Case: Best Buy

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Best Buy

1. How was competition changing in the consumer electronics retailing industry in 2004? Why was it necessary for Brad Anderson to consider a radical concept change for Best Buy? With the fast development of Technology, the market for electronics retailing was increasing fast during 1998-2004. And electronics-only retailers like Best Buy and Cirtuit City, experienced a stiffer and broader competition during that period. It was necessary for Brad Anderson to consider a radical concept change for Best Buy, because of the several reasons given as follows: 1. The scope of competitive rivalry is more than among merely electronics-only retailers. There are many threats from different rivals to Best Buy. Some mass discounters such as Wal-Mart and Target increased their share from 2001 to 2002. And, some consumer direct or Internet competitors were also getting stronger in most consumer electronics categories. Besides, auction sites, led by eBay, increased consumer access to used consumer electronics products and to competitive bidding by suppliers for new products, which was another emerging competitive threat to Best Buy. Last but not least, the recent boom of music digital downloading was another potential threat an ailing category at Best Buy. 2. Imitation from its competitor, Circuit City, which discovered the big success of Best Buy, and started to imitate many elements of Best Buy’s successful strategy, notably improving the lighting in their stores, deploying a non-commissioned sale force, and display available merchandise in the store itself and getting rid of back room storage. 3. Besides the ever-present threat of imitation, Best Buy’s top management was also worried that profitable opportunities for the company may be limited to 1000 stores in the US. The company already had 606 stores and was opening an additional 75 each year. Growth through new store openings did not look promising. 4. The way of selling from push system to pull system. As Brad Anderson said, in the past, they used to rely mostly on new products to foster growth, which is now a fading strategy prevents itself from higher efficiency and can’t compete with other consumer electronics retailers. To craft its own competitive advantage, Brad started to generate a unique value generating proposition that will connect the company with its customers and serve as a solid foundation for future growth. It finally came up with a radical strategic change, which had a profound impact on the company’s structure, internal processes, and employees.

2. How would you characterize Best Buy’s Concept VII strategy? What are the four chief components of its strategy?
(1) Strategy
Concept VII consisted of four interconnected strategic initiatives, customer centricity, efficient enterprise, win the home with service, and win entertainment. And, customer centricity was the real centerpiece. The approach that Best Buy chose required it to quantify the profitability of each of its customers. Best Buy’s strategic approach involved developing a greater understanding of the consumer to tailor the retailing experience to customer expectations and needs. Even though the company understood the importance of competing on price, it utilized different retailing approaches for customer groups with different behaviors and demands. That is, Best Buy found ways to reengineer the customer experience and address the specific needs within each segment and its subsegment. (2) Four components:

Ⅰ. Customer centricity: consumers was divided into five basic categories and created subcategories within groups to better understand variations between customers. Store product assortments were tailored to the customer characteristics of the region. Therefore, Best Buy’s 25,000 SKUs would vary between stores based upon the type of consumers living in the area.

Ⅱ. Efficient enterprise: controlling costs and investment spending and included efforts to reduce administrative...
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