Electronic giant Best Buy needs no introduction. When it comes to the consumer electronics retail market, Best Buy is a leading force known internationally. Although their efforts to penetrate foreign markets has proven unsuccessful, Best Buy is still a leading competitor in the consumer electronics industry. Today’s volatile and highly competitive market has proven challenging for Best Buy to keep up with the Amazons and Walmarts of the world. In this report, our team will demonstrate why, unless extreme changes are implemented, Best Buy will meet the same fate as Circuit City.
Best Buy is a well-known multinational retailer of electronic devices and appliances. It was founded in 1969 and was originally named Sound of Music. Sound of Music was founded by Richard Schulze and a partner and Minnesota. In 1971, Richard bought his partner’s shares and began to expand his company. In 1983, the name of the company was changed to Best Buy. Best Buy reported approximately $50 billion in revenues in 2013. At the time there were over 140,000 employees, over 1400 stores in the US and over 1 billion online shoppers and 600 million visitors at its US stores annually.
After the resignation of former CEO Brian Dunn in 2012, Best Buy’s upper management brought in Hubert Joly. His appointment as CEO of a retail giant Best Buy was met with a lot of skepticism, mainly because Joly was an outsider. His previous work experience was focused in the hospitality industry, as he was the CEO of Carlson. Joly’s initial diagnosis was spot on: If Best Buy wanted to survive, he needed to shake things up. A mere two months into his newfound position, Joly initiated “The Renew Blue” plan. This groundbreaking strategy consisted of a “five-point” plan, which included “reinvigorating and rejuvenating” the customer experience. As a former Best Buy consumer, I can attest to the fact that this establishment’s customer service is mediocre at best. A simple Yelp search reveals a common theme of discontent when it comes to the in-store experience: The lack of customer service.
Joly wanted to focus on people, so he rolled up his sleeves and worked on the sales floor for an entire week. This experience not only gave him insight into his consumer base, it also gave him a glimpse from an employee’s point of view. It was then that Joly decided that Best Buy employees needed to be groomed, so he invested heavily into regular training programs. Showrooming is a practice where customers come into the store to test products and end up making their purchase online with a competitor. Joly used the “showrooming” practice to his advantage- by instituting a price matching system. Additionally, he welcomed the “Stores-in-Stores” concept, which is Business model that allows the two sides to share the risks and rewards of getting closer to the customer. By doing so, Joly was able to transfer the cost of “Showrooming” to the manufacturer. Another area of contention was the awful online sales. He therefore implemented the use of stores as both warehouses and pick-up places to speed up delivery for on-line shoppers. Despite the naysayers, the “Joly effect” proved to be successful after sales soared and stock prices rocketed.
As we were going through the case, we looked into strengths, weaknesses, opportunities and threats to Best Buy as an electronic retailer. Somer strengths were that they are a well – known brand that has a variety of products for different customer needs. They initiated their technical support program called Geek Squad in 2002 and they provide services such as financing, and in-home technical services. Some of our weaknesses are that they have slow sales, Overall decline in market shares and fewer stores relative to competitors like Walmart etc. Due to the shorter product life cycles, that increase their employee training costs. Their biggest weakness is their bad customer service, their customer satisfaction scores are low and even though Best Buy have a big focus on customer services is not reflected by customer experience in-store.
Many industry professionals argue that price is the key to retaining consumers. In our opinion, a combination of price and customer service is imperative in the success of a business such as Best Buy. No matter the efficacy of the customer service, if consumers can obtain the same goods at a lower price-point they will always gravitate towards the lesser of the two. Just like showrooming, consumers will come into your institution, take advantage of the great customer service, but they will end up making their final sale with a competitor who offers the same good at a lower price point.
Best Buy’s strategic IQ received a failing grade in opinion, because after Joly’s departure it seems like the company has fallen back to being complacent. Employees walk the sales floors unmotivated and distracted. They no longer adapt “customer is always right mantra” as numerous complaints are regarding obtaining a refund.
In conducting our research on Best Buy we realized there were similarities with some of the cases we’ve been studying throughout the semester. In the cases we’ve looked at we’ve seen common themes such as standing out from the competition, restructuring of a business through company merging and diversifying. In the singer case the company had a servicing aspect of the company where you could get at home servicing for any machine you purchased. This was a first in this field and made them stand out from their competitors. Best buy is similar in that they also have a repairing/ troubleshooting service when you purchase items from Best buy through geek squad. This helped Best Buy stand out from Circuit City and other large retailers. IBM expanded their business through acquiring and merging with an overseas operation to increase the companies presence. Best Buy did a similar thing but with geek squad where it merged the company with its’ retail stores to offer repair and troubleshooting shooting service to their business model which expanded its’ reach. Another similarity we observed was with the Onassis case. Onassis became very successful through diversifying his business going from tobacco to shipping tycoon and then to owning an airline. Best Buy doesn’t just sell TVs but many other different types of technologies from phones to appliances to instruments and many other items which has allowed bestbuy to stay competitive and around for as long as it has.
“Best Buy has gotten much better,” people say. But in today’s market where consumers are faced with endless options- Amazon, Walmart, Alibaba, Costco; “getting better” is just not good enough when it comes to customer retention. In conclusion, we truly believe that Best Buy’s days are numbered. Keeping up with price wars is no easy task, especially since Best Buy locations occupy large real estate and require salespeople to keep the store running. Best Buy may have won the battle against Circuit City, but it is now a prime target. Just as Aristotle Onassis was once a world renowned shipping tycoon, today his businesses are merely mentioned in passing. Based on our research and analysis of Best Buy from the case study as well as from our own research, we would not invest in Best Buy in the future.