BEST BUY Co., Inc.: SUSTAINABLE CUSTOMER CENTRICITY MODEL?
CASE ABSTRACT
price strategy. In order to become a service-oriented firm, it changed the compensation structure for sales associates
and applied a customer- centric operating model to provide end-to-end services. It also heavily invested in the
new products) have also put stress on its financial strength and the quality of its customer service. The key challenge
for Best Buy is to determine the correct path to improve its differentiation strategy. The main question is: How can
CASE OBJECTIVES
1. To discuss Best Buy’s Business Level Strategy vs. Amazon and
Wal-Mart.
2. To discuss Best Buy’s change from a low-price strategy to a differentiation strategy.
etc.).
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DISCUSSION QUESTIONS
1. Do customer’s care about sales force knowledge or do they care more about low prices?
2. How will Wal-Mart’s decision to ramp up its in-store electronics
sales effect Best Buy?
3. How will Best Buy compete against internet giant Amazon?
4. How will Best Buy expand globally?
6. Does a knowledgeable work force result in higher wages?
Case Analysis
Current Situation
A. Current Performance:
1. Best Buy is the largest consumer electronics retailer in the U.S. accounting for 19% of the total market
share and 1,100 domestic stores.
2. Current employee strength -155,000.
stores.
B. Current Performance:
1. Mission:
2. Objectives:
a. Sustaining growth and earnings.
b. Increasing revenues.
g. Market various products on the customer centricity model.
h. To address the needs of customer lifestyle groups.
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3. Strategies:
a. Differentiation strategy- moved from being a discount retailer to service oriented firm (customer
centricity model) with end to end product support enabled through employee knowledge.
b. Group strategy- It expanded in various areas through acquiring firms like Geek Squad which is in
line with their service oriented strategy.
4. Policies: NA
I. Corporate Governance:
NA
II. External Environment: Opportunities and Threats (SWOT)
A. Societal Environment
1. Economic:
a. Economic downturn. (T)
2. Technology
a. Smartphones. (O)
b. LCD TV’s. (O)
3. Political – Legal
a. Law suit about misrepresented warranties. (T)
b. Law suit “Price match” policy. (T)
4. Socio-cultural
a. Changes in buying behavior- rise of online shopping. (T)
B. Task Environment
1. Threat of new entrants: Moderate-High
a. Internet made it easy to enter the market.
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b. Low capital requirements (internet).
c. Low customer loyalty.
c. Large price rivalry among competing firms.
III. Internal Environment: Strengths and Weaknesses (SWOT)
A. Corporate Structure
1. Presently, the retail hierarchy is structured by territories. Domestic stores are divided into eight
B. Corporate Culture
1. Best Buy’s culture is well defined and committed to ethics and knowledge. (S)
2. The culture is consistent with knowledge based HR objectives (ethics, knowledge), portraying
4. Being a global company, Best Buy successfully integrated employees from other acquired companies
deriving from a knowledge based culture. Best Buy shows a high expertise in acquiring companies
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and integrating employees into the company’s beliefs and values. (S)
C. Corporate Resources
1. Marketing
a. Objectives Include:
b. Strategies Include:
i. Continuing to be a service-oriented firm
ii. Addressing needs of customers
c. Policies Include:
i. “Price Matching Policy”
d. Programs Include:
i. Loyalty programs. (S)
f. The marketing objectives align with the corporate mission, strategy and internal environment. (S)
i. Place:
stores
j. Product:
i. (Highest % revenue) televisions, LCD units, game consoles, games, accessories, mobile
phones, Blue-Ray players.
k. Promotion:
introductions. (S/W-Price)
l. Trends emerged from the marketing mix has shown that it was a good business model in the past.
(S)
n. It is implied that marketing adjusts to different countries in which it operates. (S)
2. Finances
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new markets.
c. Trend:
i. New debt would be needed which in turn comprises higher risk in liquidity
j. Key facts and ratios:
i. Long term debt increasing from $528 million to $1,126 million (80% increase).
ii. Huge decline in cash from $1,438 million (2008) to $498 million (2009) (65% decrease).
average growth in Sales 13%.
iv. Operating margin decreased from 5% (2007) to 4.1% (2009).
v. Net income decreased from 20% growth (2007) to 2% (2008) to negative growth -29%
(2009).
vi. D/E ratio increased from 0.12 to 0.24.
2009 from $549 million in 2008).
3. Research and Development- NA
4. Operations & Logistics
1. Current manufacturing/service objectives and strategies:
technology.
c. Extensive employee training that gives the company a high competitive advantage.
2. Domestic vs. International Operations:
3. Performance Compared to Competition:
internet to shop.
b. If referring to competition that includes the high level of service element, other
4. Competitive Advantage through Operations:
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5. Human Resources
1. HR objectives include:
2. The HR objectives and strengths indicate a trend of maintaining consumer centric model and
6. Information Systems (IS)
1. IS is reducing operation costs and decreasing distribution channel costs.
consumers.
IV. Analysis of Strategic Factors (SWOT)
1. See Table 3.
2. Current mission and objectives are aligned with the strategic factors and problems. Best Buy
V. Strategic Alternatives and Recommended Strategy
A. Strategic alternatives
Pros:
Increased revenues and providing customers with “end to end services.”
Cons:
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2. Global expansion in developing nations.
Pros:
Cons:
3. Increase presence of Napster online music.
Pros:
Cons:
4. Increase home furniture offerings and delivery.
Pros:
Cons:
5. Investing funds directly to suppliers and manufactures by creating manufacturing plants, etc.
Pros:
profit margins.
Cons:
Investment at this time may be risky and/difficult due to current financial capabilities.
B. Recommended Strategy
1. Global expansion in developing nations:
geographic market segments.
d. Entering new geographic markets would align with the already established strategy of global
expansion.
VI. Implementation
company”.
2. New financial debt and investment would be required to establish these retailers globally. However,
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VII. Evaluation and Control
1. The current information system needs to be expanded by establishing new means of communication via
rather than the same globally.
3. Need to continue employee training in regard to sustaining the image of being a knowledgeable service