Problem
Best Buy operates more than 1,000 electronics stores and employs around 125,000 people. That the electronics retailer continues to exist at all at the time of this writing is a testimony to management's ability to reinvent the company for changing times. Best Buy launched when its founders accepted that their regional music store could not compete in the 1980s against the hot retail trend of "big-box" stores offering choice and convenience at low prices. Best Buy outperformed its preexisting competitor, Circuit City, in selecting locations and keeping pace with technology through the 1990s. As computer technology became more popular and complex, it began offering services through its Geek Squad, a start-up company that Best Buy acquired in 2002. When the Great Recession hit several years later, Circuit City went out of business, but Best Buy survived through aggressive cost cutting, including the closing of operations in Europe and China and downsizing at its U.S. corporate headquarters. It lived to face the new challenge: online retailing.
During the past decade, as Best Buy evaluated its opportunities and threats, it benefited from the loss of some key retail competition-not only Circuit City, but also cutbacks at Sears and other department stores selling electronics. Meanwhile, Amazon transformed from page 240a bookseller with a line of CDs into a major low-priced threat to almost every retailer. In 2010, Amazon introduced an app for comparing prices across retailers, and Best Buy suddenly found that it was losing comparisons despite its low-price strategy. On top of that, Amazon offered the convenience of shopping anywhere and anytime.
In the face of this major threat, Best Buy needed more than low prices. It invested in better distribution and inventory management to keep up with Amazon's superior customer fulfillment. Best Buy improved employee benefits and training to provide better customer service in stores despite the stiff competition for talent in the labor market. Best Buy also wanted to give consumers something that Amazon didn't offer. An online retailer can offer low prices and fast delivery, but the human touch from an online company is rare. Best Buy's executives saw an opportunity to deliver that human touch.
Management opted for a differentiation strategy. Best Buy would offer more services; building on its experience with the Geek Squad, it began offering a service called In-Home Advisor. Best Buy had convinced consumers that calling Geek Squad was like having their own tech support team. In-Home Advisor added an experience like having a tech consultant to advise consumers in using electronics to improve their lifestyle. The service includes free home visits lasting 60 to 90 minutes. Best Buy is betting that building long-term relationships, particularly with senior households, will be profitable in the long run.
Best Buy trains its advisors to fill the role of consultant by putting consumers at ease and quietly appraising what technologies are in use and what potential there is for modernizing. Rather than pitching ideas, consultants learn to ask about preferences and needs. In addition, the company pays advisers a salary, removing the pressure to close sales in order to earn commissions.
Best Buy also seeks distinctive products to sell. It was a leader in opening boutique-style store departments for Apple, Samsung, and Microsoft; those brands pay rent and use their own salespeople or train Best Buy associates. This way, Best Buy can improve customer service while increasing revenues. Another move was to form a joint venture with Amazon. The two rivals agreed to sell a line of smart televisions equipped with Amazon Fire TV and Alexa voice assistant, available only from Best Buy and Amazon. Best Buy also sells service packages, including the Total Support Tech program, which costs $199 for a year of tech support from the Geek Squad for any electronics product purchased from any retailer. For elderly customers concerned about their health and safety, a program called Assured Living equips them with remote monitoring and communication, a program that Best Buy hopes will help it reach $50 billion in revenues by 2025.
Recent sales results suggest that Best Buy's strategy was smart, at least for the latest changes in retailing. Sales have risen significantly. Best Buy's senior management sees plenty of growth potential. Best Buy customers typically direct only one-fourth of their spending on electronics to Best Buy, leaving the remainder as a potential source of growth from existing customers. Further, Best Buy and Amazon together hold about one-fourth of the U.S. consumer electronics market. The other three-fourths is a potential source of growth. Best Buy can win more of those sales by continuing to differentiate itself from the competition.
Task
i. Review the details in this case and identify an example of (a) a corporate-level plan or strategy and (b) a functional-level plan or strategy.
ii. Which of the changes in Best Buy's strategy do you see as being related to its rivalry with Amazon? Explain.
iii. Best Buy has opted for a strategy of differentiation from online retailers. How do you expect the opportunities and threats associated with this strategy might change over the next few years?