Best Buy has faced increasing competition in the electronics industry, especially with online retailers such as Amazon. Using Porters Six Forces we can better understand the industry forces that affect these companies.
Figure 1.1 Porters Six Forces
Many manufacturers of products for low end merchandise
Brand loyalty for products of “name” brand
Threat of Substitution
No real substitute for purchasing electronics
Threat of Entry
Competing with prices
Online vs Brick and Mortar
Consumer seeks cheapest prices
No true loyalty to any specific company
Seek advantages through consumer rewards program
All electronic products
All complimentary products for the electronics
The rivalry within the industry is very high because the only way a company can differentiate is through pricing. The industry has two distinct forums where consumers go to make purchases. Consumers can either make a purchase in a brick and mortar store, or go to an online retailer for their purchase.
Online retailers have made such an impact on the electronics industry, that Best Buy has recently been used by some consumers as just a showroom for companies like Amazon. Consumers check out products in store, then go home and find the cheapest price of that product online to make their purchase. This has put increased pressure on Best Buy to make changes such as making their price match guarantee permanent which now includes some online retailers.
The buyer power within the electronics industry is very high. There is so much information available in today’s society with the advancement of technologies such as smart phones. This allows consumers the ability to price match products instantly through their phones, so with no true loyalty to any company a consumer’s main goal is simply the cheapest prices.
Buyers have all the power in this industry so a company such as Wal-Mart, which offers many of the same electronic product are becoming more desirable to consumers because they can do all their shopping in one place, not just for their electronics. Similarly with Target, that offers groceries as well as electronics and many other products, have a distinct advantage over Best Buy especially during tough economic times. It boils down to price and many consumers will seek out the lowest cost to them which is why Best Buy has lost market share within the industry.
There are no substitutions for this industry because the scope is so large, but there are a large number of compliments. Products such as MP3 players, computers, and many more are all compliments of this industry. Since this is a consumer driven economy, marketers have figured out ways to design products that appeal aesthetically to the consumer with items such as carrying cases. Also the concept of planned obsolescence coupled…