Best Buy Co. Inc.: Sustainable Customer-centricity Model?

Introduction

Best Buy Co. Inc. originally known as Sound of Music in 1966 began the journey in the retail business of audio components and later expanded into retailing video products. As videocassette recorders became popular, thanks to the company, they decided to change the name to Best Buy. The company believed that they could help popularize technology by enriching the lives of the Early Adopters so they could stay connected and, “make life fun and easy” (Wheelen et al, 2018). Headquartered out of Richfield, Minnesota, the company expanded into 1,100 stores in the United States and had over 150,000 employees. Other than the United States, Best Buy operates in other parts of the world such as Canada, Mexico, China and Turkey.

As Best Buy became popular, they wanted their customers to rely on them for technological questions. They branched out into a variety of subsidiaries which included Geek Squad, Magnolia Audio Video and Pacific Sales. Best Buy anticipated that their customers would be technology challenged and wanted them to realize the different benefits that technology had to offer. This idea created several other ideas for Best Buy to continue support beyond the stores. They took advantage of the dot com and increased their tools to support customers from purchasing a computer to helping them with IT questions.

As any company wants, they plan to grow and increase their earnings. They accomplished this by monitoring their business model to make sure that they were satisfying their clients needs and making sure they had all the right tools to effectively handle any situation they may arise. For their customers to be satisfied, they employed highly skilled employees that were educated in the technology world. As strategic as Best Buy already was, the strategically managed to move from a discounted, low price retailer into, “a service-oriented firm that relied on a differentiation strategy” by scanning their environment to understand the current trends in technology. (Wheelen et al, 2018).

Problem Statement

Best Buy was currently facing a decline in their profit due to the economic downturn. Wheelen et al state, “to be successful over time, an organization needs to be in tune with its external environment” (pg. 94, 2018). Just as the economy was facing a down-turn, the economic forces cause consumers to have less disposable income.

Another problem facing Best Buy was the pricing and debt management which they were not competitive on price structure. Not only did they have cost incurred due to training employees, but they also completed an acquisition of Napster which increased their debt.

As the ever-popular dot com era came, the internet grew and obtaining electronics came easier and the barriers for access were available. Before the era, the industry was mostly brick and mortar companies which included high debt for small competing companies until the internet opened for all businesses.

Strategy

Best Buy worked through the economic downturn by offering customers low interest financing which became very successful for them. They were able to offer the low-interest due to the private-labeled credit card companies. Their strategy worked as they focused on their customers by allowing the, “private-label cards to carry higher interest rates and lower credit lines. The Best Buy deal will add another premier retail franchise and high-quality card portfolio” (Douglas, 2013).

In 2008, Best Buy snagged Napster and plans to use this to get a leg-up on their competitors. In addition to their own capabilities with technology, Best Buy will design this image to, “use both Napster's technological capabilities and its subscriber base to reach consumers looking to explore digital music and other forms of entertainment 'beyond music subscriptions' (Skillings, 2008).

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As the internet grew, so did competition but that only meant it was easier for Best Buy to publish their inventory for the world to see. This allowed Best Buy to reduce capital requirements and gain valuable market share. They were able to increase their advertising which allowed customers to venture into a business, such as Best Buy, and get to interact with the product.

Analyses of Competitors

Comparing the Financial performance of the company with its competitors, the Best Buy was below average in terms of revenue. In the case study of Best Buy, revenue increased due to the recent acquisition, but net income and operating margins were declining due to the pricing pressure. As the economy began to decrease, the costs of items were forced to decrease as well causing margins to decline which affected the net income and operating margins negatively.

SWOT Analysis

Strength of Marketing

With so many domestic and internal brands and stores, Best Buy prides itself on customer centricity which allowed each customer to be catered to according to their needs and behaviors. Their marketing goals, according to Wheelen et al, were four times as great than their competitors:

• To market various products based on the customer-centricity operating model
• To address the needs of customer lifestyle groups
• To be at the forefront of technological advances
• To meet customer needs with end-to-end solutions.

Weakness of Popularity

Although many people know the brand Best Buy in America, the popularity of it outside the United States boarder are slim. The brand should be able to advertise outside of the U.S. to overcome the boundaries it has. In addition, the durability and warranties/service plan due to the Florida case that was filed stating, “fraudulent business practices” doesn’t give consumers high expectations when purchasing from the company (Bhasin, 2018). In addition, Best Buy violated the Price Match policy by telling their employees to not price match and they will be given a bonus to who complied. Price Matching is what lures customers in and makes them shop around. Eliminating this opportunity gives their competitors more room to gamble and lowers the popularity of Best Buy.

Opportunities for Customer Lifestyles

Best Buy has many opportunities available to them due to the products they make available to their customers. Each product compliments one another and is strategically transitioned to a more customer-operating model.

• Best Buy – unlimited supply of electronics, home office entertainment, appliances, etc.
• Best Buy Mobile – variety of mobile phone selection
• Geek Squad - IT support for business and residential including instore and online
• Magnolia Audio Video – premier sound and audio products
• Napster – digital music
• Pacific Sales – home improvement products such as appliances
• Speakeasy – broadband, voice, data and IT services to small businesses

Threats Online Market

Best Buy has many competitors looking to be number one in the digital world. As many companies move away from the brick-and-mortar industry, they have taken advantage of the less expensive business of online selling. Many businesses deliver online media platforms such as Amazon, Apple and Netflix for entertainment. In addition, online shopping allows the consumers to purchase at a cheaper price and gives more opportunity to purchase cheaper than in a store. Many well-known companies such as Walmart and Target are pushing online sales and making their entire inventory online not to mention the sale of third-party inventory.

Analysis of Best Buy’s Financials

Although Best Buy’s recent revenue growth was encouraged by the acquisition of Napster, their net income and operating margins were decreased likely due to increased costs and pricing issues caused by economic downturn. As margins began to fall, it caused the net income to fall as well. In 2009 during the first quarter, the operating margin was between 2-4%. By the third quarter, the operating margin was just above 2%. The net income was around $200 million in the first quarter and had dropped significantly.

Recommendations

Best Buy holds a good reputation with their customers regarding support for their electronics. They should focus on providing more online retail due to the growing popularity of the online marketplace. In addition, adding a variety of electronics to consumers such as Apple is a good idea for them to take advantage of the opportunity while adding a better price match to compete with Amazon. According to Verdon, Best Buy will continue to dominate as long as they continue to service their customers regarding home installation, “…teach them how to use it and make a house call when they can’t figure out the remote, you have a customer for life” (2019). Verdon believes in this because as technology increases, so will the number of users. Technology is confusing as it is, and it can overwhelm anyone. While you can teach someone how to use the technology, it is also important for Best Buy to be able to visit and make house calls because Best Buy wants the technology to continue to work after the purchase.

References

1. Douglas, D. (2013). Capital One Sells Best Buy Credit Card Portfolio to Citi Group. Retrieved on April 3, 2020 from https://www.washingtonpost.com/business/economy/capital-one-sells-best-buy-credit-card-portfolio-to-citigroup/2013/02/19/9b4ba18a-7ab6-11e2-a044-676856536b40_story.html
2. Bhasin, H. (2018). SWOT Analysis of Best Buy. Retrieved on April 3, 2020 from https://www.marketing91.com/swot-analysis-of-best-buy/
3. Skillings, J. (2008). Best Buy nabs Napster for $121 million. Retrieved on April 3, 2020 from https://www.cnet.com/news/best-buy-nabs-napster-for-121-million/
4. Verdon, J. (2019). Six Reasons Why Best Buy Will Continue to Dominate. Retrieved on April 3, 2020 from https://www.forbes.com/sites/joanverdon/2019/09/26/a-better-best-buy-six-reasons-to-bet-on-it/#2efdd81c72ea
5. Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2018). Strategic Management and Business Policy Globalization, Innovation, and Sustainability. (15th ed.). Harlow, England: Pearson.