Best Buy is among the largest consumer electronics retailers in the United States, covering up to 19% of its market. The company has 4,000 stores worldwide, including such countries as the USA, Canada, Mexico, Turkey, and China. It deals with the production of cellular phones, TV sets, computers, home appliances, cameras, office machines, and audio gadgets. Best Buy won the Company of the Year Award in 2004 for its major operations both internally and externally.
The company remained successful and was able to excel its competitors by formulating effective strategies. For instances, Best Buy neglected the low price policy and chose to use differentiation instead. It expanded the assortment of products and started providing services for the same range of goods. The strategy was implemented by terminating the compensation schemes for sales associates and introducing a model that focused on customer-centric operating in order to provide end-to-end services. These strategies helped Best Buy to maintain a good reputation.
As much as the company is enjoying remarkable success in both local and global markets, it still encounters some internal and external challenges. The competitive nature of the industry imposes much pressure on Best Buy and demands the expansion of its market. The economy downturn, pricing and debt management as well as technological pressure are among the difficulties that are currently hampering the company’s effective performance. These obstacles require proper and advanced strategies, which can improve Best Buy’s position in the market.
The company focuses on selling consumer electronics and other related goods, such as video games and digital cameras, together with some home appliances, for example, refrigerators, washing machines, and fans. These products have to withstand competition with Walmart, online companies such as Netflix or Amazon.com, and other well-performing retailers. The worldwide economic downturn has forced the company to secure its future by introducing effective strategies. The paper seeks to overview the history of the company by analysing its production. Furthermore, the paper will discuss some appropriate actions that can redirect the business towards its goals and visions. Then, it will examine the effects of macro and microenvironments. Finally, the paper will make suggestions on the strategic options, recommendations, and implementations.
Best Buy Company was founded in 1966 and was initially known as the Sound of Music. It mainly dealt with audio products until the 1980s, when it also started to produce video outputs. In 1983, Sound of Music was renamed Best Buy, which launched the system of stores and branches. The retail network was a way of expansion and a part of the product promotion strategy. Best Buy relied on the commission sales scheme, which focused only on winning a large number of customers, but ignored their welfare. In 1989, the company abandoned the commission-based sales model and switched to the policy that protected customers’ interests (Trefis Team, 2014).
The electronic industry has been constantly growing despite the unstable economic situation. In 2008, it generated approximately 694 billion in sales, which marked a positive 14% increase in comparison with the previous year (Gibson & Billings, 2003). In the recent years, the industry sales have been declining, which is a warning signal for Best Buy. The company’s main income comes from selling LCD televisions, Blu-ray players, and gaming products. These items comprise 77 % of its sales. The numbers imply that Best Buy makes small contribution to the industry, because its best-selling products constitute only 15% of the total industry earnings per year (Gibson & Billings, 2003).
Today, Best Buy is in a better market position, because the industry is exceedingly growing. For instance, gaming production appears to be lucrative today due to the predictable increase in the number of users. According to a consumer electronics analyst for the European Research Institute, the electronic industry is growing globally nowadays. China possesses 22 per cent of the market, 20 per cent belong to the Middle East and the same amount to Russia, 17 per cent more are formed by South America(Gibson & Billings, 2003).
The Best Buy’s mission statement declares that the company targets to meet customers’ demands and ensure that all promises given to them are kept . The company has attained this by informing its clients about the benefits of technology. It helps customers to keep with the pace of changes by giving access to necessary gadgets, which can enrich their lives. Additionally, it is said that “machine makes work easier,” so Best Buy uses this saying as a motto and strives to make the life of its customers less complicated. As a part of this mission, the company has provided end-to-end technology remedies and offered constant support to customers (Hitt, Ireland, & Hoskisson, 2012).
Best Buy has the vision of expanding the company and increasing its earnings, but not at the expense of employees and customers. This is achieved by regularly reviewing workers’ welfare and clients’ satisfaction. Additionally, the company aims to have a broad range of products and knowledge about them as well as well-trained personnel. The company expects to get a globally competitive position within a short period as it has expanded its branches to various countries such as China, the UK, and Canada. Moreover, Best Buy has acquired several subsidiaries as, for example, the Future Shop Ltd in Canada and Magnolia Hi-Fi. Inc (Hitt, Ireland, & Hoskisson, 2012).
The mission and vision statements of the company are closely related to its core values. Best Buy operates according to four simple principles, which are as follows: enjoying a good time while providing high-quality service; showing humility, integrity, and respect; spreading the power; and dealing with challenges and changes. The aim of these values is to ensure that both employees and the customers have all possible benefits. The same values encourage the company’s actions of offering a competitive salary package to its workers and delivering high-quality products to its clients all over the world (Gibson & Billings, 2003).
As in many other public companies, Best Buy’s stakeholders include customers, employees, and owners. The customers are considered to be in a chief position, and the company continually tries to meet their demands in order to keep them satisfied. It is achieved by encouraging the staff to help customers to understand the maximum benefits of the products. The employees play a vital role in progress and financial sustainability of Best Buy. They follow the stipulated guidelines and policies to fulfil both the mission and the vision of the organization (Gibson & Billings, 2003). The workers are motivated as they receive reasonable remuneration and proper working conditions. The shareholders are simply the owners of the company, who make investments with the expectation of multiplied earnings. Best Buy treats its shareholders with utmost integrity, regarding any activity or decision it chooses to undertake. The shareholders, in their turn, expect full transparency and good corporate governance. Generally, in each contemplated strategy, it is the duty of the company’s management to consider the interest and control the welfare of all the three groups of stakeholders (Zentes, Morschett, & Schramm-Klein, 2012).
Best Buy operates in the electronic and technological industry. This sphere is quite competitive and exhibits a potential of expanding into the global market. The external environment includes the market, which consists of customers, managers, competitors, and suppliers. The market is broad, and it is constantly growing along with the changing lifestyle, because everyone in the world is exploiting technology. Best Buy products work mainly on electricity, which gives them an advantage, since approximately 73% of the world’s population can access electricity. Additionally, the company has some user-friendly goods, and the employees try to familiarize customers with the ways of getting the most advantages from using them (Makos, 2015).
While operating in a growing industry, the company encounters stiff competition. Although Best Buy has attempted to expand the market coverage by acquisition of new branches and merging, the competition effects are still noticeable. Best Buy major opponents are Walmart, Amazon, and GameStop Corp. Walmart, for instance, rivals the company due to its numerous subsidiaries and a diverse products mix. Market research indicates that Walmart has a bigger market share in consumer electronics industry. Another competitor, Amazon, has successfully occupied the online market segment. Some customers prefer to make online purchases as they offer an opportunity to compare prices and quality before making a buying decision. GameStop Corp competes with Best Buy in video game production and is ranked as the leading video game retailer in the world. Moreover, it has advantage in a number of locations: 6,207, in comparison with Best Buy’s 1,023 (Makos, 2015).
However, Best Buy has opportunities that can help it to develop and deal with the negative effects, caused by competitors. The market is fair to each company, because it introduces a healthy competition. If a new enterprise wants to enter the industry, it has to meet the standards set by already existing corporations. Best Buy has chances to improve its performance and expand its market shares by acquiring the Internet market segment. Additionally, Best Buy can extend its influence globally by establishing branches in countries with promising markets such as China, Russia, and even Africa.
Internally, Best Buy has both strengths and weaknesses. The company’s fundamental strong point is the employee-customer relationships, which have been the key to its success. Service provided by Best Buy workers includes explanations of how to use the products. Moreover, employees always honourably treat customers and develop unique methods, which will help to satisfy their needs (Makos, 2015). Another strong feature is the increasing revenue earned by Best Buy over the years. The growth of income has been generated by the newly acquired branches and subsidiary locations (Trefis Team, 2014).
At the same time, Best Buy has some weaknesses, too. For instance, the company’s equity debt ratio was high at the end of 2008 – the beginning of 2009. The company’s long-term debt increased from 2008 to 2009 because of large acquisitions made by Napster and Best Buy in Europe. As a result, the long-term debts reduced Best Buy’s liquid cash in 2009 as opposed to the period between 2005 and 2008, when the recorded level of liquid cash was higher. Among the other Best Buy’s weaknesses is the fact that there is a potential risk of financial losses caused by debts because of large sum statements registered in 2009. The problem also occurred because of increased inventory.
The recent Best Buy’s performance in the market is impressive, but there is still room for improvement. The company’s mission focuses on meeting the customers’ demands and following the technological dynamic as well as receiving a considerable payback. The best way to achieve it is to adopt three different strategies. First, it has to counter Walmart and GameStop by increasing its market share through establishing numerous branches (Harry, 2014). Best Buy ought to open new subsidiaries and acquire more affiliates in order to widen its geographical area, thereby increasing its sales globally. Second, it has to exploit the Internet platform, thus encouraging online purchases and enticing those customers who prefer online transactions. Online business appears to be growing and lucrative, because nowadays people own smart phones and computers, which they can use to make a purchase while staying at home. Third, Best Buy can consider the divestment strategy whereby it can restructure and reconstruct those segments of business, which are underperforming, and reinvest into more profitable product lines (Ireland, Hoskisson, & Hitt, 2012).
I would recommend Best Buy to consider the market expansion strategy. The bigger the market shares are, the higher are the chances of earning big revenues. Best Buy ought to increase the number of its locations both inside and outside the country through merging and acquiring more branches (Harry, 2014). The process of the strategic selection of locations for new subsidiaries should include consideration of such aspects as the degree of competition, nature of potential customers, and the level of the available technology. In addition, Best Buy should focus on the unexploited markets in Africa or South America and expand its influence there. Once the location was chosen, the company should launch an advertising campaign to promote its production and make people aware about it (Zentes, Morschett, & Schramm-Klein, 2012).
Best Buy can be among the leading companies both nationally and internationally in the electronic industry if it fully implements the two suggested strategies. According to statistics, approximately 60% of the world population can access the Internet, which implies that Best Buy can reach many customers in the world through providing online services and Internet advertising. The second strategy is the most beneficial as it corresponds to the company’s mission and vision and is also realistic. Best Buy can have an advantage over its competitors if it establishes new branches in Africa, some parts of Asia, and the other untapped markets. Additionally, Best Buy has to use its strengths and seize the available opportunities in order to have a sustainable future in such a competitive industry.