Best Buy in Crisis

Contents I.Background and Synopsis......................................................................................................................... 2 II.Situation Analysis...................................................................................................................................... 2 III.SWOT Analysis........................................................................................................................................ 2 IV.Target market discussion and recommendation......................................................................................3 V.Differentiation and positioning strategy..................................................................................................... 3 VI.Marketing mix.......................................................................................................................................... 4 VII.Projected outcomes and key risks.......................................................................................................... 5 VIII.Final recommendations......................................................................................................................... 5 IX.Appendix A.............................................................................................................................................. 6 X.Appendix B............................................................................................................................................... 6

Best Buy in Crisis

I.

Background and Synopsis

Dick Schulze and a business partner opened the first Sound of Music store in St. Paul, Minnesota. By 1969, Sound of Music had expanded into five more locations around Minneapolis and revenue had reached $ 1 million by 1970 and Schulze bought out his original business partner. By end of 1978, Sound of Music operated nine stores. Best Buy opened its first superstore in 1983 in Minnesota, signifying the commitment that Dick Schulze, the owner, had to discounted, value products. Sales grew steadily from 240 million in 1987 to 50.7 billion. However, Net income in 2012 was a loss of 1.2 billion. An assessment of the current market presence, financial trends and the overall demographic trends in the region is done to analyze the situation and to provide feasible alternatives. Best Buy should use the formula “segmentation, targeting, positioning (STP)” which are the essence of strategic marketing. It should provide value through specific product features, prices and distribution. In addition, it should communicate value through the sales force, Internet, advertising and other communication tools to announce and promote the product1.

II.

Situation Analysis

Best Buy has been losing market share since the advent of online retailers as well as discounters. It has simply become a showroom for lower cost retailers. Even though it claims to be the world’s largest consumer electronics retailer with $ 50.7 billion in revenues, the growth has been very slow at less than 1 %. The Financial Performance figures of Best Buy for the year 2012 have been dismal with Net Income falling from$2.3 billion in 2011 to a loss of $1.2 billion.

III.

SWOT Analysis

Some internal strengths of best buy are that it provides value to the consumers by providing good quality of goods. It has a great return policy and has store locations in every major city in North America. It is a leading brick-and-mortar retailer and has unparelled brand equity. Like all big businesses, Best Buy has some inherent weaknesses. Some of these are that it has a low internet presence, the real estate costs are expensive and the stocking expenses for the stock of goods held in the stores.

1

Page 18,19 Philip Kotler and Kevin Keller in A Framework for Marketing Management

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Best Buy in Crisis

Best Buy can take advantage of the opportunities such as the acquisition of Napster, international expansion, online retailing, providing business account and new services by using Geek Squad. Like all major stores, there are threats faced by Best Buy. Some of these are competitors such as Wal-Mart and Amazon. The international markets are relatively unknown and new. The economy has been volatile and the consumer spending habits have been changing. The SWOT analysis can also be seen in tabular form in Appendix B.

IV.

Target market discussion and recommendation

Three potential ways that target markets can be differentiated are: age group, business or individual and men or women. In the case of Best Buy, age group differentiation of the target markets can be based on the following three age groups: 12 through 21, 21 through 45 and 45 upwards. The recommendation is that Best Buy should focus on the target market of age group 12 through 21. The reasoning behind the targeting of this age group is because of the recent research which shows that more than two thirds of 12 to 21 year olds make or influence family purchase decisions on audio/video equipment and software. In total, these teens and young adults spend over $ 120 billion a year. 2 This market can be targeted by commercials on Internet. Commercials on TV can be used for other age groups but not for the recommended age group, since the recommended age group is more prone to surfing the internet. Best Buy can be described as a “cool” place for teens to buy their equipment and software from and the salespeople should be hired who are relatively young to fit well with this age group. They should be well versed in the kids’ slang that is used by this target market. The differentiation of target markets of men and women would have definitely worked 20 years ago. However in this day and age, men and women are both tech savvy and should be targeted equally. Business or individual segmentation is not recommended as the age group would encompass these consumers and is a much broader differentiation. In addition, TV marketing would target these consumers indirectly.

V.

Differentiation and positioning strategy

Best Buy should differentiate itself from its primary competitors such as Amazon and Wal-Mart by offering more specialized services via the Geek Squad. This can be achieved by Services Differentiation. In this day and age, even though many consumers are extremely tech savvy, the services provided by the Geek Squad can come in handy. For example, 2

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Best Buy in Crisis

installation of software services for all its clients can be done by Geek Squad. In addition, Best Buy can partner with some of the software giants such as Microsoft and Google to offer software exclusive to Best Buy. The fees for the installation can be medium range. However the updates installation can be priced on a higher end, as these are the consumers who have already used a product and like it enough to want an upgrade. The Services Differentiation can also be implemented by the relative ordering ease that customers will have when they shop online or in store. The delivery should meet the customer’s expectation and be competitively priced. Maintenance and repair should be another primary focus of Best Buy as this is their competitive advantage. Another way to differentiate itself would be for Best Buy to offer more mobile solutions and installation of software packages on these mobile solutions. This can also be targeted using Geek Squad. Best Buy should continue to position itself as a market leader in consumer electronics. They should create a customer-focused value proposition by targeting customer’s attention to the fact that they can buy products immediately. Tag line in this case could be “In a rush- why wait, buy online pick up in store”. Best Buy should develop an application for consumers to buy online and pick up in store. This application can be downloadable on Android and IPhones and should be very easy to access. Best Buy would have to strategically partner with, for instance, Google and IPhone, so that the application is downloadable on their devices. This would also put them back in a competitive position with Amazon by targeting clients who are buying electronics through internet, especially Amazon. Best Buy has very good features available on its website which can help consumers compare the features offered on certain products. This website should be implemented in a downloadable format so that it is very easy to use. Best Buy should develop software applications to immediately reduce the price of any item that is priced cheaper online, for example at Amazon.com. They should use the consumer’s visual appeal to rein the customers in and once customers are in the store, to ensure that they do not leave empty handed. Since it is clear that consumers are comparing prices online, Best Buy should also follow suit, and lower prices based on these prices. However, it is recommended that the prices can be slightly higher than online prices, to take into account the ease of access of products as well as immediate delivery and easy returns. This is also done keeping in mind that consumers do not have to pay for delivery charges when they buy in Best Buy stores.

VI.

Marketing mix

The following are the 4 P’s of Marketing mix, Product, Place, Pricing and Promotion.

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Best Buy in Crisis

The products can be continued to be displayed as they are currently displayed. However, the second P of marketing mix, Place, should be altered depending on the size of city and the cost of real estate. It is recommended that Best Buy should have a tiered structure for the size of its stores. For example, in a city like New York, where real estate is expansive, Best Buy should only have few big box stores, which can be located in the outskirts of the city. The rest of the stores can be relatively small and have a smaller product range on display and be located throughout the city. The advantage is that products can still be shipped within the same day by utilizing the other big box stores in the vicinity, or consumers have the option to go the distance and buy from the big box stores. These smaller size stores can be the size of Circuit City shops. However, there should still be sufficient number of big box stores as the display of electronic goods is Best Buy’s competitive advantage. For example, Ottawa, which has a population of less than 1 million, has one Ikea store. This can be used as a good example of the right number of Best Buy Stores in any city. However, if Best Buy does decide to move to one store for a larger population, then it must start focusing on other items such as being a one stop shop for other stationary items. Since customers are moving towards more and more online shopping experiences, the sales representatives in store should be trained to only reach out to customers who are looking for help. Regarding the pricing, Best Buy products should be competitively priced with Wal-Mart and Amazon. Even though Amazon is a primary competitor, Best Buy’s advantage is that they are everywhere. So, the products should be priced to take into account Amazon’s shipping costs along with the ease of easy returns. Best Buy should leverage its relationship with the manufacturers to take advantage of the pricing discounts. The partnership with manufacturers should be done strategically so that customers look forward to waiting for the promotions offered by Best Buy. As discussed earlier, promotion should be focused on teens using Internet as a medium. Tag line has already been recommended in the previous sections of this document. All consumers should be given the choice of buying goods online and picking up in store. Finally Best Buy should leverage its strength of having stores in every major city in North American.

VII.

Projected outcomes and key risks

To mitigate the risk of spending extensively on advertising over internet with a possibility of low returns, it is recommended that some marketing be done on TV to target other consumers, especially business consumers who do not have as much time to spent on their electronics needs.

VIII.

Final recommendations

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Best Buy in Crisis

Best Buy should develop an application to help shoppers buy products online. The target market should be the age group of 12 through 21 and marketing can be done primarily via Internet. Best Buy should leverage its strength of having a strong market presence in every city in North America and focus its efforts on adding more services that can be performed by the Geek Squad.

IX.

Appendix A

Resource: • Philip Kotler and Kevin Keller in A Framework for Marketing Management •

X.

Course Slides- Dr. Robin Ritchie.

Appendix B

Subject of SWOT analysis: Best Buy Strengths(Internal) Value Quality Brand Equity Long Standing History within the US Leading brick-and-mortar retailer Store in every major city in North America

Opportunities (External) Digital music provider deal- acquiring Napster International Expansion Online Retailing Business Account services. New Services performed by Geek Squad

Weakness(Internal) Relatively low Internet Presence Stocking fees Spiraling Real Estate costs

Threats(External) Competitors: Wal-Mart, Amazon Unknown International Markets Volatile Economy Change in Consumer Spending habits

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