Strategic Analysis of Best Buy Co. Inc.: Business Strategy Report

This report provides a comprehensive strategic analysis of Best Buy Co., Inc., a leading electronics retailer. It begins with an introduction to environmental analysis and its importance for business marketers, followed by an evaluation of the macro environment using PEST analysis, examining political, economic, social, and technological factors impacting Best Buy's operations. The study then delves into the competitive environment through Porter's Five Forces model, assessing the bargaining power of buyers and suppliers, threats of substitutes and new entrants, and competitive rivalry. Subsequently, a SWOT analysis is conducted to identify the company's internal strengths and weaknesses, as well as external opportunities and threats. The report concludes with recommendations based on the analyses, aiming to enhance Best Buy's strategic positioning and navigate the challenges within the competitive landscape of the electronics retail industry.

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Table of Contents
Introduction......................................................................................................................................2
Evaluation of the Trend in the Macro environment (PEST Analysis).............................................2
Competitive Environment Analysis (Porter’s Five Forces Model).................................................6
SWOT Analysis...............................................................................................................................8
Conclusion and Recommendation.................................................................................................11
References......................................................................................................................................12

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Introduction
Environmental analysis is the systematic process through which the business marketers
identify the business environment. The location of the business operations are often surrounded
by enormous challenges posed by the potential competitors, political factors, and other
environmental issues. It is thus essential to conduct the complete market research prior to
establish the business or develop any initiative. The utilization of the simple framework for the
environmental analysis would be fruitful for the business marketers. According to Matzler,
Veider and Kathan (2015), the simple framework used for the presenting the environmental
analysis helps in understanding the business environment more precisely. It not only identifies
the external business environment, it generates the ideas about the relevant strategies to be used
for the business to cope with such environment (Angulo-Ruiz et al. 2014). It is essential for a
business manager to manage the basic step to analyze the external environments. Firstly, the
environment is needed to be scanned for identifying the major factors that create influence on
business. Secondly, each of the factors is required to be monitored and culled. Thirdly, it is
essential to understand the impacts of these factors on the business functions (Perlow and Kelly
2014). Finally, the complete forecast of the scenario is needed to be presented for identifying the
necessary strategies to be implemented further.
Accordingly, the study would present the strategic analysis of Best Buy Co., Inc., which
is a renowned electronics retailer company operating in the global environment. The study would
present the PEST analysis to recognize the environmental feasibility to operate the electronic
business. The study would also discuss the global competitiveness by using the porter’s five
forces model. The identification of internal strength and weakness of the company would also be
presented in this study. Accordingly, the preferable recommendations would be presented in this
research paper.
Evaluation of the Trend in the Macro environment (PEST Analysis)
Best Buy Co., Inc., is a electronic retailer company that offers the commendable
electronic services for computing, gaming, and telecommunication gadgets. The company has
established the operational activities over 1,100 stores in United States (Bestbuy.com 2017). The

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focus of the company is to ensure the best offers on the technological gadgets for fulfilling the
customers’ expectations and enhance the customer base. The major purpose of developing the
mission is to enrich the lives of the people by providing the advanced solutions to the
technological gadget use. In order to accomplish such mission, it is essential for the company to
identify the major environmental factors that have the significant impact on the business
operations (Lee and Grewal 2013). In this section of the study, the PEST analysis would be
formulated to recognize the impact of the external factors, such political, economical, social, and
technological aspects. The PEST analysis provides the in-depth ideas about the external factors
that have the clear impacts on the business activities. The influence of the external market is
necessary to be identified to ensure the probably of the business sustainability. The basic
demands of the external market would measure the success of the business. The analysis is
presented further:
Political Factors
Political scenario is one of the most important factors that create impact on the business
operations. It is notable that the political environment has been influencing the company for
creating the long term profitability in a country. Best Buy Co. Inc., has been operating over 1100
locations that have the diverse political preferences and risks. In United States, best Buy
complies with the local, state, and federal laws that are concerned with the corporate
contributions to the ballot initiatives and the political candidates. However, it has been observed
that the federal law is prohibited in order to eliminate the direct funding to the federal candidates
(Cao and Li 2015). Therefore, it is allowing the corporations to establish the political actions for
facilitating the contributions from the voluntary employees to particular committees and
candidates. In order to accomplish this purpose, the Best Buy Employee Political Forum PAC is
established to encourage the eligible employees to participate. It is noticed that the company
pays the taxes by maintaining the applicable laws that are consistent with the goals and
transparency of the company (Aithal 2017). This PAC Forum is federally registered under the
non-partisan political action committee, which is governed and controlled by the Federal
Elections Campaign Act (Corporate.bestbuy.com 2017).
Economical Factors

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The unfolding of the current credit crisis and the housing system is decreasing the chance
of the fruitful rebound in the immediate future. The disposable income rate was strongly felt in
the retail sectors of US. After the economic crisis in 2008, the world economy was completely
shaken.
Figure 1: Real Disposable Income
(Source: Economics-files.pomona.edu 2017)

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Figure 2: Year-on-Year Growth of Retail Store Sale
(Source: Economics-files.pomona.edu 2017)
It is reported that the year-on-year (YOY) retail growth rates have been hovering between
4% and 9% from the year of 2003 to the third quarter of 2008. However, it is also recognized
that the fourth quarter of 2008 experienced the decrease of 4.57%, which created the significant
shrink in disposable incomes. Apparently, the electronic goods and appliances are perceived as
the luxurious goods. It is noticed that the current economic structure in US is quite challenging
for Best Buy Co. Inc. due to the constant decrease in the income rate.
Social Factors
The company maintains the effective CSR policies for offering the best products and
services to the consumers. The social atmosphere in US and Canada reflects the preferences for
the higher sophistications (McArthur, Weaven and Dant 2016). People in these countries are

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much inclined towards using the luxurious goods with high quality and reasonable prices. The
electronic apparels and gadgets offered by Best Buy Co. Inc. are considered as the luxurious
goods that are sold by considering the price-consciousness. The company concentrates on
building the effective relationships with the consumers to gain the effective customer base
(Thursby and Berbari 2016). The price consciousness is the major factor for the company to sell
the electronic goods to the potential consumers. Hence, concentrating on the pricing strategy is
important to ensure the sustainable position in the market.
Technological Factors
The portfolio in the private brands is one of the distinct elements for the electronic
retailers. The company offers the different brands, such as Platinum, Dynex, Rocketfish, and
Insignia. The advancements in the technologies are quite demanding among the consumers.
United States is a country that welcomes the technological advancements and innovations in the
retail goods (Hodges et al. 2015). Moreover, the consumers are willing to consume the luxurious
and sophisticated apparels for the improvement of their lifestyles. Hence, it can be implied that
the company can avail the opportunity of the technological acceptance for ensuring the future
growth in the business.
The obtained ideas from the above PEST analysis indicate that the company may face the
obstacle in managing the prices of the electronic goods. The technological advancements require
more capital investment that may create the impact on the customers’ minds (Blackwell and
Eppler 2014). However, the utilization of the useful pricing strategies would be helpful enough
in attracting more customers towards the products and gain profitability for longer time.
Competitive Environment Analysis (Porter’s Five Forces Model)
Best Buy Co. Inc. aims to provide the high technology deliver to the potential customers.
The company has already captured the high market share for exclusive product quality of the
electronic goods. However, in order to accomplish the purpose of serving the better
technological gadgets to the customers, the company requires concentrating on the competitive
environment (Blackwell and Eppler 2014). Porter’s five forces analysis helps in identifying the
market competition to determine the preferable strategies for the company. The porter’s five

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force analysis would present the ideas about the external market competition and business
potentiality to operate in a location.
Bargaining Power of Buyers (Low)
The power of buyers is considerably low for Best Buy Co. Inc. the competitive pricing
tools are the major focus of the consumers while purchasing the electronic goods. Apparently,
the electronic goods are perceived as the luxurious products. Therefore, consumers buy these
products in small quantity (Porter and Heppelmann 2014). It also relies on the repeat purchases
due to which it can be assumed that the prices for the products would match with the potential
buyers.
Bargaining Power of Suppliers (High)
The power of the suppliers is generally higher. It has been observed that the company
receives the products direct from the manufacturers due to which it pays low prices for the raw
material. This price is generally passed on to the customer benefits. However, if the company
does not comply with the conditions raised by the suppliers, it would create the negative
consequences (Martínez, Galván and Alam 2017). If suppliers increase their rates, the USP rates
of the company would not be feasible anymore to the customers.
Threats of Substitutes
The threats of substitutes are considerably low. It is noticed that the customers seek the
highly improved and good quality of the electronic apparels (Lee and Grewal 2013). However,
there are no such product variations available in the market. Hence, the company requires
focusing on the improvement quality parameter more specifically.
Threats of New Entrants
The threats of the new entrants are moderate in case of Best Buy Co. Inc. It is noticed the
electronic retailers need a huge investments to sustain the competitive position for a longer time.
Moreover, the parts of the electronic apparels are quite expensive for the manufacturers.
However, it is noticed that the well investments on such industry helps in building more

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customer loyalty due to which the other entrants will be automatically restricted (Cao and Li
2015).
Rivalry
Best Buy Co. Inc. has the direct competition with Wal-Mart, Radio Shack, and Circuit
City. However, it is noticed that Best Buy Co. Inc. provides the best quality of the electronic
apparels. The prices of the electronic goods are also quite appreciable to the customers.
However, it is noticed that the rival companies are maintaining the balance in managing the
price, quality and variations more than Best Buy. Hence, the competitive rivalry is considerably
higher for the company.
The above analysis of porter’s five forces indicates that Best Buy has the potentiality to
improve the customer base and strengthen the sustainable position. However, the high
competition in the market is quite challenging for the company. The rival companies are
focusing on the continuous improvements by availing the technological advancements (Matzler,
Veider and Kathan 2015). Hence, it is necessary for the company to identify the most preferable
strategy to improve the business scenario. Accordingly, the functionalities would be determined.
However, it is even necessary to concentrate on the capital investments and generating revenues
for improving the customer base. The further section of the study would provide the insights
about the strengths and weakness of the company to utilize the opportunities and deal with the
potential threats from the external environment.
SWOT Analysis
The SWOT analysis presents the ideas about the internal strengths and weakness of the
company to determine the opportune potentiality in competing in a challenging scenario. The
identification of the strengths and weakness of the business determines that whether the company
has the potentiality to conduct the business and maintain the competitive position. The business
often seeks the fruitful opportunities that would be beneficial for establishing the long term
positioning of the company. Moreover, it is also important to recognize the potential threats that
may affect the business activities. The complete SWOT analysis provides the ideas about the
opportunities and external threats that create impact on the business. The analysis is presented
below:

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SWOT Analysis
Strengths Best Buy Co. Inc., maintains high quality service,
best products, effective inventory management,
reputation development, and niche marketing. In
order to develop the brand reputations, the
company maintains the remarkable efficiency by
managing the large domestic and global
distribution channels (Pestleanalysis.com 2017).
The strong brand name is quite effective for
retaining the customers and making them more
loyal. The company is maintaining large footprints
in the United States with almost 1,731 stores. The
effective relationship with the larger brand like
Apple is also quite commendable (Hill, Jones and
Schilling 2014). The growing market of the
consumer electronic products, such as smart phones
and games is also the considerable strength for the
company. In addition to this, it is also notable that
the company keeps record of the e-commerce
business, which is quite helpful in increasing the
online sales ratio.
Weaknesses The company is highly dependent on the brick-and-
mortar location while the online sales increase in a
considerable rate. In fact, in the year of 2015, the
company made the limited profit margin of 1.92%.
One of the major weaknesses of the company is the
higher dependency on the supplier credit. It
indicates that some of the items in the stores are not
much necessary for the customers (Angulo-Ruiz et
al. 2014). The operating expenses inside the stores
are often higher than the online retailers. High costs
of the in house stores are the major weakness for
the company. In addition to this, the extreme

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dependence on the luxury items, such as video
games can be the reason for the downturn of the
economy.
Opportunity The growing market for the electronic apparels is
quite opportune for the company. It includes the
different electronic devices, such as video games,
and smart phones. The constant stream of the
innovative smart phone types increases the sales
and interests of the customers. Moreover, the
growing concerns about e-commerce are also quite
opportune for the business development. The
continuous improvement in the technological field
is quite helpful for the business growth in the future
(Angulo-Ruiz et al. 2014). The advancements in
the technologies are also quite a remarkable
opportunity for the company. Moreover, the
growing popularity of the electronic media is quite
opportune for the business development in future.
Threats The sudden digital delivery of the electronic media
is reducing the foot traffic, which is the major
threat to business. The online mediums like
Amazon, Netflix, iTunes, and Google Play are
treated as the primary source of the entertainment.
Therefore, the company has been facing the
considerable threats from the external market. The
aggressive discounts from the retail giants are
attracting more customers and posing challenges
for Best Buy Co. Inc. The continuous changes of
the demands of the new generation customers are
quite threatening to the company (Angulo-Ruiz et
al. 2014). In addition to this, the direct sell to the
consumers by the manufacturers can be challenging
for the company.

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Table 1: SWOT Analysis of Best Buy Co. Inc.
The above SWOT analysis of Best Buy Co. Inc. presents the ideas about the major
obstacles of the business. It is noticed that the company has the remarkable capacity of adapting,
surviving, and making profits in a high competitive market place. However, it is still necessary
for the company to make changes in the operational process for ensuring more profits in this
competitive scenario.
Conclusion and Recommendation
The study provides the insightful ideas about the market scenario in which Best Buy Co.
Inc. operates. The internal and external analysis of the company provides the knowledge about
the huge market competition, which is the major obstruction. Therefore, it is necessary for the
company to utilize the preferable strategies that can help the company to develop the market
position. The restructure of the operational process would be much preferable for the company
to adjust the prices and quality of the products. The company needs to develop the promotional
activities to gather more customers towards the brands. Understanding the potential threats and
opportunities is quite helpful for the company to gather ideas about the market potentiality for
sustaining the business. The identification of the internal and external market influence
suggested that the company requires improving the operational activities to attract more
customers. Moreover, it can also be suggested that the company can provide the effective value
propositions to gain the attention of the potential customers. When the customers receive the
value based products that are superior to other companies, it becomes easier for them to select
the suitable product for their use. In addition to this, introducing the product variations and
developing more innovative products would be much attractive to the customers. The company
can even develop their customer base by improving the organizational functionalities and
customer services as well. Lastly, the continuous monitoring and total quality management
would be helpful for the company to strengthen the competitive position for a long run.