GWU Strategy Formulation & Implementation--Best Buy Case Study: Spring 2014
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This document provides an overview and analysis of Best Buy's corporate strategy, industry environment, and strategic alternatives. Best Buy's differentiation strategy focuses on superior customer service through knowledgeable employees. However, it faces challenges from shorter product lifecycles, price competition, and fewer store locations. Four strategic alternatives are evaluated: digital acquisitions, online customer service, global expansion, and marketing initiatives. The selected alternative is to develop an online customer service and learning platform called "BestBuy U" to solidify its customer service proposition and differentiate from competitors facing the industry's trends toward digital content and e-commerce. An action plan outlines responsibilities, timelines, impediments, and contingency plans for BestBuy U's development and launch.
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GWU Strategy Formulation & Implementation--Best Buy Case Study: Spring 2014
- 2. COOK’S CONSULTANTS Specializing in Consumer Electronics Industry Bert Van Den Hooff Lisa Fischer Shahar Abrams Megan Brolley Furkan Cizmeci
- 3. 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
- 4. IN REVIEW: THE YEAR 2009
- 6. CUSTOMERS CORPORATE STRATEGY Individual Consumers Age 16-35 Age 35-60 “Technology Novices” Small Businesses
- 7. CORPORATE STRATEGY BUSINESS + BUSINESS FIT Electronic Repairs Discretionary Consumer Electronics Appliances Entertainment Platforms
- 9. CORPORATE STRATEGY CORPORATE GOALS “Make technology deliver on its promises to customers” Sustained growth and earnings Leader in service 1 2 3
- 10. CORPORATE STRATEGY CORPORATE STRATEGY CONCENTRIC DIVERSIFICATION • Common Customer • Common Technology • Common Channels • Customer Centricity Strategy
- 12. INDUSTRY GROUP MAP INDUSTRY ANALYSIS HIGH PRICE PRODUCT LINE BREADTH MANY GameStop Dell Best Buy Circuit City RadioShack LOW FEW Amazon WalMart
- 13. BARRIERS TO ENTRY INDUSTRY ANALYSIS Economies of Scale Differentiation Total Capital Requirements Switching Costs: Individual Switching Costs: Business Advertising High High High Low High High
- 14. BARRIERS TO ENTRY INDUSTRY ANALYSIS Economies of Scale Differentiation Total Capital Requirements Switching Costs: Individual Switching Costs: Business Advertising High High High Low High High HIGH BARRIERS TO ENTRY
- 15. BARRIERS TO EXIT INDUSTRY ANALYSIS Specialized Assets Fixed Costs Management Commitment Contractual Commitment High High Low High
- 16. BARRIERS TO EXIT INDUSTRY ANALYSIS Specialized Assets Fixed Costs Management Commitment Contractual Commitment High High Low High HIGH BARRIERS TO EXIT
- 17. RIVALRY INDUSTRY ANALYSIS Concentration Growth Rate Fixed Costs Differentiation Switching Costs Exit Barriers High Steady High High Low High Low Rivalry Low Rivalry High Rivalry Low Rivalry High Rivalry High Rivalry
- 18. RIVALRY INDUSTRY ANALYSIS Concentration Growth Rate Fixed Costs Differentiation Switching Costs Exit Barriers High Steady High High Low High Low Rivalry Low Rivalry High Rivalry Low Rivalry High Rivalry High Rivalry MODERATE-LOW RIVALRY
- 19. SUBSTITUTES INDUSTRY ANALYSIS Amazon eBay WalMart Target Costco iTunes Netflix Electronic E-commerce Retailers Big Box General Merchandise Retailers Digital Content Distributers
- 20. COMPLEMENTORS INDUSTRY ANALYSIS Computer Software (Computers) Video Games (Video Game System/TV) Complementors Within Itself Technology Payment Processing Industry ShippingAcquisition of Geek Squad INTERNAL EXTERNAL
- 21. INDUSTRY GLOBALIZATION INDUSTRY ANALYSIS HIGH Forces For Global Coordination/ Integration MANY LOW FEW MULTINATIONAL Forces For Responsiveness/ Differentiation TRANSNATIONALGLOBAL
- 22. INDUSTRY GLOBALIZATION INDUSTRY ANALYSIS NATIONAL GLOBAL Economies of Scale Customer Needs Competition Channels Transportation Costs Product Standards (country vs. industry)
- 23. BUYER + SUPPLIER POWER INDUSTRY ANALYSIS Relative Industry Concentration Switching Costs Availability of Substitutes BUYER SUPPLIER electronics consumers
- 25. BUSINESS LEVEL STRATEGY STRATEGIC RESOURCES + CAPABILITIES Main store + acquisitions Employees Customer data Info Brand equity Reputation Geek Squad Employee knowledge Multiple brand names INTANGIBLETANGIBLE
- 26. Customer Centricity strategy Brand name + reputation Acquisitions SUSTAINABILITY BUSINESS LEVEL STRATEGY
- 27. COMPETITIVE ADVANTAGE • 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 CUSTOMER SERVICE ORIENTED
- 28. COMPETITIVE DISADVANTAGE BUSINESS LEVEL STRATEGY
- 29. COMPETITIVE DISADVANTAGE Not as many store locations BUSINESS LEVEL STRATEGY
- 30. COMPETITIVE DISADVANTAGE Not as many store locations No low cost structure BUSINESS LEVEL STRATEGY
- 31. COMPETITIVE DISADVANTAGE Not as many store locations No low cost structure Not as specialized BUSINESS LEVEL STRATEGY
- 32. COMPETITIVE DISADVANTAGE Not as many store locations No low cost structure Not as specialized A lot of branches Best Buy ACQUISITIONS BUSINESS LEVEL STRATEGY
- 33. GENERIC BUSINESS STRATEGY Uniqueness Broad Target Market BUSINESS LEVEL STRATEGY
- 34. GENERIC BUSINESS STRATEGY Uniqueness Broad Target Market DIFFERENTIATION BUSINESS LEVEL STRATEGY
- 36. S • 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
- 38. W SWOT ANALYSIS • Shorter product life cycles increase training costs • Decline in operating margins • Fewer stores relative to competitors (ie. WalMart + GameStop) • A LOT of money needs to go into research • Relatively new CEO, Brian Dunn (2009) • Large debt and reduced available cash Internal
- 40. O SWOT ANALYSIS • 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. External
- 41. External T SWOT ANALYSIS • Information available to consumers = direct threat to Best Buy’s 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
- 42. GLOBAL MARKET STRATEGY KEY STRATEGIC CHALLENGE “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?”
- 44. STRATEGIC ALTERNATIVES + EVALUATIONS DIGITAL ACQUISITIONS MARKETING INITIATIVE ALTERNATIVES ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE GLOBAL EXPANSION 1 2 3 4
- 45. STRATEGIC ALTERNATIVES + EVALUATIONS CONSISTENT WITH STRATEGY + CORE COMPETENCIES GROWTH POTENTIAL CONSISTENT WITH MARKET TRENDS PROFITABILITY COST EFFECTIVENESS EASE OF IMPLEMENTATION VIABILITY MATRIX OF ALTERNATIVES POINT VALUE SCALE 1-4 X — 100% 50% 0% POINT % 4 3 3 2 2 1
- 46. STRATEGIC ALTERNATIVES + EVALUATIONS ALTERNATIVE 1 DIGITAL ACQUISITIONS
- 47. STRATEGIC ALTERNATIVES + EVALUATIONS ALTERNATIVE 1 • Anticipates growth in online streaming/gaming market • Differentiates product portfolio from competitors CONSPROS • Requires large capital investment • Could cannibalize brick and mortar compact-disc sales DIGITAL ACQUISITIONS
- 48. STRATEGIC ALTERNATIVES + EVALUATIONS CONSISTENT WITH STRATEGY + CORE COMPETENCIES GROWTH POTENTIAL CONSISTENT WITH MARKET TRENDS PROFITABILITY COST EFFECTIVENESS EASE OF IMPLEMENTATION TOTAL 9.5 EVALUATION OF ALTERNATIVES DIGITAL ACQUISITIONS1 — X — —
- 49. STRATEGIC ALTERNATIVES + EVALUATIONS ALTERNATIVE 2 ! • Customer Oriented Online Shopping Assistance • Live online sales representatives • Online tutorials • Business cards with usernames ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE
- 50. STRATEGIC ALTERNATIVES + EVALUATIONS ALTERNATIVE 2 • Enhance customer experience • Maintain online competitive advantage • Lowers HR costs • Challenges with not face-to-face teaching • Customer is not able to ‘sample’ product CONSPROS ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE
- 51. STRATEGIC ALTERNATIVES + EVALUATIONS CONSISTENT WITH STRATEGY + CORE COMPETENCIES GROWTH POTENTIAL CONSISTENT WITH MARKET TRENDS PROFITABILITY COST EFFECTIVENESS EASE OF IMPLEMENTATION TOTAL 12 EVALUATION OF ALTERNATIVES ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE2 X — —
- 52. STRATEGIC ALTERNATIVES + EVALUATIONS ALTERNATIVE 3 GLOBAL EXPANSION
- 53. STRATEGIC ALTERNATIVES + EVALUATIONS ALTERNATIVE 3 CONSPROS GLOBAL EXPANSION • Large untapped demand • High potential growth • Consistent with strategy and core competency • Established presence and knowledge base • Expensive and risky • Cultural barriers • Competition from large global competitors
- 54. STRATEGIC ALTERNATIVES + EVALUATIONS CONSISTENT WITH STRATEGY + CORE COMPETENCIES GROWTH POTENTIAL CONSISTENT WITH MARKET TRENDS PROFITABILITY COST EFFECTIVENESS EASE OF IMPLEMENTATION TOTAL 10 EVALUATION OF ALTERNATIVES GLOBAL EXPANSIONS3 — — — X
- 55. STRATEGIC ALTERNATIVES + EVALUATIONS ALTERNATIVE 4 MARKETING INITIATIVE
- 56. STRATEGIC ALTERNATIVES + EVALUATIONS ALTERNATIVE 4 • Allows for re-energization of Best Buy brands • Gives rationale for higher prices • Fulfilling corporate goals CONSPROS • Expensive • People already familiar with Best Buy MARKETING INITIATIVE
- 57. STRATEGIC ALTERNATIVES + EVALUATIONS EVALUATION OF ALTERNATIVES MARKETING INITIATIVE4 CONSISTENT WITH STRATEGY + CORE COMPETENCIES GROWTH POTENTIAL CONSISTENT WITH MARKET TRENDS PROFITABILITY COST EFFECTIVENESS EASE OF IMPLEMENTATION TOTAL 9 — — X —
- 58. CONSISTENT WITH STRATEGY + CORE COMPETENCIES GROWTH POTENTIAL CONSISTENT WITH MARKET TRENDS PROFITABILITY COST EFFECTIVENESS EASE OF IMPLEMENTATION TOTAL 9.5 12 10 9 EVALUATION OF ALTERNATIVES 1 2 3 4 — X — — X — — — — — X — — X —
- 59. CONSISTENT WITH STRATEGY + CORE COMPETENCIES GROWTH POTENTIAL CONSISTENT WITH MARKET TRENDS PROFITABILITY COST EFFECTIVENESS EASE OF IMPLEMENTATION TOTAL 9.5 12 10 9 EVALUATION OF ALTERNATIVES 1 2 3 4 — X — — X — — — — — X — — X —
- 60. STRATEGIC ALTERNATIVES + EVALUATIONS SELECTED ALTERNATIVE
- 61. STRATEGIC ALTERNATIVES + EVALUATIONS SELECTED ALTERNATIVE ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE
- 62. STRATEGIC ALTERNATIVES + EVALUATIONS SELECTED ALTERNATIVE Year E-commerce Revenue % change Total Commerce 2006 2,972 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% WHY SHIFT TO E-COMMERCE?
- 64. WHO IS RESPONSIBLE? • Information Technology ACTION PLAN • VP of Human Resources • VP of Operations • eCommerce SENIOR EXECUTIVES DEPARTMENTS
- 65. TIMELINE
- 66. TIMELINE 3 MONTHS • Which stores to close • Outsource? • Operational + HR logistics 1 RESEARCH
- 67. TIMELINE 5 MONTHS 2 • Development • Training • Create marketing campaign PREPARATION 3 MONTHS • Which stores to close • Outsource? • Operational + HR logistics 1 RESEARCH
- 68. TIMELINE 5 MONTHS 2 • Development • Training • Create marketing campaign PREPARATION 3 MONTHS • Which stores to close • Outsource? • Operational + HR logistics 1 RESEARCH 3 • Employee familiarity with system • Check for platform glitches/problems BETA TESTING 4 MONTHS
- 69. TIMELINE 5 MONTHS 2 • Development • Training • Create marketing campaign PREPARATION 3 MONTHS • Which stores to close • Outsource? • Operational + HR logistics 1 RESEARCH 4 LAUNCH! 1 YEAR from start date 3 • Employee familiarity with system • Check for platform glitches/problems BETA TESTING 4 MONTHS
- 70. 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
- 71. CONTINGENCY PLANS • Patents • If all fails, dissolve BestBuy U and redistribute employees to brick and mortar stores ACTION PLAN
- 72. CONCLUSION ACTION PLAN “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?” Solidify customer service value proposition Continue to differentiate from competitors and potential new entrants Accomplish this through innovative online platform (BestBuy U) 1 2 3
- 73. THANK YOU