Marketing project

 

Marketing Analysis A detailed look inside Best Buy’s company

Viktor, Anya, Zahra, Mariana, Jason

;

Lorem Ipsum Dolor

Spring 2016

Marketing Objectives When we setting future objectives for marketing such as in a marketing plan it’s useful to look hard at each measure and ask “is it essential?”. The SMART mnemonic help a Best Buy, after this analyses, to measure and quantify the future objectives.

In March 28, consolidated Future Shop and Best Buy brands in Canada it would invest up to $200 million on improvements that include increasing staffing levels. After that BB expected to have a material impact on all of the Canadian retail stores and the website on a year-over-year basis. As such, all Canadian revenue has been removed from the comparable sales base and International no longer has a comparable metric.

Enterprise revenue of the first quarter result of $8.6 billion, in addition to non-GAAP operating income rate and non-GAAP diluted EPS. Overall, the electronics retailer reported a first-quarter profit of US$129 million, or 36 cents per share, down from $461 million or $1.31 per share a year ago.

After this analyses, the objectives are: Sales objectives: achieve 30% of revenue for the same period for next year and also increase 20% for market share. The focuses is increase 35% the volume electronics sales, which represent approximately 65%, were down 5.3%7, comparable sales.

Acquisition objectives: Acquire 100.000 new online customers this financial year at an average cost per acquisition (CPA) of $30 with an average profitability of $5.

Consumer objectives: The cumulative impact of the progress is focus on multi-channel customer experience is what has allowed us to consistently outperform the market.

2

;

Lorem Ipsum Dolor

Spring 2016

SWOT Matrix Strengths: ❖ Core competency in technology services through Geek Squad (explain) ❖ Well-known brand ❖ company’s size and extensive ❖ strong past performance ❖ Robust internet presence and online infrastructure

Weaknesses: ❖ Inventory turnover need to get improved (Being out of the most popular products, decrease the amount of items that are not popular and increase the amount of the most popular products) ❖ Competing with themselves (too many stores, too much space, too many employees) ❖ Customer service (need to reinvigorate customer’s experience, more knowledgeable employees) ❖ Poorly developed online system ( it lets people buy a product even if they are out of stock when Amazon website doesn’t let fill the order if they don’t have it) ❖ No actions to differentiate BBY from low-priced online competitors (need to work on their website for online shopping, make it usable, delivery time reasonable and avoid appearing “out of stock”. ❖ Not enough focus on customers’ needs and wants (having social media makes following people’s demands, needs and wants so much easier. Looking at their social media platforms we have noticed that mostly people complain about customer service. Out of 30 comments that we’ve looked at only 1 was positive)

3

;




Lorem Ipsum Dolor

SWOT

Spring 2016

Matrix

4

;

Lorem Ipsum Dolor

Spring 2016

Situation Analysis: Amazon (Amazon has a market cap of $80 billion) Amazon as well as other online retailers undercut them in prices because their sites don’t charge sales tax, and that online customers use Best Buy as their showroom, taking advantage of the extensive, well-stocked locations where they can look at the product but buy it online.

Strengths, Weaknesses, Financial Resources, Best Buy has been struggling in recent years, both in Canada and else where, as consumers turn to online retailers such as Amazon.

As well as specialized retailers (Apple and Samsung stores). Their Market share significantly declined comparing to all the previous years. Online retailers are more efficient, because they lack physical locations, and so can offer better prices because they are not paying employees, building fees etc. Shopping online is also more convenient for average consumers. On the web, consumers can shop anywhere they are, day or night. Best Buy’s financial statement provides insight on the industry. Best Buy is by far the largest company in the Big Box electronic retails industry in items of sales and market cap. As of march 2013 Best Buy’s market cap of 6.8$ billion was greater than the combined value of the next four largest public competitors at 4,8$ billion. Best Buy’s annual revenue growth was between 11.8% and 16.5% in 2006 and 2007. In 2013 and 2014 revenues declined from 11% to 1.9 %. In the same period of time Amazon’ annual revenue growth was between 27.1% and 40.6%.

5

;

Lorem Ipsum Dolor

Spring 2016

Who does Best Buy sell their products to?

The demographic of the market segments are age, income, life cycle stage and residence. These segments were chosen because these classifications help further best buy’s target market. The typical best buy consumer is one that is between the ages of 16 and 60, one who has a generous income if they are purchasing goods out of pleasure, or one that provides compensation to keep up with technology as it pertains to their job.

The life cycle stage of a best buy consumer usually starts around the time of high school graduation when the consumer becomes independent and buys his or her own goods. Usually the life cycle cap off is at retirement. Residence is a factor in Best Buy’s target market because the store must be available to the consumer either physically or online. If the consumer does not have a computer or live close to a city or town that has a best buy, they cannot be a consumer.

The size of the target market is quite large, considering most Canadian metropolises have a best buy store or own a computer with access to best buy’s online store. About 1/5 Canadian homes do not have Internet, leaving them unable to purchase goods from best buy’s website. 3 of Canada’s territories and 2 provinces do not have a best buy, while larger provinces such as Ontario and British Columbia have up to 87 locations, which create an average of 9 billion dollars in revenue per quarter (in Canada).

6

;

Lorem Ipsum Dolor

T A R G M E A T R K E

Spring 2016

The target market’s purchasing varies through each demographic. As an example, the average best buy consumer who is attending college, university or is enrolled in post secondary will purchase the tools necessary for education.

Typically this includes a laptop computer and possibly a cell phone and any accessories needed. If each college student who shops at best buy, online or in store, purchases these items before attending school, that’s an average of $2500.

Some consumers purchase accessories for previous bought items, TV’s or appliances for new homebuyers (average of about $5000 if home buyers are purchasing three appliances).

Most best buy consumers are interested in newer technology that will outlast their last product.

Some variables that are important include features, size, compatibility, outlasting previous products, and most commonly, price. Depending or not if the consumer is purchasing in store or online, their benefits vary. For example, an online sale could not be taking place in store and vice versa. As well as delivery options, color / model choice and size / style are factors for best buy consumers.

The biggest trend affecting best buy’s market is technology. As technology advances, stores Canada wide will have to change their marketing strategies. In the next 2 -4 years, presumably desktop computers will advance into Continued…. laptops, tablets, possibly further, causing desktop computer sales to decline. The “boomlet” popular segment is greatly satisfied by instant gratification, which typically would require most products to be available instantaneously. As technology advances, online shopping is becoming more and more popular, and although best buy has this available, the standard delivery time can be up to 7 business days. This might be something that best buy has to over come as more of the population requires instant gratification.

Another trend, which will affect best buy in the future, is product advancement. If their current suppliers do not advance along with technology, the company will be forced to find new suppliers, or halt that specific product sale. Finding a new supplier might be costly and time consuming.

7

;

Lorem Ipsum Dolor

Spring 2016

Purpose of the Plan Best Buy is the largest specialty retailer of consumer electronics in the US. Selling a variety of brands of electronic devices such as TVs, home theater systems, cameras, appliances, computers, mobile phones, video games, software, and repair and installation services to consumers across the country under different store brands. It operates on a click and mortar strategy, where it uses online channels as an effective way to boost store sales and allocates any sales made online, to its stores.

The biggest competitor for Best Buy is online retail store called Amazon. Amazon’s sales beat Best Buy’s according to its constantly increasing numbers and Best Buy’s constantly decreasing numbers.

We as a marketing team are going to take a close look at Best Buy current situation, analyze it and find ways on how to increase the company’s market share, sales, customer’s satisfaction, determine current organizational problems and improve competitiveness.

8

;

Lorem Ipsum Dolor

Spring 2016

Situation Analysis: External

In general, Canadian consumers prefer functional and durable medium quality products to low price products. When it comes to purchasing products, on time delivery service, customer service, and a long period warranty are really important for Canadian customers.

Competitive Analysis:

There are two dominant players in this field, one is Amazon and the other is Wal-Mart. While two big box companies’ (Best buy and Wal-Mart) revenue growth have been declining for a few years, Amazon’s revenue growth has been constantly increasing due to the fact that Amazon doesn’t need to spend money on such a huge volume of real estate and inventories. Also, Amazon’s overnight delivery service covers a lot of territories in North America and offers competitive shipping rates to other countries.

Direct Competitor Comparison

http://finance.yahoo.com/q/co?s=BBY+Competitors

BBY AMZN AAPL WMT Industry Market Cap: 12.17B 200.61B 745.25B 239.17B 1.40B Employees: 125,000 154,100 92,600 2,200,000 4.30K Qtrly Rev Growth (yoy): -0.05 0.15 0.27 -0.00 0.30 Revenue (ttm): 40.26B 91.96B 212.16B 485.52B 1.49B Gross Margin (ttm): 0.23 0.30 0.40 0.25 0.49 EBITDA (ttm): 2.22B 4.87B 72.94B 35.88B 117.80M Operating Margin (ttm): 0.04 0.00 0.30 0.05 0.06 Net Income (ttm): 814.00M -406.00M 47.81B 15.84B N/A EPS (ttm): 2.55 -0.88 8.05 4.98 1.59 P/E (ttm): 13.56 N/A 16.08 14.90 24.24 PEG (5 yr expected): 1.13 32.36 1.09 3.57 0.74 P/S (ttm): 0.31

2.21

3.53

0.50

0.94

Technological, political/legal, economic, sociocultural analysis: With the rapid proliferation of smart phones, people are able to access the internet anytime, anywhere. Therefore, customers are more likely to purchase electronics online rather than in retailers. Best Buy used to take advantage of attracting people by displaying electronics in their retailer locations while promoting sales with professional employees.

However, having a large space became burden for a lot of big box stores. Customers can virtually get valuable and diverse product information online that they used to get in stores. This trend is forcing Best Buy to change. In order to keep competitive, Best Buy redesigned its website and trying to enhance online sales. (Now, Best buy in Canada seem to be able to contest with Amazon guaranteeing lowest price with some conditions) Economic: After the global economic recession, people become more cautious about buying electronics. “Consumer confidence in Canada remains “volatile and uncertain” while it continues to climb in the U.S. amid new job growth and lower gas prices”. The situation was exacerbated by the drop in oil prices, which led to significant job losses across Canada.

- Been an active operator in e-commerce in Canada since 2011.

- Trying to expand their business into Canada while buying real estates of Target.

- Opening up a warehouse in Calgary to better service in Western

Canada. Total Retail Units 395 Wal-Mart Supercenter 281 Wal-Mart Discount Store 114

Shipping: Wal-Mart ($50) Amazon ($25) Best Buy ($35) Hudson’s Bay ($99).

9

;

Lorem Ipsum Dolor

Spring 2016

Executive Best Buy Co., Inc. is a consumer electronics discount retailer corporation headquartered in Richfield, Minnesota, a Minneapolis suburb.

It operates in the United States, Mexico, Canada and China. Richard M. Schulze and Gary Smoliak founded the company in 1966 as an audio specialty store. In 1983, it was renamed and rebranded with more emphasis placed on consumer electronics.

It operates its stores under the names Best Buy, Magnolia Audio Video, Future Shop and Geek Squad. As of August 27, 2005, Best Buy Co. operated 714 stores in U.S, including 694 Best Buy stores and 20 Magnolia Audio. Best Buy plans to expand to at least 1200 superstores in North America. Based on its expectations for approximately 75 new stores openings per year, it will provide Best Buy with about 5 year growth potential. Although Best Buy has completely several acquisitions in recent years, such as Geek Squad and Future Shops, they have been relatively small in nature. Best Buy’s growth potential is still large.

However in the past store sales have steadily declined with the growth in popularity of online.

The problem was the Internet. Customers were comparison shopping and finding lower prices online.

Sometimes they checked from a Smartphone right in the aisles of a Best Buy store after sizing up the real merchandise. Analysts predicted that the phenomenon, dubbed “show rooming,” could destroy Best Buy. We as a marketing team are going to take a close look at Best Buy current situation, analyze it and find ways on how to increase the company’s market share, sales, customer’s satisfaction, determine current organizational problems and improve competitiveness.

10

;

Lorem Ipsum Dolor

Spring 2016

Product Geek Squad According to reviews of Geek Squad on social media platforms including yelp, people are not happy about Geek Squad. A lot of people think that it costs too much and doesn't meet their expectations in terms of service quality. In addition, people can virtually get valuable information about electronic issues on the Internet. However, Geek Squad is a primary factor that can differentiate Best Buy from other online-based retailers such as Amazon and E-bay. Geek Squad needs sweeping reform to keep Best Buy competitive.

1.

2.

3.

Price cutting Develop low price product for students and elderly people.

Enhance service quality (including bilingual language service).

New technology products such as Sony's 4k Ultra HD LED TV and new generation Samsung Galaxy S6 are about to release this year. Since Best Buy is such a big box store in the electronic retailing industry, it can be easily expected that not only early adapters, but also a lot of people who are interested in these cutting edge products will visit Best Buy to test new electronics and question about the products before buying them online. Now, what Best buy has to do is make those visitors turn into purchasers with extraordinary delivery and customer services. Especially Best buy in Canada can attract more visitors with the lowest price policy. If Best Buy can provide high technology products and leverage its professional employees with expertise, they can get an opportunity to jump up to be the leading company in the field.

Distribution The Competitors, especially Amazon, has increased their competitive edge through its distribution system. Now, Best Buy is definitely behind in terms of the delivery system. A lot of Best Buy customers praise its employees with expertise and kindness. However, they denounce Best Buy’s irresponsible and tardy delivery services. Best Buy has no time to waste; they should catch up with their competitors’ delivery system no matter what the cost, whatever it takes. Customers are becoming more impatient for waiting for their products and they are likely to complain about it on social media. This could hurt Best buy’s reputation.

Suggested Solutions: Adopt overnight delivery service.

Need to innovate delivery system.

Etc. People in Canada still get surprised by what was going on between Future shop and Best buy even though Canadians knew that Best Buy is a parent company of Future shop. Thus, Best buy needs to fully explain the inevitable decision that shocked Canadians. (A lot of employees in Canada were laid off all of a sudden).

According to CIC report in 2013, only 52% of Canadians can speak English fluently among permanent residents. Also, there are a lot of international students out there. Best Buy should not neglect the rest of Canadians with English issues or tourists. Secondly, Elderly people need more help than the others. They still have communication problems with English speakers and they are not tech-savvy. If Best Buy has bilingual employees and leverage them, people with communication issue must be willing to visit Best Buy more often to buy some electronics. Also, Best buy can adopt this service to delivery and geek squad.

11

;

  Lorem Ipsum Dolor

Spring 2016

Financial Information Best Buy is the largest U.S. consumer electronics retailer with 22% of the domestic market share in the U.S. Revenue in FY09 increased 12.5% to $45 billion, from $40 billion in 2008; operating profit fell to $1.74 billion, an 18.6% decrease from $2.16 billion in 2008; net income drop to $1 billion, a 28.7% decrease from 20 08. This yields an EPS of $2.39 compared to $3.12 in 2008. The increases in revenue reflect market share gains and the addition of new stores domestically and internationally. The drop in operating profit and net income is a result of non-operating impairment charges and increased SG&A for the fiscal year. 
 Best Buy ended the fiscal year with a cash balance of $498 million vs. $1.44 billion last year, due primarily to the payment for the stake in The Car phone Warehouse. The company also ended with $1.963 billion in outstanding debt vs. roughly $816 million last year, again due largely to the acquisition of The Car phone Warehouse.

Amazon.com, Wal-Mart and GameStop are Best Buy’s three most relevant competitors at the moment. Table 3 shows a comparison of the key financial numbers among these companies. The reader should be cautious when interpreting these figures, as it is not possible to compare these businesses directly.

12

;

Table of Contents 1. Executive Summary (Viktor) 2. Purpose of the Plan (Anya) 3. Target Market (Zahra) 4. Situation Analysis – Internal (Anya) 5. Situation Analysis – External (Jason) 6. SWOT Matrix a. Strengths / Weaknesses (Anya) b. Opportunities / Threats (Mariana) 7. Marketing Objectives (Mariana) 8. Marketing Strategy (Jason) 9. Financial Information (Viktor)