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BEST BUY

I WAYAN PURNA 51811518


COMPANY HISTORY
 originally known as Sound of Music.
 In 1983, the company changed its name to Best
Buy Co. Inc. (Best Buy).
 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
 In 2000, the company launched its online retail
store: BestBuy.com
COMPANY HISTORY
 Expansion Through Acquisitions
2000: Best Buy acquired Magnolia Hi-Fi Inc.,
2001: Best Buy entered the international market with the
acquisition of Future Shop Ltd
2002: Best Buy acquired Geek Squad
2005: Best Buy opened the first Magnolia Home Theater “store-
within-a-store”
2006: Best Buy acquired Pacific Sales Kitchen and Bath
Centers Inc.
2007: Best Buy acquired Speakeasy Inc.,
2008: Through a strategic alliance with the Carphone
Warehouse Group
2009: Best Buy acquired the remaining 25% of Jiangsu Five
Star
INDUSTRY ENVIRONMENT
 Industry Overview
Sales dropped 2% in 2009, the first decline in 20 years for the
electronics giant.
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.
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
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%).5
INDUSTRY ENVIRONMENT
 Barriers to entry
As globalization spread and use of the Internet
grew, barriers to entering the consumer electronics
industry were diminished
The shift toward Internet purchasing also negated
another once strong barrier to entry: customer
loyalty
Even though overall barriers were diminished,
there were still a few left, which a company like
Best Buy used to its advantage
INTERNAL ENVIRONMENT
 Finance
While Best Buy’s increase in revenue was encouraging ,
recent growth had been fueled largely by acquisition,
especially Best Buy’s fiscal year 2009 revenue growth. At the
same time, net income and operating margins had been
declining
Best Buy’s long-term debt increased substantially from fiscal
2008 to 2009 , which was primarily due to the acquisition of
Napster and Best Buy Europe
At first blush, the increase in accounts receivable and
inventory was not necessarily alarming since revenues were
increasing during this same time
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
INTERNAL ENVIRONMENT
 Marketing
Best Buy’s marketing goals were four-fold
1. Best Buy’s marketing goals were four-fold
2. to address the needs of customer lifestyle groups
3. to be at the forefront of technological advances
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
Starting in 2005, Best Buy initiated a strategic transition to a
customer-centric operating model, which was completed in 2007
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
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
INTERNAL ENVIRONMENT
 Operations
Best Buy’s operating goals included increasing revenues by :
 growing its customer base
 gaining more market share internationally
 successfully implementing marketing and sales strategies
in Europe
 having multiple brands for different customer lifestyles
through M&A (Merger and Acquisition).
Domestic Best Buy store operations were organized into eight
territories, with each territory divided into districts
In 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.
INTERNAL ENVIRONMENT
 Human Resources
The objectives of Best Buy’s human resources department
were to provide consumers with the right knowledge of
products and services, to portray the company’s vision and
strategy on an everyday basis, and to educate employees on
the ins and outs of new products and services
Despite Best Buy’s 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
According to the ruling, the plaintiffs alleged that Best Buy
employees would aggres-sively deny consumers the ability to
apply the company’s “price match guarantee.”
The suit also alleged that Best Buy had an undisclosed “Anti-
Price Matching Policy,” where the company told its employees
not to allow price matches and gave financial bonuses to
employees who complied.
COMPETITION
 Brick-and-Mortar Competitors
 Wal-Mart Stores Inc.,

 GameStop Corp

 RadioShack Corp.

 Second tier competitors

 Online Competitors

 Amazon.com Inc.,

 Netflix Inc
CORE COMPETENCIES
 Customer-Centricity Model
Best Buy, took a different approach by providing
customers with highly trained sales associ-ates
who were available to educate customers regarding
product features
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.
CORE COMPETENCIES
 Successful Acquisitions
Through 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 company’s ability to differentiate
itself in the marketplace
 Retaining Talent
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
CHALLENGES AHEAD
 Economic Downturn
In order to increase sales revenues, many retailers,
including Best Buy, offered cus-tomers low-interest
financing through their private-label credit cards
From 2007 to 2009, these private-label credit card
purchases accounted for 16%–18% of Best Buy’s
domestic revenue
 Pricing and Debt Management
The recent acquisition of Napster and the 50% stake in
Best Buy Europe significantly increased Best Buy’s debt
and reduced available cash
Debt management was a key factor in any company’s
success, and it became even more important during the
economic downturn
CHALLENGES AHEAD
 Products and Service
As technology improved, product life cycles, as well as
prices, decreased, As a result, margins decreased.
More resources would be directed at research of new
products to make sure Best Buy continued to offer the
products consumers desire.
 Leadership

The two former CEOs of Best Buy, Richard Shultze and


Brad Anderson, were extremely successful at making
the correct strategic moves at the appropriate times
Brian Dunn replaced Brad Anderson as the new CEO, .
He was charged with leading Best Buy into the world of
increased connectivity
CHALLENGES AHEAD
 Wal-Mart
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
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
THANK YOU