Term Paper on "E-Business Strategy"

Term Paper 15 pages (4208 words) Sources: 1+

[EXCERPT] . . . .

Best Buy's e-Commerce Strategies

Best Buy continues to lead all retailers in their use of the Internet for attracting, selling, and serving their customers. The intent of this paper is to critically evaluate the e-business strategy of Best Buy and provide recommendations for its improvement in the future. To begin, an industry assessment is presented using Dr. Michael Porter's Five Forces Model, an analytical construct Dr. Porter has mentioned in several of this articles and books. Dr. Porter (1990) also uses the five forces model as the construct for the competitive advantage of nations, which shows that global productivity is the greatest potential differentiator long-term. The productivity of Best Buy in turn is directly related to the quality of the decisions regarding e-commerce strategy definition and development. This paper examines the Best Buy e-commerce strategies as they relate to selling business to consumer (B2C0, business to business (B2B), and Business to Employee (B2E) and each of these strategies' impact of the Five Forces Analysis in the paper. The third step of this analysis is a critical evaluation of the Best Buy e-commerce strategy, followed by recommendations for improving the e-business of Best Buy today and into the future.

Porters' Five Forces Model of Competition applied to Best Buy

The five forces that comprise Dr. Porter's model are industry competitors, pressure for substitute products, bargaining power of suppliers, bargaining power of buyers, and the influence of potential entrants. Figure 1 shows the Porter Five Forces Model graphically. Each of these areas is now discussed in bullet form in the following series of sections.

Assessing Best Buy's Industry Competitors

Highly fragmented series of smaller electronics competitors, both in terms of individualized stores and smaller chains, who concentrate on a subset of the electronics Best Buy carries.

National competitors in the PC distribution arena are Dell, Gateway and several other lesser known PC manufacturers who are using the direct model for selling force price competition in local markets for Best Buy. Both the B2C and B2B expertise Best Buy is continually refining as a result of their efforts to streamline e-commerce selling strategies, including adding in guided selling and distributed order management as part of their corporate-wide e-commerce strategies, is giving the company a competitive edge relative to PC direct marketers.

Low-price online competitors have proliferated in the flat panel TV marketplace mainly as a result of increased manufacturing efficiencies and greater distribution from Asian manufacturing plants. Best Buy's e-commerce strategy to compete with these many online competitors is to combine editorial and expert-level advice on their website with guided selling and low-end sales configuration or quoting tools. The consumer is more educated about the flat screen TVs after leaving the Best Buy site and may even have printed a quote vs. visiting competitor's sites and just gotten a price quote. There is a difference in these quotes over and above price, and Best Buy is pursuing the role of trusted advisor to B2C customers in this regard.

Global online retailing competition is dominated by Amazon.com, and like Best Buy, Amazon.com uses guided selling, cross-sell, and up-sell e-commerce applications as part of their online selling strategies for attracting both B2C and B2B customers. Amazon.com is also one of the most significant competitors Best Buy has from an operations standpoint as well. Amazon.com has a distributed order management system that rivals Wal-Mart in complexity but not scope or size, and has a supply chain series of practices that is making their electronics business profitable.

Brick-and-mortar retailers are also a significant competitive threat, with Wal-Mart being the largest both financially and from a selection standpoint. Wal-Mart's supply chain is much more developed than Best Buy's, giving Wal-Mart pricing as a competitive advantage. Best Buy's approach to using e-commerce strategies to up-sell and cross-sell both consumer and business customers has been successful in protecting pricing and margins, yet Wal-Mart's extensive network of suppliers and the resulting price points is a long-term competitive threat to Best Buy.

The use of business to employee (B2E) strategies to enrich and educate Best Buy associates on the sales floor is one of the best competitive responses the company has created to this point vs. Wal-Mart. The training, focus on customer satisfaction, and the tying of bonuses and raises to sales level and customer satisfaction, all managed through B2E portals and applications, is making a significant difference in Best Buy's ability to stay competitive relative to Wal-Mart, which has no such program for B2E enrichment.

Pressure from Substitute Products

Chinese manufacturing centers are generating lower-quality flat panel televisions in literally hundreds of factories throughout that nation, hoping to flood the U.S. And Canada with low-price flat-panel TVs in the hopes of capturing a growing market quickly. The majority of these manufacturers have the basics of the technology defined on how to create flat panel TVs, yet do not have the necessary training for Underwriter's Laboratories (UL), TUV, or CSA certifications on their products. Anyone can literally go to the Internet and find these manufacturers online or through manufacturing sourcing sites including Global Sources, and see the variety and depth of flat-panel TV offerings available. For Best Buy, the rapid growth of these substitute products underscores the need to become a trusted advisor specifically in the areas of variations in flat panel TV technologies, and how to integrate them into a home entertainment system.

Substitute low-end PC products are also proliferating including the development of Linux-based laptops and desktops that sell for less than $1,000, and have comparable applications and features. This is a trend that long-term also threatens the higher margins Best Buy generates from in-store sales of PCs from HP, IBM, Toshiba, and others.

Online music downloading is a serious threat from the standpoint of Best Buy's extensive music marketing and selling division. The growth of iTunes and with it, iPod sales, have made the sales of CDs slow throughout 2006. One industry observer says that for every CD purchased in a store, an equivalent of ten CDs are either traded or downloaded online. The implications for Best Buy then are to strengthen through B2E strategies their iPod and MP3 business, assuming revenue from music CDs will eventually begin to be impacted by the iTunes and future Microsoft announcements around downloadable music.

Big box retailers (Costco, Sam's Club, Wal-Mart, and others) are increasingly finding consumers are willing to buy washers, dryers, and refrigerators over the Internet and just pick them up locally. This is a substitute distribution channel, and to counter this Best Buy has created a product location service on their website which tells consumers where a specific durable goods product can be picked up in the customers' general area, using zip code as the delineator of where the customer's location is. This substitute distribution channel threat has been successfully countered by Best Buy in the near-term, yet long-term the trending on durable goods needs to be addressed with more local partnerships with key installers who can for example put in a gas-powered washer and dryer any day of the week a customer requires it.

Bargaining Power of Buyers

Affluent consumers who are looking to build their own home entertainment systems, get their own wireless PC networks at home up and running complete with a new laptop, and also get the latest digital camcorder exemplify the high-end buyer that Best Buy is targeting with their integrated approach to delivering a high quality in-store experience for customers. These customers, as a group, are the most affluent purchasers of electronics in the U.S. And Canada, and purchase from retailers who can conclusively show how specific products align with their needs. In selling to these buyers, the role of training from a B2E perspective is critical. These affluent buyers look to trust retailers first, then purchase, and in the training from B2E-based program, initiatives and strategies is where Best Buy associates can become trusted advisors to these consumers.

There is $80B in spending by Small Business according to Best Buy Shareholders Meeting (2006) for technology-related products this year, making this one of the largest potential buyer segments Best Buy is addressing with strategies. These buyers require a multi-channel approach to buying so that they can coordinate purchases between the Internet, calling in, and coming in for orders. The ability to track all this activity by customer is critical for being able to grow this channel.

Music buyers' bargaining power is the most price-sensitive and focused on immediate availability, and is going to the toughest segment for Best Buy to continually grow in the future given the popularity of iTunes. For these music buyers, the MP3 players, cell phones that can accept MP3-formatted songs, and the rise of convergence products will transform this customer base. Arguably this is the most significant segment long-term as this segment matures, they will look for flat screen TVs and advanced electronics, all the core part of the Best Buy product strategy.

Bargaining Power of Suppliers

The bargaining power of quality producers of flat screen TVs… READ MORE

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