Best Buy Case Study

BEST BUY

In 1966, Richard Shulze opened a small business in St. Paul, Minnesota called Sound of Music. In the next 17 years Shulze's small store rapidly grew into a multi-million dollar outfit. In 1983, Sound of Music changed its name to Best Buy Co., Inc and the first superstore was opened in Burnsville, Minnesota. With the new name the store also began carrying more name brands, appliances, VCRs and offering central service and warehouse distribution. Throughout the nineties Best Buy became pioneers in offering the newest technology such as DVDs and high definition TVs. In 1999, Best Buy and Microsoft combined to cross promote each other and also offered a two for one stock split. Now in 2005, almost 40 years after the first store was opened in St. Paul, this global giant was named Forbes magazine's "Company of the Year".

Financially Best Buy operates two reportable segments, Domestic and International. Best Buy's financial security relies on their Best Buy stores, Magnolia Audio Visual Stores (their high end store), and the Geek Squad (provider of in home computer repair, support and installation services). From 2005 to 2008, Best Buy wants to achieve a 7% higher income rate. The four strategies they plan to use to get to this financial goal are Customer Centricity, Efficient Enterprise, Service, and Entertainment. Some ways Best Buy has been saving money is by improving human resources, reduce fixed headcount, lower health care costs, increased productivity, and reduced their production cost to construct new stores.

Best Buy's S.W.O.T analysis

Strengths

Best Buy's strength is that they are a very large, well known company.

They have always been on the forefront of carrying the newest and most technologically advanced products. They are known also for their financing and great customer service.

Weaknesses

Best Buy's weakness is that although they are still making money their individual stores sales and gain are down 3% in 2005 as compared to the fiscal year of 2004. Best Buy already has plans in progress to correct this problem.

Opportunities

Opportunities for Best Buy are that technology is constantly growing. Usually every few months there is a complete new advancement that people must have. Since Best Buy was always known as being the first to carry new technological products (new DVD and CD releases, high definition televisions) they can continue to do this. People know they can trust in Best Buy to have the latest innovations, so today's rapid advancements in technology should fuel Best Buy for years to come. The Reward Zone program, sponsored by Best Buy, is a frequent shopper card that is used to build up points for free Best Buy merchandise. This can increase customer loyalty in the long run and perhaps persuade customers to continue to purchase from Best Buy.

Threats

Best Buy's first threat is that there is usually a lot of competition near by. Usually within just a few miles of every location you can find a Circuit City, Wal-Mart, Target, and Sears. All of these businesses definitely take a cut out of prospective Best Buy customers. Best Buy has to make sure they keep their loyal customers close while prospecting new customers. Another major threat is the "Wal-Mart effect". Best Buy must keep up with this lowest priced major retailer and match product prices keep customers satisfied. This can in turn cut into company profits in the long run.

Change of Mission and vision

Best Buy is taking a huge step in developing a new target market and store vision. The nation's largest electronics retailer is changing its marketing strategy and spending $50 million to redo its stores, trying to ensure that it will continue to hold off its competitors. Circuit City (Best Buy's primary rival), Wal-Mart, Dell, and eBay are among their main competitors. Company president Al Lenzmeier has said that, in the past, the retailer's big changes came when it was struggling. This time around Best Buy has become proactive in anticipating necessary changes instead of sitting back and reacting to major marketing flaws and panicking to resolve problems.

Implementation of New Vision

It makes sense for Best Buy to worry more about Wal-Mart, which is getting more involved in electronics retailing, and less about Circuit City. The competitors are a diverse lot today, and for them to continue to grow they're going to have to get much better at everything they do and define themselves in clear ways. Best Buy's plan is to revamp its stores according to the types of customers they serve. A strategy previously mentioned, customer centricity, focuses on targeting five prototypical customers, all of whom have been given names: "Jill," a busy suburban mom; "Buzz," a focused, active younger male; "Ray," a family man who likes his technology practical; "BB4B" (short for Best Buy for Business), a small professional employer; and "Barry," an affluent professional male who's likely to drop tens of thousands of dollars on a home theater system. Their most current focus is on a "Jill" based store, the soccer mom who has money to spend but typically hasn't a clue of where or how to find products in the store. According to the data Best Buy has collected, Jill shops a few times a year, usually twice at an electronics store, but she usually spends a significant amount.

The Santa Rosa Best Buy, Store #120, is a Jill store. Here is an example of how they cater to their particular target market. Pink, red and white balloons decorate the entrance. TVs play "The Incredibles". There is an expanded selection of home appliances as well as new displays stocked with Hello Kitty, Barbie and Sponge Bob Square Pants(all targeted toward "Jill's" children) electronic equipment. Corners are set up to look like dorms or recreation rooms you can test the newest games and technology. Best Buy has new express checkout lines for the Jills and store music is turned down a notch.

After a successful pilot project involving 32 stores, the company began rolling out its customer-centricity initiative to an additional 110 stores. A UBS analyst report suggests that this initiative should provide Best Buy with stronger financial results as the company refines its program. It also should provide less recurring results, as more stable relationships with high-value customers counteract shifts in general