GWU Strategy Formulation & Implementation--Best Buy Case Study: Spring 2014

BEST BUY 2010

COOK’S 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

CORPORATE STRATEGY

Individual Consumers

Age 16-35 Age 35-60

“Technology Novices”

Small Businesses

CORPORATE STRATEGY

BUSINESS + BUSINESS FIT

Electronic Repairs

DiscretionaryConsumer Electronics

AppliancesEntertainment Platforms

CORPORATE STRATEGY

SUBSIDIARIES

MAGNOLIA AUDIO VIDEO

GEEK SQUAD

FUTURE SHOP

PACIFIC SALES

CORPORATE STRATEGY

CORPORATE GOALS

“Make technology deliver on its promises to customers”

Sustained growth and

earnings

Leader in service

1 2 3

CORPORATE STRATEGY

CORPORATE STRATEGY

CONCENTRIC DIVERSIFICATION

• Common Customer • Common Technology • Common Channels • Customer Centricity Strategy

INDUSTRY ANALYSIS

INDUSTRY GROUP MAP

INDUSTRY ANALYSIS

HIGH

PRICE

PRODUCT LINE BREADTH MANY

GameStop Dell

Best Buy Circuit City

RadioShack

LOWFEW

Amazon WalMart

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

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

BARRIERS TO EXIT

INDUSTRY ANALYSIS

Specialized Assets

Fixed Costs

Management Commitment

Contractual Commitment

High High Low High

BARRIERS TO EXIT

INDUSTRY ANALYSIS

Specialized Assets

Fixed Costs

Management Commitment

Contractual Commitment

High High Low High

HIGH BARRIERS TO EXIT

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

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

SUBSTITUTES

INDUSTRY ANALYSIS

Amazon eBay

WalMart Target Costco

iTunes Netflix

ElectronicE-commerce

Retailers

Big Box GeneralMerchandise

Retailers

Digital Content Distributers

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

INDUSTRY GLOBALIZATION

INDUSTRY ANALYSIS

HIGH

Forces ForGlobal

Coordination/Integration

MANYLOW

FEW

MULTINATIONAL

Forces ForResponsiveness/

Differentiation

TRANSNATIONALGLOBAL

INDUSTRY GLOBALIZATION

INDUSTRY ANALYSIS

NATIONAL GLOBAL

Economies of Scale Customer Needs

Competition Channels

Transportation Costs Product Standards

(country vs. industry)

BUYER + SUPPLIER POWER

INDUSTRY ANALYSIS

Relative Industry Concentration

Switching Costs

Availability of Substitutes

BUYER SUPPLIERelectronics consumers

BUSINESS LEVEL

STRATEGY

BUSINESS LEVEL STRATEGY

STRATEGIC RESOURCES + CAPABILITIES

Main store + acquisitions Employees

Customer data Info

Brand equity Reputation

Geek Squad Employee knowledge Multiple brand names

INTANGIBLETANGIBLE

Customer Centricity strategy

Brand name + reputation

Acquisitions

SUSTAINABILITY


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


CUSTOMER SERVICE ORIENTED

COMPETITIVE DISADVANTAGE



Not as many store locations




No low cost structure





Not as specialized





Not as specialized

A lot of branches

Best Buy ACQUISITIONS


GENERIC BUSINESS STRATEGY

UniquenessBroad Target Market


GENERIC BUSINESS STRATEGY

UniquenessBroad Target Market DIFFERENTIATION


WSO T

Internal

External

WSO T

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

SSWOT ANALYSIS

Internal

WSWOT 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

WSWOT ANALYSIS

Internal

OSWOT 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

External

TSWOT 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

GLOBAL MARKET STRATEGY

KEY STRATEGIC CHALLENGE

“How can Best Buy continue to have innovative products, top-notch employees, and superior customer serv ice wh i le fac ing increased competition, operational costs, and financial stress?”

ALTERNATIVES !

EVALUATIONS+

STRATEGIC ALTERNATIVES + EVALUATIONS

DIGITAL ACQUISITIONS

MARKETING INITIATIVE

ALTERNATIVES

ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE

GLOBAL EXPANSION

1 2

3 4


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 %433221


ALTERNATIVE 1



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




GROWTH POTENTIAL


PROFITABILITY

COST EFFECTIVENESS


TOTAL 9.5

EVALUATION OF ALTERNATIVES

DIGITAL ACQUISITIONS 1

—

X—

—


ALTERNATIVE 2

!

• Customer Oriented Online Shopping Assistance • Live online sales representatives • Online tutorials • Business cards with usernames



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




GROWTH POTENTIAL


PROFITABILITY

COST EFFECTIVENESS


TOTAL 12


ONLINE CUSTOMER SERVICE/LEARNING EXPERIENCE2

X

——


ALTERNATIVE 3

GLOBAL EXPANSION


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



GROWTH POTENTIAL


PROFITABILITY

COST EFFECTIVENESS


TOTAL 10


GLOBAL EXPANSIONS 3

—

——X


ALTERNATIVE 4



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 4


GROWTH POTENTIAL


PROFITABILITY

COST EFFECTIVENESS


TOTAL 9

——X—

CONSISTENT WITHSTRATEGY + CORE COMPETENCIES

GROWTH POTENTIAL


PROFITABILITY

COST EFFECTIVENESS


TOTAL 9.5 12 10 9


1 2 3 4

—

X—

— X

——

—

——X

——X—

CONSISTENT WITHSTRATEGY + CORE COMPETENCIES

GROWTH POTENTIAL


PROFITABILITY

COST EFFECTIVENESS


TOTAL 9.5 12 10 9


1 2 3 4

—

X—

— X

——

—

——X

——X—


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?

ACTION PLAN

ACTION PLAN

WHO IS RESPONSIBLE?

• Information Technology

ACTION PLAN

• VP of Human Resources

• VP of Operations • eCommerce

SENIOR EXECUTIVES DEPARTMENTS

TIMELINE

TIMELINE

3 MONTHS

• Which stores to close

• Outsource? • Operational +

HR logistics

1 RESEARCH

TIMELINE

5 MONTHS

2• Development • Training • Create marketing

campaign

PREPARATION

3 MONTHS



HR logistics

1 RESEARCH

TIMELINE

5 MONTHS


campaign

PREPARATION

3 MONTHS



HR logistics

1 RESEARCH

3• Employee familiarity

with system • Check for platform

glitches/problems

BETA TESTING

4 MONTHS

TIMELINE

5 MONTHS


campaign

PREPARATION

3 MONTHS



HR logistics

1 RESEARCH

4 LAUNCH!

1 YEARfrom start date

3• Employee familiarity

with system • Check for platform

glitches/problems

BETA TESTING

4 MONTHS

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

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

THANK YOU