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A SWOT ANALYSIS OF BEST BUY

THE SRENGTHS OF BEST BUY


Geek Squad provides Best Buy with better technical customer service then, say, Sears or online competitors like
Tiger or CDW.
Always working to improve their market share
Strong market share
Determination to satisfy his clients

1. Well designed stores/shopper experience. Its the opposite of Wal-mart. Clean, well-laid out
and open. Its clear that BBY loves consumer electronics. Its a pleasure to shop there.
2. Service compared to the competition wal-mart, costco
3. Geek Squad good service and its positioning supports a contemporary, non-Wal-mart
view of the world.

THE WEAKNESSES OF BEST BUY


An example could be higher overhead associated with store design versus, say, Lowes (for appliances).

-Service levels across stores/geographies are not uniform


Inconsistent awareness of how to personalize service based on user persona
(e.g. Barry w/ profitablity of 3) among staffers
Although turnover rates have dropped dramatically over the last few years, its
still a relatively transient workforce
Too much of bureaucracy

THE TARGET MARKET OF BEST BUY


Best Buy has a vast market with extensive penetration in the electronics sector.
Best Buy's market consists of small business owners including home office and
the majority consumer. Their market will be tech savvy middle class consumers
as well as business owners.

THREATS
An example could be the national attitude toward protectionism could mean import restrictions or tariffs on
imported products - raising costs at Best Buy.
Mass merchants
Local competitors

Commoditization
Everything migrates to on-demand. Suddenly, netflix or comcast start to bundle
tvs as part of their subscription model

OPPORTUNITIES
Expanding to Canada and china

Exclusive brands
Deliver more for our Best customers to drive more growth from them
Who are the companys typical customers? - Affluent men, families with children, professional
women, and small businesses are important.

As the world's largest consumer electronics retailer, with more than 160,000 employees worldwide, Best Buy has
the opportunity and obligation to make a positive impact on the communities we serve. That is why corporate
responsibility (CR) has become an increasingly important priority for our company. We've learned a lot since we
began measuring our social and environmental performance. Our complete report reflects our commitment to
continue to measure, learn and, most importantly, improve our performance across the CR landscape.
In our Fiscal 2008 CR Report, we introduced our corporate responsibility aspirations as part of our goal to be:
1.

A global champion for human ingenuity and opportunity our employees providing leadership
for our industry, our customers and communities worldwide;

2.

An advocate for consumers in a world of technology delivering consumer electronics


products and services to more people than any other company in the world;

3.

A company that is financially, environmentally and socially accountable for our brands and
business operations worldwide.

Much has changed since then. The global economic crisis, the worst downturn since the Great Depression, has
had serious financial consequences for most industries, including retail. Despite these challenges, we have taken
many steps to live up to our aspirations as we believe these actions aren't just the right thing to do, they're also
the right thing to do for our business.

What is the firms competitive advantage?


The paper reveals that at the center of Best Buy's competitive advantage is its ability to deliver
customized and highly personalized service
What is the mission statement of best buy?
Looking for the company core values

Threat of Potential EntrantsBarriers to Entry


1. Economies of Scale
Refer to declines in unit costs of a product as the absolute volume per period increases.
Scale economies may be present in many functional areas: manufacturing, purchasing,
R&D, marketing, service network, and distribution.
Its possible to share economies across businesses within a firm if there are shared
costs and/or shared benefits such as intangible assets such as brand strength and knowhow
Barriers can occur with economies to vertical integration
New entrants are faced with huge cost disadvantages if they can not enter in minimum
efficient scale
2. Product Differentiation
Established firms have brand identification and loyalties, which stem from past
advertising, customer service, product differentiation, or being the pioneer.
Entrants are forced to spend heavily to overcome existing customer loyalties
3. Capital Requirements
If large sums are capital are needed a barrier may exist especially if its risky or
unrecoverable, upfront investment such as advertising and R&D.
Most firms have access to capital, but if risky cost of capital will be high thus giving the
advantage to the incumbent firms.
4. Switching Costs
If switching costs are high, new entrants must provide a substantial inducement for
customers to switch from an incumbent.
5. Access to Distribution Channels
If incumbent firms have channels tied up, new entrant must provide incentives to
channel members to accept its product through price breaks and advertising allowances
New entrants may have to create new channels if the established ones are

characterized by strong, symbiotic relationships among the members


6. Cost Disadvantages Independent of Scale
Established firms may have cost advantages not replicable by potential entrants no
matter what their size and attained economies of scale.
1. Proprietary product technology or patents
2. Favorable access to raw materials- established firms may have locked up most
favorable sources
3. Favorable locations
4. Government subsidies
5. Learning or experience curve- unit costs decrease as firm gains more cumulative
experience in producing a product. Costs decline because workers improve their methods
and become more efficient (learning curve), layout improvements, and technology
improvements.
7. Government Policy
Government could limit entry by licensing requirements and limits on access to raw
materials.
Pollution control and product safety requirements
Expected Retaliation Expectations of existing competitors will influence threat of entry
History of vigorous retaliation
Established firms with resources to fight back, including excess cash and borrowing
capacity, exceed productive capacity, or great leverage with distribution channels or
customers
Established firms with great commitment to the industry and highly illiquid assets
Slow industry growth: limits industrys ability to absorb a new firm
Entry Deterring Price Entry deterring price is the prevailing structure of prices which balances the potential
rewards from entry with expected costs of overcoming structural entry barriers and
risking retaliation
Properties of Entry Barriers
Entry barriers can and do change as conditions change
Firms strategic decisions affect entry barriers such as increasing advertising or
establishing a distribution network or vertical integration; all can increase economies of
scale thus barriers to entry

II. Intensity in Rivalry of Existing Competitors

1. Numerous or Equally Balanced Competitors


With numerous competitors- increased risk of maverick firms who might think they
wont be noticed
If few, equal competitors - may be prone to fight each other and if have similar
resources, they probably have similar strategies thus same target market
2. Slow Industry Growth
Slow growth turns competition into a market share game for firms seeking growth..
3. High Fixed or Storage Costs
High fixed costs create strong pressures for firms to fill capacity which leads to price
cutting when excess capacity is present
4. Lack of Differentiation or Switching Costs
If offerings are perceived as commodity or near commodity, then competition is based
on price and service, resulting in intense price competition
5. Capacity Added in Large Increments
Risks of overcapacity thus periods of price-cutting to fill capacity
6. Diverse Competitors
Competitors may have a hard time reading each others intentions accurately and
agreeing on the rules of the game
7. High Strategic States
Firm may have increased pressure to succeed in a particular industry in order to further
its overall corporate strategy.
8. High Exit Barriers
Exit barriers are economic, strategic, and emotional factors that keep firms from
leaving poor industries
i. Specialized assets with low liquidation values
ii. Fixed costs of exit: labor agreements, resettlement costs
iii. Strategic Interrelationships: Image, shared costs
iv. Emotional barriers: loyalty to stakeholders, pride, fear
v. Government and social restrictions: govt. denial or discouragement for exit

III. Pressure from Substitute Products


Substitutes perform the same function as the products in the industry, satisfy same
needs and wants
Substitutes that merit attention are ones improving their price performance trade-off
and highly profitable products
Substitutes limit returns by placing ceiling on prices

IV. Bargaining Power of Buyers


1. Purchases Large Volumes Relative to Seller Sales
Raises importance of buyers business in firms performance
2. Products Represent Significant Fraction of Buyers Costs or Purchases
Buyers are price sensitive and will search for best deals
3. The Products are Undifferentiated or Standard
If buyers can find alternatives may play one supplier against another
4. Buyers Face Few Switching Costs
5. Buyer can Influence Purchase Decision of Consumers
Retail has power over manufacturers when they can influence purchasing decisionssuch as products that require sales assistance like appliances
6. Buyers Earn Low Profits
Creates great incentives for buyers lower purchasing costs and find or bargain for best
deal
7. Buyers Pose Threat of Backward Integration
If pose threat, buyers are in a position to demand concessions
8. Quality Unimportant to Quality of Buyers Product or Services
If quality is important then buyers are less price sensitive
9. Buyers Have Full Information
If buyers have full info about demand, actual market prices, and even supplier costs,
this provides greater bargaining leverage then when information is poor

V. Bargaining Power of Suppliers


1. Dominated by Few Sellers and More Concentrated than Industry it Sells to Suppliers selling to more fragmented buyers will have more influence in prices, quality,
terms
2. Suppliers Do Not Face Threat of Substitutes
Power of large, powerful suppliers can be checked if they compete with substitutes.
3. The Industry is not Important Customer of Supplier Group
If suppliers sell to many industries, and a particular industry does not represent a
significant fraction of sales, suppliers can exert power
If industry is important customer, suppliers fortunes will be tied to the industry,
therefore they will want to protect it with reasonable pricing and assistance in activities
like R&D and Lobbying
4. Suppliers Group Products are Differentiated/ Switching Costs involved

Buyers facing switching costs or differentiation does not allow them to play suppliers
against one another
High switching costs can place firms at the mercy of their suppliers
5. Suppliers Product is Important Input to Buyers Business
If input is important to manufacturing process or product quality then supplier power is
increased.
6. Threat of Forward Integration
This provides a check for firms to improve their purchasing terms
Labor must be considered as a supplier. Unions and scarce, highly skilled labor can
bargain away potential profits
We have a history as a growth company. But the bigger you get, the harder it is to maintain that status.
In the 1990s our target was to open 1,000 stores and we're at 930 now. We met our objective so we
had to recreate our strategy in order to maintain that level of growth.
We had tried a strategy of acquisitions but it hadn't been very successful. So we had to find growth
engines that hadn't been identified and to do that, we had to get as many ideas into the water as
possible. And then find out which ones work.
What happens when ideas you've supported don't work?
I think the biggest challenge in leadership, and this has happened to me repeatedly, is when you have
your stamp on a plan and it does not work.
An example was when we changed from a commission-based sales force to a salaried sales force
back in 1989. Today it's normal but back then it violated all the conventional wisdom.
When we did it, the first stores did not work financially. We had bet the company that this strategy
would be better and it almost didn't work. That's when I needed to listen.
We eventually uncovered what was wrong. As a specialty store, we were dependent on advertising but
we had set the store up to function with lower prices and no advertising. So we changed that.
After a tough third quarter last fall, when sales were below expectations, did you ever doubt
that centricity would work?
To be honest, if you meet the needs of the customer you will have a better business. I don't think that's
a particularly brilliant hypothesis, but I'm stubborn about that as an unchallengeable premise. Now
whether we're doing it in the right way is a highly challengeable premise.
Where do you get your ideas?
I'm easily inspired. I'm an obsessive reader and I love biographies because I'm interested in what
motivates human beings. I just read one on Albert Einstein and I'm reading one called "Jawbreaker,"
by Gary Berntsen, who was in the CIA. It's an interesting account of how bureaucracies function when
challenged by new events. That's something I find endlessly fascinating.
You're opening a store in China this year. What's your impression of the country?

I've only been out there once and we're going again in April for a week, with our entire board of
directors. You can't imagine China without seeing it. Almost any place in Asia looks interesting to us. I
think countries like Turkey are interesting too.
Any advice for new CEOs?
In the six months before I became CEO in June 2002, I took a lot of time trying to learn as much as I
could about the range of thinking outside of our business. I wanted to know if I could turn my
hypotheses into real value.
For example, I went to a week-long executive development program at the Swiss business school
IMD. These trips got somewhat controversial inside the company, because it was an unconventional
way to use time. So I don't do as much of that now.