Best Buy Marketing Strategy Case Study

Best Buy's Marketing Situation (2012-Present)


Ok, now let's take deeper look at Best Buy's marketing dilemma. This section first presents Best Buy's view of their market situation from the perspective of the Vice President of CRM, as well as articulates Best Buy's strategic marketing response in detail. The following questions were posed to the Best Buy executive in October 2014. Second, we take a closer look at the phenomenon of omni-channel consumer behavior as a key reason for this dilemma. Third, we consider emerging general trends in retailing. Finally, we endeavor to create an informed, persuasive SWOT analysis of best Buy's current marketing situation as a basis for future recommendations in case analysis.


Question 1:Please describe general consumer (B2C) changes over the recent past and how these are affecting consumer electronics retailers such as Best Buy.

Question 2: Please describe general (B2B) changes over the recent past and how these are affecting consumer electronics retailers such as Best Buy.


Student Problem:

  1. Let's start by framing Best Buy's marketing situation in terms of a SWOT analysis. Please first summarize the key points from the two videos from Matt Smith above in terms of likely opportunities and threats to Best Buy over the next 1-2 years. Please note that this requires a description, not a formal argument (conclusion, premises, evidence). Note, however, that descriptions do generally benefit from premises and evidence.
  2. Second, based on your previous review of Best Buy from a marketing perspective, please identify Best Buy's marketing strengths and weaknesses. Please be sure to include support for your conclusions.

This is not your opinion, rather, a marketing-based evaluation. Please include a bibliography of your sources. Please support your conclusion with evidence from the videos, as well as credible additional evidence you can find based on an Internet search and literature review.


Omni-Channel Consumer Behaviors

The consumer shift to omni-channel behaviors is identified above as a key emerging phenomenon affecting traditional retailers such as Best Buy through phenomenon like showrooming. We asked Matt Smith to discuss consumers' omni-channel behaviors vis-a-vis Best Buy in the following video.

Question: Can you describe omni-channel consumer behavior and how it is affecting Best Buy?

The following recent practitioner studies will prove instrumental in helping students better understand this issue. comScore released the 2015 US Mobile App report on September 22, 2015 (please see http://www.comscore.com/Insights/Presentations-and-Whitepapers/2015/The-2015-US-Mobile-App-Report). Newman (2014) recently stated in Forbes that omni-channel is a reflection of the choice that consumers have in how they engage a brand, and therefore is best represented as how brands enable their clients and consumers to use these channels to engage with them. Mr. Newman's Forbes blog (http://www.forbes.com/sites/danielnewman/) is a great place to begin your inquiry into the emerging information related to omnichannel consumer behavior from practitioner sources. eMarketer (2014) reports the state of onmi-channel retail practice.  Forrester (2014) has a very interesting study with lots of data trends that students will find useful. Deloitte (2014) also presents a study with current trends in consumer omnichannel behaviors. Accenture (2014) also released (1) a 2014 study introducing the basic concepts of omni-channel behaviors, and (2) a short study related to the concept of consumer omni-channel behavior that specifically discusses IBM's Websphere software.


Student Problem:
  1. Please first summarize the key points from the Matt Smith above in terms of likely opportunities and threats omni-channel behaviors pose to Best Buy over the next 1-2 years. Second, please summarize the key points from the studies identified above related to consumer omni-channel behaviors in terms of likely opportunities and threats to Best Buy over the next 1-2 years.
  1. Finally, please revise your SWOT analysis above accordingly. Specifically, please create a formal argument as to whether or not you believe that omni-channel behavior poses a serious threat to Best Buy's future competitiveness. Why or why not?

This is not your opinion, rather, a marketing-based evaluation. Please support your conclusion with evidence from the videos, the identified studies above, as well as credible additional evidence you can find based on an Internet search and literature review. Please include a bibliography of your sources.


General Retailing Trends

Best Buy's external marketing environment is also being affected by other general consumer retailing trends.We asked Mr. Smith to discuss these trends from the perspective of Best Buy in the following video.

Question: Is it true that the retail consumer electronics market as a whole is declining in the US? Can you identify the reasons for these declines and how they have affected competitiveness in your industry over the last 3-5 years? Is the marketplace growing or shrinking internationally?


Student Problem:

  1. Please summarize the key points from the Matt Smith video above in terms of likely opportunities and threats the identified general consumer retailing trends pose to Best Buy over the next 1-2 years.
  2. Finally, please revise your SWOT analysis above accordingly. Specifically, please create a formal argument as to whether or not you believe that the identified general consumer retailing trends poses a serious threat to Best Buy's future competitiveness. Why or why not?

This is not your opinion, rather, a marketing-based evaluation. Please support your conclusion with evidence from the videos, the identified studies above, as well as credible additional evidence you can find based on an Internet search and literature review. Please include a bibliography of your sources.


Best Buy's Own SWOT Perspective

Finally, we asked Mr. Smith to describe Best Buy's SWOT perspective. Specifically:

Question:Can you describe Best Buy's current status from a marketing perspective (e.g., sales, market share, etc.)? Can you further frame this in terms of SWOT (strengths, weaknesses, opportunities, and threats)?


Student Problem:
  1. Please first summarize the key points from the video from Matt Smith above in terms of likely SWOT characteristics to Best Buy over the next 1-2 years.
  2. Second, please compare and contrast Mr. Smith's SWOT perspective with your own. How are they the same and/or different? What do these differences imply from a marketing perspective?
  3. Finally, please now develop your final critically thought out argument on how hostile or favorable you perceive Best Buy's environment to be on a scale of 1-10. The conclusion of this formal argument should be stated as "The overall favorability/hostility (pick one) of Best Buy's marketing environment is best described as a # on a scale of 1-10."

This is not your opinion, rather, a marketing-based evaluation. Please support your conclusion with evidence from the videos, as well as credible additional evidence you can find based on an Internet search and literature review. Please include a bibliography of your sources.


*Note from the author: This is my first published article since 2016. I've received numerous great comments in the past, and some of my followers have asked where my next article was. Writing is a hobby for me. Here's my breakdown on Best Buy's (NYSE:BBY) turnaround.

Every day it seems that I'm reading about a brick-and-mortar business heading for the slaughterhouse. If you have been out of the loop, here are some sample headlines just from the LA Times:

Source: LA Times

Despite what seems to be the retail apocalypse of the brick-and-mortar store, a success story has gone unnoticed and deserves more attention. You probably noticed that your local Best Buy is actually not dead and is doing just fine. Best Buy, once a struggling business, managed to successfully turn around its business. The Best Buy turnaround story should be a case study. In it are plenty of lessons for the businesses looking to fight off the online juggernauts. This led me to further study how Best Buy managed to avoid the pitfalls that ailed many other brick-and-mortar retail chains.

A few years ago, Best Buy was going down the tube like many of its peers (e.g. Circuit City, Radio Shack). Best Buy was a victim of “showrooming”; Consumers would show up in stores to check out the product to end up purchasing it online at a better price. As a result, sales and profits slumped, and Amazon (NASDAQ:AMZN) would just take more market share. In this 2012 article from the LA Times, the author claimed he got a better deal for a fridge at Sears (NASDAQ:SHLD). When you are losing sales to Sears, you are in trouble. Below is the Best Buy five-year chart:

Best Buy is up 4x since late 2012, far outpacing the broader market.

Back in 2012, Best Buy was trading at around $11 with a quarterly dividend of $0.17 per share. It's now trading upward of $56 with a quarterly dividend of $0.34 per share. So how did Best Buy manage to quadruple its stock price, double its dividends in five years when many people (including me) thought this company was going straight for the cemetery, another victim of Amazon.com and other online sellers?

What are some of the lessons?

New Management And Turnaround Plan

In 2012, the firm appointed a new CEO, Hubert Joly, a French turnaround artist. Joly was the former head of Radisson and T.G.I. Friday’s parent Carlson. At the time, a scandal forced out former CEO Brian Dunn as well as chairman and founder Richard Schulze. Schulze has since returned as chairman emeritus and threw his support behind the current management. The appointment of Joly was a little bit of a headscratcher since he had no retail experience. According to the article, one analyst said that fixing Best Buy was “a herculean task even for an accomplished retail executive.” But Joly has proved up to the task so far.

Back in 2012, when many on Wall Street doubted the company would survive the mounting threat of Amazon, that was where Joly presented his solution, his Renew Blue turnaround plan. The five pillars of the Renew Blue plan included improving the customer experience, energizing employees, deepening relationships with vendors and increasing return on investment through cutting costs and growing sales.

Today Joly’s Renew Blue turnaround plan is now held up as one of the success stories of the modern era of retailing. Back in March 2017, Joly declared Renew Blue officially completed. Now that Best Buy has been stabilized, Joly is not focusing on growth.

Best Buy is entering the next phase of its so far successful Renew Blue strategy with Best Buy 2020: Building the New Blue. The new plan looks to three areas for growth.

  1. The first is hopping on emerging categories such as connected home and appliances and further blending its in-store and digital experiences.
  2. The second area is services and solutions such as the Geek Squad. Best Buy is rolling out an in-home advisor program.
  3. There’s room for growth in Canada and Mexico where Best Buy has 187 and 25 stores. It is ramping up remodeling stores in Canada and plans to open nine new stores in Mexico over the next two years.

Best Buy 2020 is partly aimed at helping the company find more stable revenue streams that are not as dependent on various up-and-down product cycles.

Price Matching

Joly’s first move was to match any rival’s prices, especially those at Amazon, so that in-store shoppers no longer needed to buy elsewhere. I’m a little perplexed as to why this wasn’t normal policy before. I’m pretty sure every major retailer does price matching. As I was writing this article, I bought the game Battlefield 1 on Best Buy because it was $40 cheaper than it was on Amazon. My first reflex was to go on Amazon first, then check Best Buy just in case. Basically, you can’t assume Amazon will always have the best price.

Price matching keeps people in store by directly attacking “showroomers.” Price matching also attracts consumers that don’t want to wait for an item to ship. If you buy on Amazon, shipping can be pretty good, especially if you have Prime in major urban areas but third-party sellers shipping needs some upgrade.

Improved Shipping

The second thing Joly did was speeding up delivery time. He accomplished that by expanding its national distribution center, improved the website and phone app, so that customers could order online and pick up their products at the stores or have them delivered. Best Buy was one of the first retailers to enact chain-wide ship-from-store capabilities that get online packages to customers faster and more cost efficiently instead of relying on more distant fulfillment centers. Today, about 40 percent of Best Buy's online orders are either picked up in stores or shipped from the store.

There are two main drawbacks to shipping. Consumers don’t like to wait for their items and they hate paying for shipping. Paying for shipping is a deal breaker for me. Sometimes it doesn’t matter how much you save on your shopping basket, paying for shipping is sometimes not worth it. The game I recently bought on Best Buy, they told me it would take 4 days to receive it. That was fine with me because I wasn’t in a rush. Within hours of ordering it was shipped and I received it in two days. They beat expectations. It’s like the doctor that tells you have two weeks to live and you go on for another six months. That doctor looks like a hero.

Improved Shopping Experience

With Joly, Best Buy improved the shopping experience, both online and in stores. Shoppers are increasingly researching items from their phones and then making a purchase at a store. When you are fighting Amazon, good customer service is the key to keeping a competitive edge, Joly has said, and brick-and-mortar stores are a powerful tool. Stores are “a great asset” even as Best Buy also moves increasingly to online sales. “We don’t see ourselves as a brick-and-mortar retailer, we’re a multichannel retailer” that combines the stores, Best Buy’s website and its phone app to boost sales,” Joly said in an interview.

An exciting e-commerce experience and a shiny new mobile app does not necessarily guarantee omnichannel success, but when it is paired with a dynamic in-store experience, the foundation for continued financial success is solidified. You still need the physical store. You cannot use your senses online to see the difference in picture quality of the TV or the sound quality of a headphone. You really have to go to the store.

Best Buy also invested in better training its employees so that they can explain products to shoppers, which Joly believed was critical because new technology often is confusing to many consumers. If you are going to spend a couple of hundred dollars on a sophisticated electronic item, it’s good to talk to somebody that can explain and guide you. You don’t get that when you buy on Amazon.

The focus seems to be paying off. Best Buy's same-store sales — that is, sales of stores open at least 14 months, and a key retail measure — have continued to rise modestly the last three years, reversing four years of declines. Best Buy’s U.S. online sales rose 21% in fiscal 2017 and accounted for $4.85 billion, or 12%, of Best Buy’s total sales.

Best Buy seems to be benefiting from positive media coverage. Here are some of the results when I typed “Best Buy” in the search bar at RetailDive.com:

Source: RetailDive.com

This is just in the past year. The headlines are not negatives and you can tell they are trying different strategies. In one of the headlines, Best Buy unveiled a new program called Ignite, dedicating space in stores for products and services from start-ups. Best Buy’s partnership with PCH, a multinational product innovation company, will make it easier and quicker for Best Buy customers to get their hands on start-ups’ innovative products.

Part of the idea is to make it easier and faster for our customers to get their hands on the products. The initiative is reminiscent of Amazon’s move to create Launchpad, a dedicated space on its website to highlight products from start-ups.

Other retailers such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) also have begun doing similar open calls for new products. But Best Buy’s effort seems to be an even deeper, multifaceted one to bring more cutting-edge products to market more quickly. That makes sense. Consumer electronics is a category where people expect innovation.

Source: Best Buy. Prototype of Ignite.

In the past, innovation has been driven mostly by a handful of major national brands, like Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF). In the past several years, Best Buy has doubled down on its partnership with those marquee brands by carving out space in its stores for mini-shops from its biggest vendors such as Samsung, Sony (NYSE:SNE) and Apple.

They didn’t actually “carve out” space for other stores. They got rid of DVDs and CDs, leaving room to invite such vendors as Samsung, Microsoft (NASDAQ:MSFT), Verizon (NYSE:VZ), Pacific Sales, and Magnolia to set up “stores within the stores” inside Best Buy’s outlets. This enabled Samsung to have 1,400 stores in the U.S., which would have taken years to build on its own.

Best Buy’s Geek Squad is also rolling out an in-home advisory service, where consumers get a free consultation on how to connect all the products in their homes. The consultations could lead to consumers buying more products or services. Amazon is also trying to address that. The market also didn’t react well to Amazon’s announcement with Best Buy’s stock losing $5 or $1 billion in value on July 10, 2017. Joly said: “They’re seeing the same thing we’re seeing — that customers need help — and are trying to address that, just looking at a product on the shelf or a site doesn’t necessarily tell you what you can do with it.”

Cost Cutting

What's a turnaround effort without cost cutting? Best Buy has slashed hundreds of jobs in a cost-cutting effort. How effective is "rightsizing"? Does it hurt a company more than it helps? It has to be judged case by case. For some companies, firing people is what saved the company (and remaining jobs).

When a company becomes too fat, that is employing more people than it needs, it’s not doing anybody favors. The cost-cutting strategy works for some. 3G comes to mind. For other companies it just worsens the problem. When good people leave and morale is affected, it’s hard to turnaround an operation. Sears fired a lot of people and look where they are today.

What did Best Buy do? The company began with $1 billion in cost cuts, starting with hundreds of corporate layoffs, including 400 employees at headquarters in one fell swoop. Other savings came through tweaking the supply chain. The venture capital unit also was shut down.

Joly has also repeatedly assured investors that his cost-cutting measures are long term, to “establish a lean culture.” In a May conference call (Q1-2017) with analysts, he said,

"A key element to achieving this is simplifying and streamlining our core business processes, simultaneously improving the customer and employee experience and driving costs out. This work is well on its way. I want to stress that this is not an isolated short-term cost reduction program, we are establishing a lean culture focused on systematically eliminating non-quality and defects. This approach requires collaboration across teams and fractions and we are building the organizational capabilities, mind set and habits necessary to sustain changes."

Other cost-cutting measures includes shedding its Chinese and European business in 2015. The company also has stripped $1.4 billion from its annual operating costs by renegotiating supply agreements and real estate leases and by closing more than a dozen large stores and 40 smaller ones, among many other steps. It also consolidated its Canadian enterprises, closing 66 stores and rebranding its Future Shop stores to the Best Buy name.

Summary

Since CEO Hubert Joly took the reins five years ago, Best Buy has been reborn. Joly has proved up to the task so far. Best Buy has accomplished what many on Wall Street once considered impossible: It successfully fought off an attack from Amazon.com. Under his turnaround plan, Best Buy has rebounded to remain one major U.S. retailer that’s holding its own in the face of Amazon’s relentless growth and the conventional retail industry’s slump. The once struggling electronics retailer is now the darling of the segment and continues to see sales grow quarter after quarter.

Here’s a summary of some of the lessons learned in Best Buy’s turnaround plan:

  • Hiring the right management/people.
  • Price matching.
  • Improve customer service. Having better trained employees. The idea is to serve the customer anywhere, anytime.
  • Speed up delivery. Use stores for distribution.
  • Improved product variety. Store-within-store strategy. Exclusive partnerships with start-ups.
  • Multi-channel approach (Physical, mobile, and online). Use physical presence as leverage.

Amazon is the likely victor of the e-commerce war, but retailers with brick-and-mortar stores can and are beginning to thrive online, in part thanks to their physical retail presence. In today’s environment, you can’t simply just be an online retailer or a brick-and-mortar store. You need an omnichannel strategy. You need a presence online, on mobile, and physical. The key is leveraging their considerable physical assets. Most brick-and-mortar companies are playing catching up, and stores are key to their success, by serving as logistical fulfillment hubs and by associates sealing the deal on the sales floor.

The work is not over. Best Buy has plenty of challenges ahead. The Amazon threat hasn't gone away. And while Best Buy has made major strides in improving its profitability, it still has yet to show substantial top line growth. The consumer electronics industry is slowing down and is expected to have a third down year in a row. Best Buy and other retailers with significant brick-and-mortar investments need to focus their efforts on how to most effectively leverage these assets in combination with online efforts. This is very much a work in progress for most of these retailers including Best Buy.

What’s already clear is that many shoppers still prefer peering closely at products on Best Buy’s shelves rather than relying solely on the Internet. You cannot use your senses online to see the difference in picture quality of the TV or the sound quality of a headphone. You really have to go to the store.

Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: As with all of my articles, the opinions are my own. This is not a recommendation. It's an idea. You should do your homework and make your own best judgments about the company. (I know that this resembles the boilerplate disclosure that you see in every email that you get from your broker but I really mean this and I am not saying it to avoid getting sued.)

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