Best Buy Company: Situational Analysis

Best Buy Company is a worldwide retailer and producer of technology goods and services. It is based in Richfield and operates in US, Europe, China, Canada and Mexico. It markets products that range from consumer electronics, televisions, mobile devices and accessories, e-readers, digital cameras and other electronic goods. It also offers services in installation and delivery of appliances and furniture repair and assembly services (Best Buy Company, 2014). The company has in the past striven to develop and supply goods through innovative channels.

Performance problems

Best Buy has seen a steady decrease in revenue over the past few years. The year ended February 2011, saw the company making total revenue of $49.75 million followed by $45.46 million in 2012 and $42.41 million in 2014 (Yahoo Finance, 2014). The gross profit has been similarly decreasing over this time. This report seeks to analyze the major causes of this slumps and how the company could probably be able to increase its performance.

Internal Environments

1. Adoption of internet retailing

Best Buy has been reluctant to adopt the internet marketing method as a means to adopt a customer base. While the company develops a series of technological products, it has been slow to take advantage of these products to reach its consumers. The internet marketing strategy has become an easy companion for consumers who do not want to spend their time going to the malls to look for their wares. This has impacted negatively for retailers like Best Buy who have been reluctant to embrace the internet. Best Buy thereby ends up helping competitors to get a platform that is does not utilize by supplying them consumers with technological devices. The loss of revenue has been gradual and unexpected to Best Buy as the company managers try to control the offline market. The company has attempted to take advantage of markets that have failed for other companies like Circuit City.

Poor Customer Service

 Savitz (2012) argues that the company has mainly concentrated on training its customers on salesmanship rather than training them about their products. To consumers, these tactics have appeared to be nagging and disturbing. The consumers have therefore left the companies for other places where customer service is mainly concerned with offering a good customer experience and offering information to consumers. In such cases, like in Apple Inc, the customers sell themselves into the products of the company.

Show Rooming Effect

Best Buy has also suffered from the show rooming effect. This effect occurs when consumers visit a store so as to browse through the retailer’s prices. The consumers then go out and look for the same products elsewhere at cheaper rates. The advantage in this case has been on online marketers. Consumers compare prices online with what Best Buy is offering and buys online at the cheapest rates.

Best Buy has been striving to resolve this matter. It has decided to start having smaller stores but to increase the number of outlets. This way, the company will reduce the number of show roomers. The company has also set out to increase its share in internet market so as to benefit from the effect with other retailers.

Company culture

The company lacks a culture that is effective towards making consumers feel at ease in their shops. The compensation strategy that seeks to award those employees who achieve target sales changes the work place at Best Buy more of a competitive arena than a customer oriented business. The customers may then feel uncared for hence leading to lower sales, revenues and profits.

To improve this, the company should change its compensation plan so that either personnel are only awarded at department level or personnel are awarded for playing their roles in the company and not for pushing sales. This way, employees will deliver more in terms of team work and offer more to the company.

External Environments

Competition

Competition has been on the rise in the recent past. More companies are joining the retail industry and especially offering technological products to its consumers. The big number of retailers has flooded the market hence largely reducing the market share that Best Buy has access to. The reduction in the market share has resulted in lower sales and consequently lower revenues and profits.

Economic Slow Down

The economic slow down has also had some effect on the Company’s performance. While the company had been declared the top company of the year in 2004 (Chakravarthy & Lorange, 2007), it has continued to waver since the economic recession in 2009. The economic recession lowered the amount of disposable income that consumers had hence causing lower revenue from the company.

Lawsuits

In 2005, the company was charged with discrimination of black and Latino American women. It denied the claims and promised to change its social and corporate policies to ensure that employees felt more welcome at their work place regardless of their race or gender. The company has also strived to comply with other regulations in the countries it operates in.

Limited number of suppliers

The company is only able to retail products from a number of manufacturers. This is as a result of the high bargaining power that most technological companies possess. Since the company seeks to sell its products at prices that are slightly lower than the market value, it is pressed to drop such products. The inability to retail some products has caused customer attitudes hence further dropping revenues and sales.

Change of consumer preferences

Best Buy has been bypassed by changes in preferences by consumers. While Best Buy continues to market products like PCs and televisions, consumers have advanced to other technologies. This has left the company with a big amount of un-disposable products.

Recommendations

The company has seen a slow down in its performance recently. This could be attributed to various matters which fall in both external and internal environments. To resolve these problems, the company should put up strategies that seek to:

1. Tap into internet marketing; Internet marketing is a market that every market that has the means and methods should be tapping. Consumers prefer to shop at the convenience of their homes as it is cheaper. The company should also understand that tapping this type of market is far cheaper than its conventional market.
2. The company should also seek to integrate products from more producers. Albeit in small amounts, the company should ensure that it offers as wide a variety of products as possible. This way, the company will claim more popularity
3. Tap other foreign markets; the US was the most hit country by the recession. Being based in the US, the company has also suffered immensely. Tapping into more regions will give the company better prospects of survival
4. Company culture; the company should identify cultures that work best for the retail industry. It should then seek to instill them into its employees.

Conclusion

The past few years have been very distractive to the progress of Best Buy. Best Buy has been reluctant to accept new technology that would have otherwise contributed to its progress and growth. The company has also suffered the competition of more innovative competitors and a slow down in the economy. The company should seek to identify to identify what has ailed it in the past few years and correct it where applicable. This way, the company will have a better chance of surviving the future.

References

Best Buy Company. (2014). Retrieved from http://www.bestbuy.com/

Chakravarthy, B., & Lorange, P. (2007). Continuous renewal, and how Best Buy did it. Strategy & Leadership. doi:10.1108/10878570710833705

Savitz, E. (2012). Best Buy: Grasping At Straws

Yahoo Finance. (2014). BBY Key Statistics | Best Buy Co., Inc. Common Stock Stock – Yahoo! Finance. Retrieved August 5, 2014, from http://finance.yahoo.com/q/ks?s=BBY+Key+Statistics