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A SWOT ANALYSIS

http://www.youtube.com/watch?v=uAxG3lgRKUU

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BY

PRASHANT RAJOPADHYE

MIGUEL EDWARDSGERALD ONUKWUGHA RENE CACCIABAUDO

ZAHID MAQSOOD

A SWOT ANALYSIS

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Company Profile

• Best Buy is:– The largest specialty retailer of consumer electronics in the

United States and Canada– An innovative Fortune 100 growth company continually

striving to create superior customer service

• As of November 30, 2006, the company reported 1,100 stores in the United States, Canada, and the People’s Republic of China.

• Locations average about 44,000 square feet in size, offering consumer electronics, appliances, entertainment software, and home office equipment and software

• In its fiscal year 2006, Best Buy reported total revenue of $30.85 billion. Bust Buy includes.

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Company Profile (cont.)

• Distribution Channel and Complementary Offerings/Services include:– A significant online presence leveraging

BestBuy.com, BestBuyCanada.ca, FutureShop.com).

– Geek Squad– Magnolia Audio Video– Ebay outlet store.

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Revenue Mix

37%

35%

22%

6%

Consumer Electronics

Home Office

Entertainment Software

Appliances

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Consistent Growth

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Competitors

• Major Retailers– Circuit City– WalMart– Target– Costco

• Online Retailers– Amazon.com

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Vision & Strategy• To make life fun easy for consumers• Believes that’s its stores offer consumers

meaningful advantages in atmosphere, product value, product selection, and customer service

• Best has four strategic initiatives:– Customer Centricity– Efficient enterprise– Win with service– Win in entertainment

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The Future Relies on Expansion

• Best Buy has seen large increases in revenues over the past few years because of the demand for flat-panel TVs. Revenue increased 12.45% overall in fiscal 2006 and 16.49% overall in fiscal 2007. It is unlikely that these margins will continue due to slowed demand and decreased prices for the TVs.

• Best Buy will focus on increasing stores both domestically and internationally going forward, which means that the company will have high costs associated with its increases in revenue. So far this strategy has worked, as Best Buy reported a 21% revenue increase in 4th quarter 2006.1 There is, however, much more risk in this strategy than maximizing revenue margins at individual stores.

• Best Buy will attempt to counter these decreases in demand for flat-panel TVs with increased customer support, especially from its computer-repair service named the “Geek Squad.”

• A future goal of Best Buy is to convert all of its stores into what the company calls a “customer centricity” format, which is expected to increase customer service and customer loyalty. Best Buy defines customer centricity as “treating each customer as a unique individual, meeting their needs with end-to-end solutions, and engaging and energizing out employees to serve them.”

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Customer-centric Segmentation

• Barry: Affluent, time-starved males looking for the highest quality product and services.

• BBFB: Small business owners with one to nine employees looking for technical solutions to meet their business needs.

• Ray: Married dads who spend a disproportionate amount of their income on technology and entertainment solutions.

• Buzz: Males in their 20s looking for the latest entertainment for themselves and their buddies.

• Jill: Stay at home moms with two or more children. She’s looking to enrich her children’s educational and social development.

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Strengths

• Proven Customer Centric Model– Greater Customer Loyalty – Improved Employee Retention– Increased market share

• Innovation – bringing new technology to market, faster– External PC Drive– Slingbox

• Breadth of Offerings – Online Distribution– Geek Squad offers support– Magnolia offers higher end sales

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Weaknesses (cont.)• “Devil customers” return products after already

receiving the rebate or intend to repurchase the returned item at an open box price

• High one-time conversion costs to turn stores into “customer test labs”

• The selling, general and administrative costs were higher in the converted stores, resulting is lower operating income

• CEO, Bradbury Anderson, admitted that the company may have overestimated its capacity for change and moved too quickly into the new business model

• Due to the organizational struggles to meet demands for change, stores only enjoyed partial success in limited areas

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OpportunitiesProducts:

Best Buy can benefit from the release of new items in the near future, such as the recently released computer technology like Windows Vista which can drive computer or software sales, or the release of Apple's iPhone or the price cuts in XBox 360 / Sony PS3 / Nintendo Wii consoles, release of new franchise games such as Halo 3, NFL, etc. may also drive up sales of consumer electronics as well as entertainment software.

Global Expansion:One of Best Buy's goals for fiscal 2007 was to examine the possibility of opening stores globally, and that goal is becoming a reality. Best Buy is currently planning on opening new stores in China by mid-2008, and its local partner (Jiangsu Five Star Appliance Co.) will also open 25 new stores.19 Best Buy already opened a store in China in December, which reportedly exceeded sales expectations by 40%, and on January 1st attracted more than 20,000 customers

Rich online Experience:A recent national survey found that an overwhelming 83 percent of consumers would purchase more online if retailers provided more interactive and interesting sites. It is clear that by providing more engaging shopping experiences based on customer segmentation, it creates a huge opportunity for BestBuy.com to gain a competitive edge.

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ThreatsCOMPETITORS

Best Buy major competitors include discount stores like Target, Wal mart, Lowes, Home Depot and Costco wholesale. It also includes online recruiters like Circuit City. To a great extent, Best Buy business is threatened by the litany of competitors that offer a one stop shopping environment. A case in hand; Costco offers products at a reduced price with the purchase of a membership. This makes prices much more attractive to consumers who don’t want to spend a lot of money on top end products.

GLOBALIZATIONIn a bid to make up for store margins, Best Buy plans to expand globally come next year, 2008. It plans on pursuing international growth opportunities. This mission will not be an easy task. Possible threat from international business community abounds. This mission is like threading into an unknown zone. However, Best Buy is bent on taking this possible risk.

CONSUMER INCOMEBest Buy deals only on discretionary items. Based on this, if consumer income decreases or if there is an increment on other inelastic items like gasoline, Best Buy’s sales will be seriously affected.

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Threats (cont.)

POOR ECONOMIC CONDITIONThe poor state of the economy is another factor that could affect Best Buy. Some of the things that could affect Best Buy during a poor economic condition include but are not limited to the following; Decreasing growth in GDP, Constant increase in CPI and an unpredictable employment rate.

NEGATIVE PUBLICITYNegative publicity could be a major threat to any company that falls prey to it. Best Buy has been a victim of this threat in the recent time. It has been alleged that Best Buy has misquoted prices to consumers a couple of times. This projection if affirmed could decrease future consumer loyalty and eventually overall revenue.

INFLATED STORE MARGINBest Buy experienced an inflated store margin over the past year. The reason for this was the high demand for flat panel TV. In the same vein, whatever goes up must come down. With the demand for TV as well as the price of TV going down, the store margin will most likely be deflated.

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Marketing Goals

• Increase market share in China.– Increase stores in mainland China to 300.– Period: 5 years. – Person responsible: President: Best Buy

China division.• Create rich online experience

– Implement customer segmentation and site design.

– Period: 1 year. – Unit responsible: IT Division

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Recommendation

• BestBuy.com can employ some new strategies and technologies to leverage the interactive nature of the customers' online experience to determine and respond to customer needs in real time. Delivering a personalized, dynamic customer experience can instill loyalty and increase customer conversion rates:– Leverage Intelligent Search interactions to engage online

customers in dialogue that uncovers current customer needs.– Deliver messages on merchandising focused on Ajax-based

product detail panes and interactive imagery.– Implement business controls and automated processes to

understand and personalize marketing messages based on Best Buy's understanding of the customer's purchase intent.

– Test, measure and revamp the effectiveness of Best Buy marketing campaigns and offers on the basis of how well those campaigns satisfied specific customer needs.

– Identify "marketing leakage", or opportunities for the marketer to fine-tune marketing messaging to appeal to previously unrecognized customer needs.

• Targeted expansion into emerging markets (China)