management question and need support to help me learn.
●The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
●Assignments submitted through email will not be accepted.
●Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.
●Students must mention question number clearly in their answer.
●Late submission will NOT be accepted.
●Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
●All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
●Submissions without this cover page will NOT be accepted.
Assignment No. 2: Case Study
▪Describe the different issues related to environmental scanning, strategy formulation, and strategy implementation in diversified organizations- CLO2
▪Explain the contribution of functional, business, and corporate strategies in the competitive advantage of the organization-CLO3.
▪Distinguish between different types and levels of strategy and strategy implementation-CLO4
▪Communicate issues, results, and recommendations coherently, and effectively regarding appropriate strategies for different situations-CLO6
Read carefully case study No. 24 from your textbook (Best Buy Co. Inc: Sustainable Customer Centricity Model?) and answer the following questions:
1.Identify opportunities and threats as well as strengths and weaknesses of the company (draw a SWOT matrix). 2pts
2.What is the competitive strategy used by Best Buy? Justify your answer. 2pts
3.What are the main functional strategies used by this company? Are they successful? Justify 2pts
4.What are the different difficulties faced by the company to maintain and reinforce its competitive advantage? 2pts
5.Suggest some recommendations or solutions to Best Buy to improve its competitive advantage. 2pts
✔Copy/paste the phrases from the text is not acceptable. You must use your own words.
✔Using the terminology developed in the course of strategic Management is highly valued.
College of Administrative and Financial Sciences
Strategic Management (MGT 401)
Deadline: 11/11/2023 @ 23:59
For Instructor’s Use only
Instructions – PLEASE READ THEM CAREFULLY
The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Assignment No. 2: Case Study
Describe the different issues related to environmental scanning, strategy formulation, and strategy implementation in diversified organizations- CLO2
Explain the contribution of functional, business, and corporate strategies in the competitive advantage of the organization-CLO3.
Distinguish between different types and levels of strategy and strategy implementation-CLO4
Communicate issues, results, and recommendations coherently, and effectively regarding appropriate strategies for different situations-CLO6
Read carefully case study No. 24 from your textbook (Best Buy Co. Inc: Sustainable Customer Centricity Model?) and answer the following questions:
Identify opportunities and threats as well as strengths and weaknesses of the company (draw a SWOT matrix). 2pts
What is the competitive strategy used by Best Buy? Justify your answer. 2pts
What are the main functional strategies used by this company? Are they successful? Justify 2pts
What are the different difficulties faced by the company to maintain and reinforce its competitive advantage? 2pts
Suggest some recommendations or solutions to Best Buy to improve its competitive advantage. 2pts
Copy/paste the phrases from the text is not acceptable. You must use your own words.
Using the terminology developed in the course of strategic Management is highly valued.
27-1Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model?Alan N. HoffmanBentley UniversityCase 27 Best Buy Co. InC., headquartered In rIChfIeld, MInnesota, was a specialty retailer of consumer electronics. It operated over 1100 stores in the United States, accounting for 19% of the market. With approximately 155,000 employees, it also ran more than 2800 stores in Canada, Mexico, China, and Turkey. The companyÕs subsidiaries included Geek Squad, Magnolia Audio Video, and Pacific Sales. In Canada, Best Buy operated under both the Best Buy and Future Shop labels.Best BuyÕs mission was to make technology deliver on its promises to custom-ers. To accomplish this, Best Buy helped customers realize the benefits of technol-ogy and technological changes so they could enrich their lives in a variety of ways through connectivity: ÒTo make life fun and easy,Ó1 as Best Buy put it. This was what drove the company to continually increase the tools to support customers in the hope of providing end-to-end technology solutions.As a public company, Best BuyÕs top objectives were sustained growth and earn-ings. This was accomplished in part by constantly reviewing its business model to ensure it was satisfying customer needs and desires as effectively and completely as possible. This case was prepared by Professor Alan N. Hoffman, Bentley University and Erasmus University. Copyright © 2015 by Alan N. Hoffman. The copyright holder is solely responsible for case content. Reprint permission is solely granted to the publisher, Prentice Hall, for Strategic Management and Business Policy, 15th Edition (and the international and electronic versions of this book) by the copyright holder, Alan N. Hoffman. Any other publication of the case (translation, any form of electronics or other media) or sale (any form of partnership) to another publisher will be in violation of copyright law, unless Alan N. Hoffman has granted an additional written permission. Reprinted by permission. The author would like to thank MBA students Kevin Clark, Leonard DÕAndrea, Amanda Genesky, Geoff Merritt, Chris Mudarri, and Dan Fowler for their research. No part of this publication may be copied, stored, transmitted, reproduced, or distributed in any form or medium whatsoever without the permission of the copyright owner, Alan N. Hoffman. Industry FiveÑRetailingZ27_WHEE5488_15_GE_CA27.indd 16/20/17 10:42 AM
27-2 Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model?The company strived to have not only extensive product offerings but also highly trained employees with extensive product knowledge. The company encouraged its employees to go out of their way to help customers understand what these products could do and how customers could get the most out of the products they purchased. Employees rec-ognized that each customer was unique and thus determined the best method to help that customer achieve maximum enjoyment from the product(s) purchased.From a strategic standpoint, Best Buy moved from being a discount retailer (a low-price strategy) to a service-oriented firm that relied on a differentiation strat-egy. In 1989, Best Buy changed the compensation structure for sales associates from commission-based to noncommissioned-based, which resulted in consumers having more control over the purchasing process and in cost savings for the company (the number of sales associates was reduced). In 2005, Best Buy took customer service a step further by moving from peddling gadgets to a customer-centric operating model. It was now gearing up for another change to focus on store design and providing products and services in line with customersÕ desire for constant connectivity.Company History2From sound of Music to Best BuyBest Buy was originally known as Sound of Music. Incorporated in 1966, the company started as a retailer of audio components and expanded to retailing video products in the early 1980s with the introduction of the videocassette recorder to its product line. In 1983, the company changed its name to Best Buy Co. Inc. (Best Buy). Shortly thereafter, Best Buy began operating its existing stores under a ÒsuperstoreÓ concept by expanding product offerings and using mass marketing techniques to promote those products.Best Buy dramatically altered the function of its sales staff in 1989. Previously, the sales staff worked on a commission basis and was more proactive in assisting customers coming into the stores as a result. Since 1989, however, the commission structure has been terminated and sales associates have developed into educators that assist custom-ers in learning about the products offered in the stores. The customer, to a large extent, took charge of the purchasing process. The sales staffÕs mission was to answer customer questions so that the customers could decide which product(s) fit their needs. This dif-fered greatly from their former mission of simply generating sales.In 2000, the company launched its online retail store: BestBuy.com. This allowed customers a choice between visiting a physical store and purchasing products online, thus expanding Best BuyÕs reach among consumers.expansion Through acquisitionsIn 2000, Best Buy began a series of acquisitions to expand its offerings and enter inter-national markets:2000: Best Buy acquired Magnolia Hi-Fi Inc., a high-end retailer of audio and video products and services, which became Magnolia Audio Video in 2004. This acquisi-tion allowed Best Buy access to a set of upscale customers.2001: Best Buy entered the international market with the acquisition of Future Shop Ltd, a leading consumer electronics retailer in Canada. This helped Best Buy increase revenues, gain market share, and leverage operational expertise. The same year, Best Buy also opened its first Canadian store. In the same year, the company Z27_WHEE5488_15_GE_CA27.indd 26/20/17 10:42 AM
Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model? 27-3purchased Musicland, a mall-centered music retailer throughout the United States (divested in 2003).2002: Best Buy acquired Geek Squad, a computer repair service provider, to help develop a technological support system for customers. The retailer began by incor-porating in-store Geek Squad centers in its 28 Minnesota stores, then expanding nationally, and eventually internationally in subsequent years.2005: Best Buy opened the first Magnolia Home Theater Òstore-within-a-storeÓ (located within the Best Buy complex).2006: Best Buy acquired Pacific Sales Kitchen and Bath Centers Inc. to develop a new customer base: builders and remodelers. The same year, Best Buy also acquired a 75% stake in Jiangsu Five Star Appliance Co., Ltd, a China-based appliance and consumer electronics retailer. This enabled the company to access the Chinese retail market and led to the opening of the first Best Buy China store on January 26, 2007.2007: Best Buy acquired Speakeasy Inc., a provider of broadband, voice, data, and information technology services, to further its offering of technological solutions for customers.2008: Through a strategic alliance with the Carphone Warehouse Group, a UK-based provider of mobile phones, accessories, and related services, Best Buy Mobile was developed. After acquiring a 50% share in Best Buy Europe (with 2414 stores) from the Carphone Warehouse, Best Buy intended to open small-store formats across Europe in 2011.3 Best Buy also acquired Napster, a digital download provider, through a merger to counter the falling sales of compact discs. The first Best Buy Mexico store was opened.2009: Best Buy acquired the remaining 25% of Jiangsu Five Star. Best Buy Mobile moved into Canada.Industry EnvironmentIndustry OverviewDespite the negative impact the financial crisis had on economies worldwide, in 2008 the consumer electronics industry managed to grow to a record high of US$694 billion in salesÑa nearly 14% increase over 2007. In years immediately prior, the growth rate was similar: 14% in 2007 and 17% in 2006. This momentum, however, did not last. Sales dropped 2% in 2009, the first decline in 20 years for the electronics giant.A few product segments, including televisions, gaming, mobile phones, and Blu-ray players, drove sales for the company. Television sales, specifically LCD units, which accounted for 77% of total television sales, were the main driver for Best Buy, as this segment alone accounted for 15% of total industry revenues. The gaming segment con-tinued to be a bright spot for the industry as well, as sales were expected to have tre-mendous room for growth. Smartphones were another electronics industry segment predicted to have a high growth impact on the entire industry.The consumer electronics industry had significant potential for expansion into the global marketplace. There were many untapped markets, especially newly developing countries. These markets were experiencing the fastest economic growth while having the lowest ownership rate for gadgets.4 Despite the recent economic downturn, the future for this industry was optimistic. A consumer electronics analyst for the European Market Research Institute predicted that the largest growth will be seen in China (22%), the Middle East (20%), Russia (20%), and South America (17%).5Z27_WHEE5488_15_GE_CA27.indd 36/20/17 10:42 AM
27-4 Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model?Barriers to entryAs globalization spread and use of the Internet grew, barriers to entering the consumer electronics industry were diminished. When the industry was dominated by brick-and-mortar companies, obtaining the large capital resources needed for entry into the market was a barrier for those looking to gain any significant market share. Expanding a busi-ness meant purchasing or leasing large stores that incurred high initial and overhead costs. However, the Internet significantly reduced the capital requirements needed to enter the industry. Companies like Amazon.com and Dell utilized the Internet to their advantage and gained valuable market share.The shift toward Internet purchasing also negated another once strong barrier to entry: customer loyalty. The trend was that consumers would research products online to determine which one they intended to purchase and then shop around on the Internet for the lowest possible price.Even though overall barriers were diminished, there were still a few left, which a company like Best Buy used to its advantage. The first, and most significant, was economies of scale. With over 1000 locations, Best Buy used its scale to obtain cost advantages from suppliers due to high quantity orders. Another advantage was in advertising. Large firms had the ability to increase advertising budgets to deter new entrants into the market. Smaller companies generally did not have the marketing budgets for massive television campaigns, which were still one of the most effective marketing strategies available to retailers. Although Internet sales were growing, the industry was still dominated by brick-and-mortar stores. Most consumers looking for electronicsÑespecially major electronicsÑfelt a need to actually see their prospective purchases in person. Having the ability to spend heavily on advertising helped increase foot traffic to these stores.Internal EnvironmentFinanceWhile Best BuyÕs increase in revenue was encouraging (see Exhibit 1), recent growth had been fueled largely by acquisition, especially Best BuyÕs fiscal year 2009 revenue growth. At the same time, net income and operating margins had been declining (see Exhibits 2 and 3). Although this could be a function of increased costs, it was more likely due to pricing pressure. Given the current adverse economic conditions, prices of many consumer electronic products had been forced down by economic and competitive pres-sures. These lower prices caused margins to decline, negatively affecting net income and operating margins.ExHIbIt 1Quarterly sales, Best Buy Co., Inc.$0$5,000In Millions$10,000$15,000$20,0001st Qtr2nd Qtr3rd Qtr4th Qtr200520062007200820092010SOURCE: Best Buy Co., Inc.Z27_WHEE5488_15_GE_CA27.indd 46/20/17 10:42 AM
Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model? 27-5Best BuyÕs long-term debt increased substantially from fiscal 2008 to 2009 (see Exhibit 4), which was primarily due to the acquisition of Napster and Best Buy Europe. The trend in available cash has been a mirror image of long-term debt. Available cash increased from fiscal 2005 to 2008 and then was substantially lower in 2009 for the same reason.While the change in available cash and long-term debt were not desirable, the bright side was that this situation was due to the acquisition of assets, which led to a significant increase in revenue for the company. Ultimately, the decreased avail-ability of cash would seem to be temporary due to the circumstances. The more troubling concern was the decline in net income and operating margins, which Best Buy needed to find a way to turn around. If the problems with net income and oper-ating margins were fixed, the trends in cash and long-term debt would also begin to turn around.At first blush, the increase in accounts receivable and inventory was not necessarily alarming since revenues were increasing during this same time period (see Exhibit 5). However, closer inspection revealed a 1% increase in inventory from fiscal 2008 to 2009 and a 12.5% increase in revenue accompanied by a 240% increase in accounts receiv-able. This created a potential risk for losses due to bad debts. (For complete financial statements, see Exhibits 6 and 7).Exhibit 2Quarterly Net Income, Best Buy Co., Inc.$0$200$400In Millions$600$800$1,0001st Qtr2nd Qtr3rd Qtr4th Qtr200520062007200820092010SOURCE: Best Buy Co., Inc.Exhibit 3Operating Margin, Best Buy Co., Inc.0.00%2.00%4.00%6.00%8.00%10.00%1st Qtr2nd Qtr3rd Qtr4th Qtr200520062007200820092010SOURCE: Best Buy Co., Inc.Exhibit 4Long-Term Debt and Cash, Best Buy Co., Inc.$0$500$1,000In Millions$1,500$2,00020052006200720082009Long term DebitCashSOURCE: Best Buy Co., Inc.Z27_WHEE5488_15_GE_CA27.indd 56/20/17 10:42 AM
27-6 Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model?ExHIbIt 5accounts Receivable and Inventory, Best Buy Co., Inc.$0$1,000$2,000$3,000$4,000$5,00020052006200720082009InventoryAccounts receivableSOURCE: Best Buy Co., Inc.ExHIbIt 6Consolidated Balance sheets, Best Buy Co., Inc. ($ in millions, except per share and share amounts)February 28, 2009March 1, 2008AssetsCurrent assets: Cash and cash equivalents$498$1,438 Short-term investments1164 Receivables1,868549 Merchandise inventories4,7534,708 Other current assets1,062583 Total current assets8,1927,342Property and equipment: Land and buildings755732 Leasehold improvements2,0131,752 Fixtures and equipment4,0603,057 Property under capital lease112676,9405,608 Less accumulated depreciation2,7662,302 Net property and equipment4,1743,306Goodwill2,2031,088Tradenames17397Customer relationships3225Equity and other investments395605Other assets367315Total assets$15,826$12,758Liabilities and shareholdersÕ equity Current liabilities: Accounts payable$4,997$4,297 Unredeemed gift card liabilities479531 Accrued compensation and related expenses459373 Accrued liabilities1,382975 Accrued income taxes281404 Short-term debt783156 Current portion of long-term debt5433 Total current liabilities8,4356,769Z27_WHEE5488_15_GE_CA27.indd 66/20/17 10:42 AM
Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model? 27-7February 28, 2009March 1, 2008Long-term liabilities1,109838Long-term debt1,126627Minority interests51340ShareholdersÕ equity: Preferred stock, $1.00 par value: AuthorizedÑ400,000 shares; Issued and outstandingÑnoneÑÑ Common stock, $0.10 par value: AuthorizedÑ1.0 billion shares; Issued and outstandingÑ413,684,000 and 410,578,000 shares, respectively4141 Additional paid-in capital2058 Retained earnings4,7143,933 Accumulated other comprehensive (loss) income(317)502 Total shareholdersÕ equity4,6434,484Total liabilities and shareholdersÕ equity$15,826$12,758SOURCE: Best Buy Co., Inc. 2009 Form 10-K, p. 56.ExHIbIt 6(Continued)Fiscal Years EndedFebruary 28, 2009March 1, 2008March 3, 2007Revenue$45,015$40,023$35,934Cost of goods sold34,01730,47727,165Gross profit10,9989,5468,769Selling, general and administrative expenses8,9847,3856,770Restructuring charges78ÑÑGoodwill and tradename impairment66ÑÑOperating income1,8702,1611,999Other income (expense)Investment income and other35129162Investment impairment(111)ÑÑInterest expense(94)(62)(31)Earnings before income tax expense, minority interests and equity in income (loss) of affiliates1,7002,2282,130Income tax expense674815752Minority interests in earnings(30)(3)(1)Equity in income (loss) of affiliates7(3)ÑNet earnings$1,003$1,407$1,377Earnings per shareBasic$2.43$3.20$2.86Diluted$2.39$3.12$2.79Weighted-average common shares outstanding (in millions)Basic412.5439.9482.1Diluted422.9452.9496.2ExHIbIt 7Consolidated statements of earnings, Best Buy Co., Inc. ($ in millions, except per share amounts)SOURCE: Best Buy Co., Inc. 2009 Form 10-K, p. 57.Z27_WHEE5488_15_GE_CA27.indd 76/20/17 10:42 AM
27-8 Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model?MarketingBest BuyÕs marketing goals were four-fold: (1) to market various products based on the customer-centricity operating model, (2) to address the needs of customer lifestyle groups, (3) to be at the forefront of technological advances, and (4) to meet customer needs with end-to-end solutions.Best Buy prided itself on customer centricity that catered to specific customer needs and behaviors. Over the years, the retailer created a portfolio of products and services that complemented one another and added to the success of the business. These prod-ucts included seven distinct brands domestically, as well as other brands and stores internationally:Best Buy: This brand offered a wide variety of consumer electronics, home office prod-ucts, entertainment software, appliances, and related services.Best Buy Mobile: These stand-alone stores offered a wide selection of mobile phones, accessories, and related e-services in small-format stores.Geek Squad: This brand provided residential and commercial product repair, support, and installation services both in-store and onsite.Magnolia Audio Video: This brand offered high-end audio and video products and related services.Napster: This brand was an online provider of digital music.Pacific Sales: This brand offered high-end home improvement products, primarily including appliances, consumer electronics, and related services.Speakeasy: This brand provided broadband, voice, data, and information technology services to small businesses.Starting in 2005, Best Buy initiated a strategic transition to a customer-centric operating model, which was completed in 2007. Prior to 2005, the company focused on customer groups such as affluent professional males, young entertainment enthusiasts, upscale suburban mothers, and technologically advanced families.6 After the transition, Best Buy focused more on customer lifestyle groups such as affluent suburban families, trendsetting urban dwellers, and the closely knit families of Middle America.7 To target these various segments, Best Buy acquired firms with aligned strategies, which were used as a competitive advantage against its strongest competition, such as Circuit City and Wal-Mart. The acquisitions of Pacific Sales, Speakeasy, and Napster, along with the devel-opment of Best Buy Mobile, created more product offerings, which led to more profits.Marketing these different types of products and services was a difficult task. That was why Best BuyÕs employees had more training than competitors. This knowledge service was a value-added competitive advantage. Since the sales employees no longer operated on a commission-based pay structure, consumers could obtain knowledge from salespeople without being subjected to high-pressure sales techniques. This was gener-ally seen to enhance customer shopping satisfaction.OperationsBest BuyÕs operating goals included increasing revenues by growing its customer base, gaining more market share internationally, successfully implementing marketing and sales strategies in Europe, and having multiple brands for different customer lifestyles through M&A (Merger and Acquisition).Z27_WHEE5488_15_GE_CA27.indd 86/20/17 10:42 AM
Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model? 27-9Domestic Best Buy store operations were organized into eight territories, with each territory divided into districts. A retail field officer oversaw store performance through district managers, who met with store employees on a regular basis to discuss operations strategies such as loyalty programs, sales promotion, and new product introductions.8 Along with domestic operations, Best Buy had an interna-tional operation segment, originally established in connection with the acquisition of Canada-based Future Shop.9In fiscal 2009, Best Buy opened up 285 new stores in addition to the European acquisition of 2414 Best Buy Europe stores. It relocated 34 stores and closed 67 stores.Human ResourcesThe objectives of Best BuyÕs human resources department were to provide consumers with the right knowledge of products and services, to portray the companyÕs vision and strategy on an everyday basis, and to educate employees on the ins and outs of new products and services. Best Buy employees were required to be ethical and knowledge-able. This principle started within the top management structure and filtered down from the retail field officer through district managers, and through store managers to the employees on the floor. Every employee had to have the companyÕs vision embedded in their service and attitude.Despite Best BuyÕs efforts to train an ethical and knowledgeable employee force, there were some allegations and controversy over Best Buy employees, which gave the company a black eye in the public mind. One lawsuit claimed that Best Buy employees had misrepresented the manufacturerÕs warranty in order to sell its own product service and replacement plan. The lawsuit accused Best Buy of Òentering into a corporate-wide scheme to institute high-pressure sales techniques involving the extended warrantiesÓ and Òusing artificial barriers to discourage consumers who purchased the Õcomplete extended warrantiesÕ from making legitimate claims.Ó10In a more recent case (March 2009), the U.S. District Court granted Class Action certification to allow plaintiffs to sue Best Buy for violating its ÒPrice MatchÓ policy. According to the ruling, the plaintiffs alleged that Best Buy employees would aggres-sively deny consumers the ability to apply the companyÕs Òprice match guarantee.Ó11 The suit also alleged that Best Buy had an undisclosed ÒAnti-Price Matching Policy,Ó where the company told its employees not to allow price matches and gave financial bonuses to employees who complied.CompetitionBrick-and-Mortar CompetitorsWal-Mart Stores Inc., the worldÕs largest retailer, with revenues over US$405 billion, operated worldwide and offered a diverse product mix with a focus on being a low-cost provider. In recent years, Wal-Mart increased its focus on grabbing market share in the consumer electronics industry. In the wake of Circuit CityÕs liquidation,12 Wal-Mart was stepping up efforts by striking deals with Nintendo and Apple that would allow each company to have their own in-store displays. Wal-Mart also considered using Smart-phones and laptop computers to drive growth.13 It was refreshing 3500 of its electronics departments and was beginning to offer a wider and higher range of electronic products. Z27_WHEE5488_15_GE_CA27.indd 96/20/17 10:42 AM
27-10 Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model?These efforts should help Wal-Mart appeal to the customer segment looking for high quality at the lowest possible price.14GameStop Corp. was the leading video game retailer with sales of almost US$9 billion as of January 2009, in a forecasted US$22 billion industry. GameStop operated over 6000 stores throughout the United States, Canada, Australia, and Europe, as a retailer of both new and used video game products including hardware, software, and gaming accessories.15The advantage GameStop had over Best Buy was the number of locations: 6207 GameStop locations compared to 1023 Best Buy locations. However, Best Buy seemed to have what it took to overcome this advantageÑdeep pockets. With significantly higher net income, Best Buy could afford to take a hit to its margins and undercut GameStop prices.16RadioShack Corp. was a retailer of consumer electronics goods and services, including flat panel televisions, telephones, computers, and consumer electronics accessories. Although the company grossed revenues of over US$4 billion from 4453 locations, RadioShack consistently lost market share to Best Buy. Consumers had a preference for RadioShack for audio and video components, yet preferred Best Buy for their big box purchases.17Second tier competitors were rapidly increasing. Wholesale shopping units were becoming more popular, and companies such as Costco and BJÕs had increased their piece of the consumer electronics pie over the past few years. After Circuit CityÕs bank-ruptcy, mid-level electronics retailers like HH Gregg and Ultimate Electronics were scrambling to grab Circuit CityÕs lost market share. Ultimate Electronics, owned by Mark Wattles, who was a major investor in Circuit City, had a leg up on his competitors. Wattles was on Circuit CityÕs board of executives and had firsthand access to profitable Circuit City stores. Ultimate Electronics planned to expand its operations by at least 20 stores in the near future.Online CompetitorsAmazon.com Inc., since 1994, had grown into the United StatesÕ largest online retailer with revenues of over US$19 billion in 2008 by providing just about any product imagin-able through its popular website. Created as an online bookstore, Amazon soon ventured into various consumer electronics product categories including computers, televisions, software, video games, and much more.18Amazon.com gained an advantage over its supercenter competitors because it was able to maintain a lower cost structure compared to brick-and-mortar companies like Best Buy. Amazon was able to push those savings through to its product pricing and selection/diversification. With an increasing trend in the consumer electronics industry to shop online, Amazon.com was positioned perfectly to maintain strong market growth and potentially steal some market share away from Best Buy.Netflix Inc. was an online video rental service, offering selections of DVDs and Blu-ray discs. Since its establishment in 1997, Netflix had grown into a US$1.4 billion company. With over 100,000 titles in its collection, the company shipped for free to approximately 10 million subscribers. Netflix began offering streaming downloads through its website, which eliminated the need to wait for a DVD to arrive.Netflix was quickly changing the DVD market, which had dramatically impacted brick-and-mortar stores such as Blockbuster and Hollywood Video and retailers who offered DVDs for sale. In a responsive move, Best Buy partnered with CinemaNow to enter the digital movie distribution market and counter Netflix and other video rental providers.19Z27_WHEE5488_15_GE_CA27.indd 106/20/17 10:42 AM
Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model? 27-11Core CompetenciesCustomer-Centricity ModelMost players in the consumer electronics industry focused on delivering products at the lowest cost (Wal-MartÑbrick-and-mortar; AmazonÑweb-based). Best Buy, how-ever, took a different approach by providing customers with highly trained sales associ-ates who were available to educate customers regarding product features. This allowed customers to make informed buying decisions on big-ticket items. In addition, with the Geek Squad, Best Buy was able to offer and provide installation services, product repair, and ongoing support. In short, Best Buy provided an end-to-end solution for its customers.Best Buy used its customer-centricity model, which was built around a significant database of customer information, to construct a diversified portfolio of product offer-ings. This let the company offer different products in different stores in a manner that matched customer needs. This in turn helped keep costs lower by shipping the correct inventory to the correct locations. Since Best BuyÕs costs were increased by the high level of training needed for sales associates and service professionals, it had been impor-tant that the company remain vigilant in keeping costs down wherever it could without sacrificing customer experience.The tremendous breadth of products and services Best Buy was able to provide allowed customers to purchase all components for a particular need within the Best Buy family. For example, if a customer wanted to set up a first-rate audio-visual room at home, he or she could go to the Magnolia Home Theater store-within-a-store at any Best Buy location and use the knowledge of the Magnolia or Best Buy associate in the television and audio areas to determine which television and surround sound theater system best fit their needs. The customer could then employ a Geek Squad employee to install and set up the television and home theater system. None of Best BuyÕs competi-tors offered this extensive level of service.successful acquisitionsThrough its series of acquisitions, Best Buy had gained valuable experience in the pro-cess of integrating companies under the Best Buy family. The ability to effectively deter-mine where to expand was important to the companyÕs ability to differentiate itself in the marketplace. Additionally, Best Buy was also successfully integrating employ-ees from acquired companies. Best Buy had a significant global presence, which was important because of the maturing domestic market. This global presence provided the company with insights into worldwide trends in the consumer electronics industry and afforded access to newly developing markets. Best Buy used this insight to test products in different markets in its constant effort to meet and anticipate customer needs.Retaining TalentAnalyzing Circuit CityÕs demise, many experts concluded one of the major reasons for the companyÕs downfall was that Circuit City let go of their most senior and well-trained sales staff in order to cut costs. Best Buy, on the other hand, had a reputation for retaining talent and was widely recognized for its superior service. Highly trained sales professionals had become a unique resource in the consumer electronics industry, where technology was changing at an unprecedented rate, and was a significant source of competitive advantage.Z27_WHEE5488_15_GE_CA27.indd 116/20/17 10:42 AM
27-12 Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model?Challenges Aheadeconomic DownturnElectronics retailers like Best Buy sold products that could be described as Òdiscretion-ary items, rather than necessities.Ó20 During economic recessions, however, consum-ers had less disposable income to spend. While there was optimism about a possible economic turnaround in 2010 or 2011, if the economy continued to stumble, this could present a real threat to sellers of discretionary products.In order to increase sales revenues, many retailers, including Best Buy, offered cus-tomers low-interest financing through their private-label credit cards. These promotions were tremendously successful for Best Buy. From 2007 to 2009, these private-label credit card purchases accounted for 16%Ð18% of Best BuyÕs domestic revenue. Due to the credit crisis, however, the Federal Reserve issued new regulations that could restrict companies from offering deferred interest financing to customers. If Best Buy and other retailers were unable to extend these credit lines, it could have a tremendous negative impact on future revenues.21Pricing and Debt ManagementThe current depressed economic conditions, technological advances, and increased competition put a tremendous amount of pricing pressure on many consumer elec-tronics products. This was a concern for all companies in this industry. The fact that Best Buy did not compete strictly on price structure alone made this an even bigger concern. Given the higher costs that Best Buy incurred training employees, any pric-ing pressure that decreased margins put stress on Best BuyÕs financial strength. In addition, the recent acquisition of Napster and the 50% stake in Best Buy Europe significantly increased Best BuyÕs debt and reduced available cash. Even in pros-perous times, debt management was a key factor in any companyÕs success, and it became even more important during the economic downturn. (See Exhibits 6 and 7 for Best BuyÕs financial statements.)Products and serviceAs technology improved, product life cycles, as well as prices, decreased. As a result, mar-gins decreased. Under Best BuyÕs service model, shorter product life cycles increased training costs. Employees were forced to learn new products with higher frequency. This was not only costly but also increased the likelihood that employees would make mistakes, thereby tarnishing Best BuyÕs service record and potentially damaging one of its most important, if not its most important, differentiators. In addition, more resources would be directed at research of new products to make sure Best Buy continued to offer the products consumers desire.One social threat to the retail industry was the growing popularity of the online marketplace. Internet shoppers could browse sites searching for the best deals on spe-cific products. This technology allowed consumers to become more educated about their purchases, while creating increased downward price pressure. Ambitious consum-ers could play the role of a Best Buy associate themselves by doing product comparisons and information gathering without a trip to the store. This emerging trend created a direct threat to companies like Best Buy, which had 1023 stores in its domestic market Z27_WHEE5488_15_GE_CA27.indd 126/20/17 10:42 AM
Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model? 27-13alone. One way Best Buy tried to continue the demand for brick-and-mortar locations and counter the threat of Internet-based competition was by providing value-added services in stores. Customer service, repairs, and interactive product displays were just a few examples of these services.22LeadershipThe two former CEOs of Best Buy, Richard Shultze and Brad Anderson, were extremely successful at making the correct strategic moves at the appropriate times. With Brad Anderson stepping aside in June 2009, Brian Dunn replaced him as the new CEO. Although Dunn worked for the company for 24 years and held the key positions of COO and President during his tenure, the position of CEO brought him to a whole new level and presented new challenges, especially during the economic downturn. He was charged with leading Best Buy into the world of increased connectivity. This required a revamping of products and store setups to serve customers in realizing their connectivity needs. This was a daunting task for an experienced CEO, let alone a new CEO who had never held the position.Wal-MartBest Buy saw its largest rival, Circuit City, go bankrupt. However, a new archrival, Wal-Mart, was expanding into consumer electronics and stepping up competition in a price war Wal-Mart hoped to win. Best Buy needed to face the competition not by lowering prices, but by coming up with something really different. Best Buy had to determine the correct path to improve its ability to differentiate itself from competitors, which was increasingly difficult given an adverse economic climate and the companyÕs financial stress. How Best Buy could maintain innovative products, top-notch employees, and superior customer service while facing increased competition and operational costs was an open question. 1. Best Buy Co. Inc., Form 10-K. Securities and Exchange Commission, February 28, 2009. 2. Ibid. 3. Ibid. 4. Greg Keller, ÒThreat Grows by iPod and Laptop,Ó The Columbus Dispatch, May 18, 2009, http://www.dispatch .com/live/content/business/stories/2009/05/18/greener _gadgets.ART_ART_05-18-09_A9_TMDSJR8.html (July 10, 2009). 5. Larry Magid, ÒConsumer Electronics: Future Looks Bright,Ó CBSNews.com, May 2, 2008, http://www.cbsnews .com/stories/2008/05/02/scitech/pcanswer/main4067008 .shtml (July 10, 2009). 6. Best Buy Co. Inc., Form 10-K, 2009. 7. Ibid. 8. Ibid. 9. Ibid. 10. Manhattan Institute for Policy Research, ÒTheyÕre Making a Federal Case Out of It . . . in State Court,Ó Civil Justice Report 3, 2001, http://www.manhattan-institute.org/html/cjr_3_part2.htm. 11. ÒBest Buy Bombshell!Ó HD Guru, March 21, 2009, http://hdguru.com/best-buy-bombshell/. 12. Circuit City Stores Inc. was an American retailer in brand-name consumer electronics, personal computers, enter-tainment software, and (until 2000) large appliances. The company opened its first store in 1949 and liquidated its final American retail stores in 2009 following a bankruptcy filing and subsequent failure to find a buyer. At the time of liquidation, Circuit City was the second-largest U.S. elec-tronics retailer, after Best Buy. 13. Z. Bissonnette, ÒWal-Mart Looks to Expand Electronics Business,Ó Bloggingstocks.com, May 18, 2009, http://www .bloggingstocks.com/2009/05/18/wal-mart-looks-to-expand- electronics-business/. 14. N. Maestrie, ÒWal-Mart Steps Up Consumer Electronics Push,Ó Reuters, May 19, 2009, http://www.reuters.com/article/technologyNews/idUSTRE54I4TR20090519.NOTESZ27_WHEE5488_15_GE_CA27.indd 136/20/17 10:42 AM
27-14 Case 27 Best Buy Co. Inc. (2009): Sustainable Customer-Centricity Model? 15. Capital IQ, ÒGameStop Corp. Corporate Tearsheet,Ó Capi-tal IQ, 2009. 16. E. Sherman, ÒGameStop Faces Pain from Best Buy, Downloading,Ó BNET Technology, June 24, 2009, http://industry .bnet.com/technology/10002329/gamestop-faces-pain-from-best-buy-downloading/. 17. T. Van Riper, ÒRadioShack Gets Slammed,Ó Forbes.com, February 17, 2006, http://www.forbes.com/2006/02/17/radioshack-edmondson-retail_cx_tr_0217radioshack.html. 18. Capital IQ, ÒAmazon.com Corporate Tearsheet,Ó Capital IQ, 2009. 19. T. Kee, ÒNetflix Beware: Best Buy Adds Digital Downloads with CinemaNow Deal,Ó paidContent.org, June 5, 2009, http://paidcontent.org/article/419-best-buy-adds-digital-movie-downloads-with-cinemanow-deal/. 20. Best Buy Co., Inc., Form 10-K, 2009. 21. Ibid. 22. Ibid.Z27_WHEE5488_15_GE_CA27.indd 146/20/17 10:42 AM