Pricing Strategy and Distribution Strategy of Best Buy - Essay Sample

Introduction

Best Buy is a giant electronic retail that was hugely impacted by the 2008 global recession. The multinational saw a decline in revenue, stock price and profits as a result of a number of factors. Among these variables, the chief was the general economic recession and downturn, a dynamic competitive landscape and management scandals (Bogenrief, 2013). There was a change in management, which the upcoming one citing the "showrooming" phenomenon as the main disruptive force that needed to be addressed. Showrooming is where customers have to visit their physical brick-and-mortar stores to evaluate and subsequently purchase merchandise from a more price friendly internet-based environment. Apart from showrooming, it was established that the company needs to modernize its operations, as well as lower operational costs. A plan was crafted to address these critical issues with the aim of enhancing customer experience, improving the dealer-supplier relationship, attract transformational leaders, grow revenue and embrace technology. The paper discusses the approach adopted by Best Buy to lower prices and improve the distribution of commodities to consumers and the success rate of the strategy.

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The recession of 2008 sparked a reduction in sales and revenue and the trend was exacerbated by the entry of Amazon in the electronic market. The financial picture of Best Buy continued to erode, reporting a sixteen percent decline in profits in the first quarter of 2010. With such a devastating performance, the company decided to initiate a transformational process, which included store redesign and strategy reconsideration. It adopted a store-within-a-store concept and acquired and partnered with leading firms to improve their revenue. The company partnered with Samsung and Microsoft to ensure its products are widely distributed and are at the shelves of every store. Such modifications came with cost reduction approaches that translated into lowly priced merchandise. The company derived a customer coverage strategy based on the segmentation circle. It sells a range of commodities on the consumer electronic market niche to various market segments using a range of brands. At present, these brands include Magnolia, Best Buy and Futureshop, and these various market coverage strategies are used to cover the whole electronic market based on wide-ranging approaches (Jakab, 2013). The later offers multiple ranges of products to consumers with Magnolia concentrating on home entertainment products, such as television, fridge, and furniture. Technically, the differentiated strategy aids Best Buy to target the whole consumer market and market its brands.

In addition, the retailer went to cut over two thousand four hundred jobs and announced plans to relinquish its ownership of Carphone Warehouse in Britain after halting its operations in China. Correlating the decline in the fortunes of Best Buy was the scandals and management turmoil. These events led to the modification of the store and cost-saving strategies as an effort to save the company and turn it to the previous giant retailer position. The emerging problem was zeroed with an effort to prevent it from undermining the efforts of the company to regain lost profits and revenues, as well as restore the value of its value. Showrooming was identified as the underlying problem as customers would visit their store to asses merchandise but instead opt to buy at relatively lowly priced online outlets. Amazon seemed to be the likely choice of their vendors due to the relatively lower prices and convenience.

The company decided to distribute its merchandise directly to customers from its stores for the purpose of reinvigorating customer experience. The strategy not only lowers customers' risk on failed delivery and missing in-stock merchandise but also increases inventory turnover and allows the company to resale returned commodities. Check-in-app was also introduced by the retailer to monitor customer entry into their stores (Hammerand, 2013). Another measure was to hire transformational leaders to manage and head the service department of Best Buy. The experiences of these leaders with technology leaders, such as Dell, Lenovo, and NCR turned the company again into a profitable retailer and increase the magnet of its merchandise in the market. Working with vendors led to the introduction of numerous initiatives, such as the within-a-store strategy presently underway with Microsoft, Samsung, and other vendors. The company is making similar overtures with other electronic dealers.

Cutting costs and increasing returns have been partially achieved by the company at the store level. The company has adopted the within-a-store strategy to avoid renting premises and has abandoned and closed oversize stores. In addition, the electronic retailing giant has trimmed its workforce to control costs that have been translated into cheaper products. Recycling efforts have been implemented and efforts have been made to reduce prices to match online stores that offer competition to its stores. Such modifications came with cost reduction approaches that translated into lowly priced merchandise. The company derived a customer coverage strategy based on the segmentation circle. It sells a range of commodities on the consumer electronic market niche to various market segments using a range of brands. These brands have improved product distribution across its target market at increasingly reduced prices.

References

Bogenrief, Margaret, (July 30, 2013) Best Buy Is Pulling Off An Incredible Turnaround Business Insider http://www.businessinsider.com/how-best-buy-is-turning-thingsaround-2013-7#ixzz2bJYI207L Discount

Hammerand, Jim, (Aug 7, 2013) Best Buy and Dr. Dre Collaborating on New Project, Minneapolis/St. Paul Business Journal http://www.bizjournals.com/twincities/morning_roundup/2013/08/best-buy-and-dr-drecollaborating-on.html

Jakab, Spencer, (May 20, 2013) Best Buy's Comeback Story Worth a Read. The Wall Street Journal http://finance.yahoo.com/news/best-buys-comeback-story-worth221300618.html.