case Analysis

Current Situation
“Our formula is simple: we’re a growth company focused on better solving the unmet needs of our customers—and we rely on our employees to solve those puzzles. Thanks for stopping."

Richard Schulze started Best Buy and grew it to a million dollar company within four years. The future CEO of Best Buy learned that diversification in the stores’ offerings and serving various target segments led to increased market share. After going public in 1985, Best Buy changed from commissioned and specialized customer assistants to a non-exempt, hourly paid sale associates to ensure that customers’ needs are the employees’ top priority. In 1999, Best Buy successfully launched its online store.

Through acquisitions of Napster, electronic sellers, and home appliances suppliers, Best Buy was able to grow and gain the resources necessary for its international expansion. By using backwards vertical integration, Best Buy was able to broaden their scope and have bigger economies of scale, achieving savings that were passed along to our customers. Related diversification has also allowed Best Buy to maintain revenues, even through the recent economic recession.

Best Buy’s primary industries are Radio, Television, and Other Electronics Stores (NAICS 443112), Electrical and Electronic Appliance, Television, and Radio Set Merchant Wholesalers (NAICS 423620), Computer and Computer Peripheral Equipment and Software Merchant Wholesalers (NAICS 423430) and Household Appliance Stores (NAICS 443111). Price per share as of February 19, 2013 is $17.33. In September 2011, Best Buy was named to the 2011 Dow Jones Sustainability index for corporate citizenship and philanthropy, social reporting, stakeholder engagement and operational eco-efficiency.

Currently, Best Buy’s greatest struggle is facing new industry competitors. The company is losing market share to online retailers, such as Amazon, and to its primary suppliers, including Apple, HP, and Dell. Best Buy’s suppliers have taken an approach to reduce the intermediaries between company and its customers, strategies that have left Best Buy out of the loop. In order to stay ahead of competitors (in terms of market share and sales) Best Buy has implemented a permanent price matching policy that was launched during the 2012 holiday season. This tactical move will help Best Buy retain its existing market share, but maintaining costs low enough to support this pricing strategy might be difficult for the showroom giant.

In regards to diversification, Best Buy has enlarged its scope from home and car stereos, to nearly all electronic appliances and to multimedia offerings such as DVD’s, CD’s, videogames, etc. Best Buy has also continued customer relationship managements by implementing after-purchase support and diversifying its offerings by acquiring Geek Squad, Best Buy’s task force that provides technical support and installation of various software programs for recently purchased electronics.

General Environmental Analysis
The general environmental analysis emphasizes the trends that occur in the technology, demographics, economics, political/legal, sociocultural, physical and global segments of the environment. The goal of this analysis is to help find which of these segments will have the most impact on Best Buy over the next few years. Based on research and data we believe the segments that will be the most relevant to Best Buy are the demographic, technology, sociocultural, and global segments. Demographically, the United States population is getting larger, older, and more ethnically diverse. There are approximately 315,398,676 people in the United States, making it the third largest country in the world. The United States has grown by 103% since 1950 and is estimated to have a population around 440 million by 2050. An influencing factor in the population increase is that Americans are living longer. Due to advances in healthcare, people are...
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