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BEST BUY

2010

COOKS CONSULTANTS
Specializing in Consumer Electronics Industry

Bert Van Den Hooff


Lisa Fischer
Shahar Abrams
Megan Brolley
Furkan Cizmeci

OVERVIEW
1. Strategic Issues
A. Corporate Strategy
B. Industry Analysis
C. Competitive Strategy
D. SWOT Analysis
E. Strategic Challenges

2. Strategic Alternatives + Evaluation


A. Possible Alternatives
B. Evaluation of Alternatives
C. Selected Alternatives
!

3. Action Plan
!

4. Questions

IN REVIEW: THE YEAR 2009

CORPORATE
STRATEGY

CUSTOMERS

Technology
Novices

CORPORATE STRATEGY

Individual
Consumers
Age 16-35
Age 35-60

Small
Businesses

BUSINESS + BUSINESS FIT


Discretionary

Consumer
Electronics

Electronic
Repairs

CORPORATE STRATEGY

Entertainment
Platforms

Appliances

SUBSIDIARIES
GEEK
SQUAD

PACIFIC
SALES

MAGNOLIA
AUDIO VIDEO

FUTURE
SHOP

CORPORATE STRATEGY

CORPORATE GOALS

Make technology
deliver on its
promises to
customers

Sustained
growth and
earnings

Leader in
service

CORPORATE STRATEGY

CORPORATE STRATEGY
CONCENTRIC
DIVERSIFICATION

CORPORATE STRATEGY

Common Customer
Common Technology
Common Channels
Customer Centricity Strategy

INDUSTRY
ANALYSIS

INDUSTRY GROUP MAP


HIGH
GameStop
Dell

PRICE

Best Buy
Circuit City
RadioShack
Amazon
WalMart

LOW
FEW
INDUSTRY ANALYSIS

PRODUCT LINE BREADTH

MANY

BARRIERS TO ENTRY
Economies of Scale

High

Dierentiation

High

Total Capital Requirements

High

Switching Costs: Individual

Low

Switching Costs: Business

High

Advertising

High

INDUSTRY ANALYSIS

BARRIERS TO ENTRY
Economies of Scale

High

Dierentiation

High

Total Capital Requirements

High

Switching Costs: Individual

Low

Switching Costs: Business

High

Advertising

High

INDUSTRY ANALYSIS

HIGH
BARRIERS
TO ENTRY

BARRIERS TO EXIT
Specialized Assets

High

Fixed Costs

High

Management Commitment

Low

Contractual Commitment

High

INDUSTRY ANALYSIS

BARRIERS TO EXIT
Specialized Assets

High

Fixed Costs

High

Management Commitment

Low

Contractual Commitment

High

INDUSTRY ANALYSIS

HIGH
BARRIERS
TO EXIT

RIVALRY
High

Low Rivalry

Growth Rate

Steady

Low Rivalry

Fixed Costs

High

High Rivalry

Dierentiation

High

Low Rivalry

Switching Costs

Low

High Rivalry

Exit Barriers

High

High Rivalry

Concentration

INDUSTRY ANALYSIS

RIVALRY
High

Low Rivalry

Growth Rate

Steady

Low Rivalry

Fixed Costs

High

High Rivalry

Dierentiation

High

Low Rivalry

Switching Costs

Low

High Rivalry

Exit Barriers

High

High Rivalry

Concentration

MODERATE-LOW
INDUSTRY ANALYSIS

RIVALRY

SUBSTITUTES
Electronic

E-commerce
Retailers
Amazon
eBay

INDUSTRY ANALYSIS

Big Box General

Merchandise
Retailers
WalMart
Target
Costco

Digital Content
Distributers
iTunes
Netflix

COMPLEMENTORS
INTERNAL
Complementors Within Itself
Computer Software (Computers)
Video Games (Video Game System/TV)
Acquisition of Geek Squad

EXTERNAL
Payment
Processing
Industry
Shipping
Technology

INDUSTRY ANALYSIS

INDUSTRY GLOBALIZATION
HIGH

GLOBAL

Forces For

Global
Coordination/

Integration

TRANSNATIONAL

MULTINATIONAL

LOW
FEW
INDUSTRY ANALYSIS

Forces For

Responsiveness/
Dierentiation

MANY

INDUSTRY GLOBALIZATION
NATIONAL

GLOBAL
Economies of Scale
Customer Needs
Competition
Channels
Transportation Costs

INDUSTRY ANALYSIS

Product Standards
(country vs. industry)

BUYER + SUPPLIER POWER


electronics
BUYER

consumers
SUPPLIER

Relative Industry Concentration


Switching Costs
Availability of Substitutes
INDUSTRY ANALYSIS

BUSINESS
LEVEL
STRATEGY

STRATEGIC
RESOURCES + CAPABILITIES
TANGIBLE

INTANGIBLE

Main store + acquisitions


Employees
Customer data Info

Brand equity
Reputation
Geek Squad
Employee knowledge
Multiple brand names

BUSINESS LEVEL STRATEGY

SUSTAINABILITY
Customer Centricity strategy
Brand name + reputation
Acquisitions

BUSINESS LEVEL STRATEGY

COMPETITIVE ADVANTAGE
CUSTOMER SERVICE ORIENTED

no commission

investment in employee training

employees are product experts/consumer educators

acquisitions that match customer lifestyle groups

industry-wide strategic target

product variety

high economies of scale

BUSINESS LEVEL STRATEGY

COMPETITIVE DISADVANTAGE

BUSINESS LEVEL STRATEGY

COMPETITIVE DISADVANTAGE
Not as many
store locations

BUSINESS LEVEL STRATEGY

COMPETITIVE DISADVANTAGE
Not as many No low cost
store locations structure

BUSINESS LEVEL STRATEGY

COMPETITIVE DISADVANTAGE
Not as many No low cost
store locations structure

BUSINESS LEVEL STRATEGY

Not as
specialized

COMPETITIVE DISADVANTAGE
Not as many No low cost
store locations structure

Not as
specialized

A lot of
branches

Best Buy

ACQUISITIONS
BUSINESS LEVEL STRATEGY

GENERIC BUSINESS STRATEGY

Broad Target
Market

BUSINESS LEVEL STRATEGY

Uniqueness

GENERIC BUSINESS STRATEGY

Broad Target
Uniqueness
DIFFERENTIATION
Market

BUSINESS LEVEL STRATEGY

Internal

SW
OT
External

Internal

Differentiation strategy

Expansive reach (& financial performance) through acquisitions

Customer information database

Extensive level of service

Large global presence

Increase in net income

Steady increase in sales

SWOT ANALYSIS

Internal

S
SWOT ANALYSIS

Internal
Shorter

product life cycles increase training costs

Decline

in operating margins

Fewer

stores relative to competitors (ie. WalMart + GameStop)

LOT of money needs to go into research

Relatively
Large

new CEO, Brian Dunn (2009)

debt and reduced available cash

SWOT ANALYSIS

Internal

W
SWOT ANALYSIS

External

Provide more value-added services in store

Increase global presence as domestic market matures

Move into digital streaming space by acquisitions or expansions

Increasing complexity and functionality of new technology

Products plays into competitive advantage.

SWOT ANALYSIS

External

Information available to consumers = direct threat to Best Buys


strategic model and core competency
Downward price pressure on technology products = less
consumer purchase decision time
Shorter tech product life cycles increases employee training costs
Regulation changes about deferred interest financing could have a
large negative effect on revenues.
Price Matching Controversy

SWOT ANALYSIS

KEY STRATEGIC CHALLENGE


How can Best Buy continue to have innovative
products, top-notch employees, and superior
c u s t o m e r s e r v i c e w h i l e f a c i n g i n c re a s e d
competition, operational costs, and financial stress?

GLOBAL MARKET STRATEGY

ALTERNATIVES

+
!

EVALUATIONS

ALTERNATIVES

GLOBAL
EXPANSION

MARKETING
INITIATIVE

DIGITAL
ACQUISITIONS

STRATEGIC ALTERNATIVES + EVALUATIONS

ONLINE CUSTOMER
SERVICE/LEARNING
EXPERIENCE

VIABILITY MATRIX
OF ALTERNATIVES
CONSISTENT WITH
STRATEGY + CORE COMPETENCIES
GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION

POINT VALUE
SCALE 1-4

4
3
3
2
2
1

STRATEGIC ALTERNATIVES + EVALUATIONS

POINT %
100%

50%

0% X

ALTERNATIVE 1

DIGITAL
ACQUISITIONS

STRATEGIC ALTERNATIVES + EVALUATIONS

ALTERNATIVE 1

DIGITAL
ACQUISITIONS

PROS

CONS

Anticipates growth in online

Requires large capital investment

streaming/gaming market

Could cannibalize brick and mortar

Dierentiates product portfolio


from competitors

STRATEGIC ALTERNATIVES + EVALUATIONS

compact-disc sales

EVALUATION
OF ALTERNATIVES

DIGITAL
ACQUISITIONS

CONSISTENT WITH STRATEGY + CORE COMPETENCIES

GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
STRATEGIC ALTERNATIVES + EVALUATIONS

TOTAL

9.5

ALTERNATIVE 2
ONLINE CUSTOMER
SERVICE/LEARNING
EXPERIENCE
!

Customer Oriented Online Shopping Assistance


Live online sales representatives
Online tutorials
Business cards with usernames

STRATEGIC ALTERNATIVES + EVALUATIONS

ALTERNATIVE 2

ONLINE CUSTOMER
SERVICE/LEARNING
EXPERIENCE

PROS

Enhance customer experience

Maintain online competitive advantage

Lowers HR costs

CONS

Challenges with not face-to-face


teaching

Customer is not able to sample


product

STRATEGIC ALTERNATIVES + EVALUATIONS

EVALUATION
OF ALTERNATIVES

ONLINE CUSTOMER
SERVICE/LEARNING EXPERIENCE

CONSISTENT WITH STRATEGY + CORE COMPETENCIES


GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
STRATEGIC ALTERNATIVES + EVALUATIONS

TOTAL

12

ALTERNATIVE 3

GLOBAL
EXPANSION
STRATEGIC ALTERNATIVES + EVALUATIONS

ALTERNATIVE 3

GLOBAL
EXPANSION

PROS

Large untapped demand

High potential growth

Consistent with strategy and core


competency

Established presence and knowledge


base

STRATEGIC ALTERNATIVES + EVALUATIONS

CONS

Expensive and risky

Cultural barriers

Competition from large global


competitors

EVALUATION
OF ALTERNATIVES

GLOBAL
EXPANSIONS

CONSISTENT WITH STRATEGY + CORE COMPETENCIES

GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
STRATEGIC ALTERNATIVES + EVALUATIONS

TOTAL

X
10

ALTERNATIVE 4

MARKETING
INITIATIVE

STRATEGIC ALTERNATIVES + EVALUATIONS

ALTERNATIVE 4

MARKETING
INITIATIVE

PROS

CONS

Allows for re-energization of Best Buy

Expensive

brands

People already familiar with Best

Gives rationale for higher prices

Fulfilling corporate goals

STRATEGIC ALTERNATIVES + EVALUATIONS

Buy

EVALUATION
OF ALTERNATIVES

MARKETING
INITIATIVE

CONSISTENT WITH STRATEGY + CORE COMPETENCIES


GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS

EASE OF IMPLEMENTATION
STRATEGIC ALTERNATIVES + EVALUATIONS

TOTAL

EVALUATION OF
ALTERNATIVES

CONSISTENT WITH

STRATEGY + CORE COMPETENCIES

GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
TOTAL

X
X
X X
9.5

12

10

EVALUATION OF
ALTERNATIVES

CONSISTENT WITH

STRATEGY + CORE COMPETENCIES

GROWTH POTENTIAL
CONSISTENT WITH MARKET TRENDS
PROFITABILITY
COST EFFECTIVENESS
EASE OF IMPLEMENTATION
TOTAL

X
X
X X
9.5

12

10

SELECTED ALTERNATIVE

STRATEGIC ALTERNATIVES + EVALUATIONS

SELECTED ALTERNATIVE

ONLINE CUSTOMER
SERVICE/LEARNING
EXPERIENCE

STRATEGIC ALTERNATIVES + EVALUATIONS

SELECTED ALTERNATIVE
WHY SHIFT TO E-COMMERCE?
Year
2006

E-commerce
Revenue
2,972

% change Total
Commerce
13.9%
6.8%

2007

3,333

12.15%

5.0%

2008

3,704

11.13%

5.0%

2009

3,371

8.99% 10.9%

STRATEGIC ALTERNATIVES + EVALUATIONS

ACTION
PLAN
ACTION PLAN

WHO IS RESPONSIBLE?
SENIOR EXECUTIVES

DEPARTMENTS

VP of Operations

eCommerce

VP of Human Resources

Information Technology

ACTION PLAN

TIMELINE

TIMELINE

RESEARCH

Which stores
to close
Outsource?
Operational +
HR logistics

3 MONTHS

TIMELINE
2

PREPARATION

RESEARCH

Which stores
to close
Outsource?
Operational +
HR logistics

3 MONTHS

Development
Training
Create marketing
campaign

5 MONTHS

TIMELINE

BETA TESTING

PREPARATION

RESEARCH

Which stores
to close
Outsource?
Operational +
HR logistics

3 MONTHS

Development
Training
Create marketing
campaign

5 MONTHS

Employee familiarity
with system
Check for platform
glitches/problems

4 MONTHS

TIMELINE

4
BETA TESTING

PREPARATION

RESEARCH

Which stores
to close
Outsource?
Operational +
HR logistics

3 MONTHS

Development
Training
Create marketing
campaign

5 MONTHS

LAUNCH!

Employee familiarity
with system
Check for platform
glitches/problems

4 MONTHS

1 YEAR

from start date

MAJOR IMPEDIMENTS
Potential loss of excellent customer service
(not same as in person face-to-face)

Limited barrier to entry

Potential competition with Amazon and


other online/digital companies

ACTION PLAN

CONTINGENCY PLANS

Patents

If all fails, dissolve BestBuy U and redistribute


employees to brick and mortar stores

ACTION PLAN

CONCLUSION
How can Best Buy continue to have innovative products, topnotch employees, and superior customer service while facing
increased competition, operational costs, and financial stress?

Solidify customer
service value
proposition

ACTION PLAN

Continue to
differentiate from
competitors and
potential new
entrants

Accomplish this
through innovative
online platform
(BestBuy U)

THANK YOU