Business Strategy

Porter's Five Forces

Bargaining Power of Buyers: High

Despite the relatively small size of the consumer electronics industry, those primarily electronic commerce companies, like Amazon, offer consumers a wide variety of purchasing options. The ability to research their options ultimately provides consumers/buyers with an advantage. To curtail their bargaining power, Best Buy promotes extended warranties. These warranties not only boost buyer-seller relationships, but also make it costly to seek alternative services.

Threat of Substitutions: Moderate to High

Cognizant of the threats posed by high-volume retailers, like Wal-Mart and Target, together with online retailers, such as Amazon, Best Buy has established a number of partnerships with electronics manufacturers in China. The products produced by these manufacturers are for Best Buy, but are marketed under generic brand names. These generic brand names allow Best Buy to maintain their customer base and market share, while subsequently reducing the threat of substitutions.

Bargaining Power of Suppliers: Moderate to High

Central to Best Buy's success within their respected industry is the well-grounded command of its supply chain and strong relationships with suppliers. While suppliers might have a relatively high bargaining power, they rely heavily on retailers, such as Best Buy, to sell their products and bring in revenue. Because Best Buy is so effective in generating sales and revenue, they are able to diminish the bargaining power of suppliers.

Threat of New Entrants: Low

Because Best Buy is part of an oligopoly, or a market dominated only by a select few sellers, the threat of new entrants is relatively low. That said, Best Buy does not necessarily have and/or need a defense mechanism.

Rivalry: High

Because the electronics retail industry is so fierce, Best Buy’s strategy revolves around competitive pricing and other non-tangibles. In terms of competitive pricing, Best Buy employs a price-matching strategy. While it may seem counterproductive, this strategy actually makes the company increasingly more price consequence in the consumer’s eyes. With regards to the above mentioned non-tangibles, Best Buy’s Geek Squad provides personal customer service in the following areas: appliances, cell phones, computers & tablets, etc. This service is only available to those who purchase directly from Best Buy.

Competitive Strategy

Best Buy’s competitive strategy could be categorized as differentiation across the industry. According to CEO Hubert Joly, “The strategy is very simple. We believe that price-competitiveness is table stakes. The way we want to win is around the advice, convenience, service.” A major component of this strategy is the consumer/buyer/purchaser. That being said, Best Buy seeks to differentiate itself by offering competitive pricing, advice, convenience, and enhanced customer service. In terms of competitive pricing, Best Buy employs a price-matching strategy. While it may seem counterproductive, this strategy actually makes the company increasingly more price consequence in the consumer’s eyes. An additional edge arises from the physical store layout. Best Buy’s “store within a store” concept not only amplifies convenience, but also has the ability to direct a consumer to the right department/salesperson for advice. Ultimately, Best Buy’s strongest asset is the Geek Squad. Their primary purpose is to provide personal customer service in the following areas: appliances, cell phones, computers & tablets, etc. Keep in mind, this service is only available to those who purchase directly from Best Buy. In short, this is how Best Buy carries out its broad differentiation strategy.