Industry Analysis Case
Best Buy’s Turn-Around Strategy
September 30, 2014
The consumer electronic industry has experienced a number of ups and downs during the past few years. In the beginning, the consumer electronic industry was taking off because of the emergence of suburban retail stores after WWII. With the decreasing cost in technology, the increase in the demand for consumers electronics particularly televisions came about. During this time, the consumers were usually more price sensitive, and were willing to accept low customer service in exchange for lower prices. This lead to the rapid growth of the discount stores. Because there are not many substitutes for consumer electronics, the sales for these products continue to increase over time. Consumers can decide which retailer that they want to purchase their electronics from. They have the option of purchasing it directly from that particular retailer or even just ordering it online. Because of the high exit barriers, increasing buyer demand, and increasing sales, it is recommended that Best Buy continues to try to change its strategy to be able to gain its past sales trend again in the consumer electronics industry.
In the beginning, Best Buy started off strong with increasing sales and profits, but over time this trend started to change. As shown in Exhibit 7, Best Buy is the only competitor within the consumer electronics industry that has experienced a recent trend of decreasing sales. Some of this has to do with showrooming. Consumers are not making their purchases from Best Buy. They are coming into the store to learn more about the product, and they go out and purchase the product elsewhere after comparing prices.
The driving forces of the industry (Exhibit 3) are what is currently pushing the industry forward. The innovative products, diffusion of technical know-how, revenue growth, and changes in technology are driving this industry. The main driving force of the industry would have to be between the changes in technology and the new innovative products. These two driving forces complement one another because without the changes in technology, the new innovative products could not be created and released into the markets for consumers to purchase.
Because of showrooming, Best Buy has continued to face lagging sales when compared to its competitors. Best Buy will have to change the way it markets its products to its consumers if it wants to stop losing sales to its rivals. Although Best Buy offers some of the same products as Wal-Mart and Target with similar prices (Exhibit 6), they have a slightly higher market share within the industry. By looking at the economic conditions presented in the PESTEL Analysis (Exhibit 1), the consumer electronics industry is still predicted to experience some growth over the next few years. To be able to capture some of this growing market, Best Buy will have to come up with new ways to help bring in the consumers and increase its consumer’s satisfaction levels.
Although the five forces analysis in Exhibit 2 shows a semi-attractive industry that will continue to be profitable in the future, if Best Buy cannot find ways to generate sales then they will face the possibility of ending up like Circuit City. It might be time for Best Buy to move away from its big box store format completely in favor of smaller stores so that they will be able to cut costs and figure out new ways to increase their profitability. Competition among rivals will continue to increase as they try to increase their market share within the industry. In order to combat this increase in competition, Best Buy will need to cater to its consumer’s specific needs and feed off of their behaviors in order to attract them into the store. This might mean that Best Buy will have to decrease some of its prices to be able to compete with its rivals as prices is a key success factor in the industry (Exhibit 4).
Exhibit 1: PESTEL