“How can Best Buy continue to have innovative products, top-notch employees, and superior customer service while facing increased competition, operational costs, and financial stress? ” This is the critical question asked by a company who has out survived others, but will they outlast when all is said and done. Originally known as the Sound of Music established in 1966, Best Buy began as an audio components retailer. By 1983, the company officially changes its name to Best Buy Co. , Inc. (Best Buy). Over the years, Best Buy changes more than its name.
With the company’s headquarters in Richfield, Minnesota it operates globally with around 4,000 stores in the United States, Canada, Mexico, China and Turkey. Accounting for 19% of the consumer electronics retailer, the company employs 155,000 “blue shirts”. From a strategic standpoint, Best Buy moves from being the low cost discount retailer to a service-oriented company relying on a differentiation strategy. This differentiation strategy is how Best Buy is able to distinguish itself apart from its competitors giving them a competitive advantage.
In 1989, Best Buy makes the executive decision to change the compensation method of its employees. While, costly and time consuming, the company conveys the purpose of this conversion is to have the employees learn the products in order to help better assist customers. This gives the company a value-added competitive advantage. Internally, Best Buy works extensively on its customer database. This resource allows the company to determine the potential expansion into an untouched market.
Places like China, Middle East, Russia, and South America are still unscathed and this is optimistic for a future of an industry that is reaching its age in maturity. The company’s objective is to find out who are their best customers. In 2005 Best Buy announces they will change their operations structure to a customer-centric operating model emphasizing on its customers. Best Buy identifies key customer segments in its customer-centric program to be as follows: affluent suburban families, trend-setting urban dwellers, and Middle America families.
With the new business model in place, the company organizes the experience around the needs of the customer and becomes widely known for superior service. This new operating model will offer customers a richer in-store experience, better shopping assistance, and more products and services. Over time, the goal of the customer-centricity model is to attract new customer segments to Best Buy stores increasing the use of existing assets. In addition, it will give Best Buy an engine for continuing to innovate and respond to changing customer needs. Successful acquisitions and retaining talent allow Best Buy to gain a valuable global presence.
Although, these core competencies are good for the company, it still poses strategic problems for Best Buy. Best Buy still has competition like brick and mortar companies like Wal-Mart, Radio Shack, and Game Stop; as well as, e-commerce companies like Netflix and Amazon. These benchmarking companies are using Best Buy’s weaknesses against them to give them a run for their money. Best Buy is not the low cost leader. Of course, there are some external factors outside of Best Buy’s control that have effects on their competing abilities. The worldwide financial crisis in 2008 hurt many companies.
Actually, that year the consumer electronics industry still manages to grow at an increase of 14% from 2007. However, that may be in part of many people who lost their jobs staying home now with nothing to do. So, they go out and buy TV’s. Because by 2009, sales begin dropping for the first time in two decades. With globalization spreading, barriers to entry begin to diminish. The expansion of people using the Internet reduces capital requirements and customer loyalty. E-commerce companies are using their strengths to their advantage and gain considerable market share.
After the recession, many people learn that shopping on the internet they are able to find products with the lowest price. Bad debts, decline in net income and operating margins, and pricing pressures are some of Best Buy’s main internal environments limiting the financial condition of the company. Given the circumstances of the economy, many companies are victims of bad debts. This creates potential risks for loss. Also, many consumers now shop for better deals thus creating lower prices of products creating competitive pressures. Lower prices cause margins to decline drastically affecting net income and operating negatively.