2. The Case
• June 2006, John Noble, senior vice president at Best Buy International, the
largest retailer of consumer electronics (CE) in the United States,
faced a major strategic branding decision.
• Acquired a majority stake in Jiangsu Five Star Appliances (Five Star), the
third-largest retailer of appliances and consumer electronics in China.
• Noble was tasked to decide and plan how Best Buy should implement a
dual-brand strategy in China.
• The dual-brand strategy adopted in Canada four years earlier seemed to
have worked well. “Will the dual-brand strategy work in China?” he
wondered. “How should I make it work?”
3. It all started when…
• Founded in 1966 -The chain Sound of Music, by
Richard Schulze
• 70’s retailing audio components
• Survived recession
• 80’s Retail video
• 1983-mass merchandising-superstore format- yellow
Best Buy banner.
• 1995-biggest seller of home personal computers (PCs)
• 1996 top CE retailer in the United States
4. BEST BUY
• Best Buy Co., Inc. is an American multinational consumer electronics corporation
headquartered in Richfield, Minnesota; America’s third largest
• Vision
“meeting consumers at the intersection of technology and life.”
• Core strategy
“bringing technology and consumers together in a retail environment that focuses on
educating consumers on the features and benefits of technology and entertainment while
maximizing overall profitability.”
• Products at moderate to upper moderate price points.
• Growth rate:15-20% every year; Sales revenue: US$30.9 billion in 2006; 20% share
of the retail American consumer electronics market, valued at US$152 billion in
2006
5. Building the Brand
• Identifying the core customers
• Best Buy was building its brand promise on the very lines “being fun,
honest, young and techno-savvy.”
• Establishing SOP
• Concept of Centricity
1. Identifying customers generating the most revenue
2. Segmenting these customers
3. Realigning the stores to meet the needs of these customers
4. Empowering the store sales staff, known as Blue Shirts, to steer
these customers toward products and services that would
encourage them to visit more often and spend more on each visit
6. Contd…
• 1989: 3 strategies
# Self-service-“Blue Shirts”
# fixed pay
# discount style
Innovations
• Spotting A trend - marketing digital devices and home
networks to homes and small businesses- opportunity pegged
at worth US$20 billion a year
• October 2002- Acquired Geek Squad, for after sales service!
7. Store operations
Division Senior Vice
1 President
Regional
District 2 District 1
Managers
District Managers/
Store 1 Store 2 Store1 Loss Prevention
Manager
Product Security Personnel control
inventory shrinkage
8. Competitors
E-
Retailers
Mass
Merchandisers Factory
– WallMart, Outlets – Dell
Costco
Home
improvement
Retailers
9. International Expansion
• 2000: When Best Buy decided to go International neighbour Canada was a
logical step
• 2001: Founders of the two companies met and decided
“together we could accomplish infinitely more than if we were to go our
own ways and compete with each other.”
• 2002: Best Buy acquired 100% ownership in Future Shop. When the time
came to finalize integration, the management took a surprising decision:
retain the Future Shop brand and let it compete with Best Buy
“I‘m not saying it can’t be done, I’m saying its
never been done before” – Richard Schulze, On
Dual Brand Strategy In Canada
10. Factors contributed for Dual Branding
• Market Leader Future Shop only had 15% share
Fragmente • Room for a second brand
d market-
leader
• Already signed leases to setup stores against Future shop
Spaces • Some of the leased spaces were situated right next to Future Shop stores
leased
• Operation feasibility
Conversion • Efficient and easy SOP adherence
Cost
• Unknown Brand replacing Known Brand??
• Future Shop was a well established brand, with over 95 % unaided brand
Brand awareness
identity
11. Risks with Dual branding
Cannibalization Brand Identity Management Cost factor
• Best Buy store • Duplication of • Marketing
would eat into • Brand identity roles at the
the earnings of corporate costs
blur
a Future Shop • Marketing headquarters • Training
store and vice efforts and at Minneapolis, costs
versa costs with the two
• Particularly brands • Operation
when the two • Requiring costs
were in close separate staff
proximity inputs.
12. The Secret of Success
Best Buy Future shop
Blue Shirts Product Experts
Making it Easy for the Customer Trusted Personalized Service
Grab and Go Experience Tech Savvy Customers
Wide aisles to test and try Technologies First
Service Upon Request Attentive
Turn on the Fun The place to get it first
Relaxed In Store Experience Guided Shopping
13. Why China??
• Overall market opportunity
– Fragmented market, top 5 accounting to 20%
• Consumer fundamentals
• Low Labour costs
• Third Largest Consume by 2025 (McKinsey)
• Macro economic factors
– Open economy
– M&A- Five Star
• Buyer Behavior
– Consumer Economy
14. Initial Steps
• 25 Person Sourcing Office in Shanghai
• Market Research and Segmentation of the Terrain
• Testing the Waters, Culture and Customs (guanxi)
• Estimation on Procedural problems, land
acquisitions etc
• Calculations on the Breakeven as the
income distribution is not same
• Division of the Country into Tiers
(Product – Segment-region)
16. Gome Group
• Gome Electrical Appliance holdings and Beijing Gome
• 437 stores in 132 cities
• Leader In regional markets, Largest CE retailer with
6% Market share in China
• Aggressive player and introducer of new strategies
like Pre Sales service, Eagle Stores (Category based
Displays)
• Always try to gain First mover advantages like Tax
benefits and good will through employment
17. Suning
• Air conditioning dealer to CE retailer in just 10
years
• 3C (Computers, Communications and Consumer Electronics) store format
• Rapid Store Expansion, entry into less affluent
tier two cities
• Store formats – Flagship, Central and
Community, Targeting Mass Market
• Service as the USP (500 Service stations)
18. Five Star – A Better prospect
• Third largest CE retailer in China with 135
stores located in fast growing Cities
• Interested in expanding internationally but
delays in getting permission stalled the work
• 12,000 own employees
• Best Buy the best bet – 75 % company
offloaded to $180 million
19. Ready Set and …..
• Best Buy is all set to make history and the
factors are
– Consumer Centricity- core competence
– Universal appeal of Dual Branding
– SOP
– Geek Squad
• All the factors are favourable and Best Buy
seemed to have developed a Template for
Dual Branding.
21. Reasons
Macro Economic opportunity Same as Canada
But people not same as Canada (though all
Chinese look alike :p)
Micro Economic Conditions
- Income Disparity
- Spread Of People
- Competitors
- People Sentiment
Earlier that month, the company had While negotiating for a majority stake in Five Star, which had 135 stores in China, Best Buy announced plans to open its first Best Buy store in China in Noble had been assigned to the international division just a month earlier from the company’s Canadian operations, where he had held a similar position since 2002. December 2006, to be followed by two more stores in the next 12 to 18 months. Five Star also announced its own agenda of opening 25 additional stores in China, under the Five Star banner, during approximately the same period.
Globally ConsumerElectronicsSales was forecastedto reach US$700billionby 2009.
