Best Buy is a US based retailer which supplies electronic items to the consumers, with main focus on home theater and computer related items. The following section entails analysis of Best Buy and its industry dynamics using Porter’s five forces model.
Threat of New Entrants
The threat of new entrants is defined by the investment needed to set up a new business, ability to attain economies of scale, the government’s regulations etc. As far as consumer electronics retail industry is concerned, businesses planning to enter in this sector need to have major capital funds to purchase electronic items, along with managing the logistics and after sales component of the supply chain. The handling of electronic goods requires effective supply chain processes, which is challenging to achieve with limited budget. This is one of the reasons why retailers are hesitant to enter the consumer electronics market. Therefore, the threat of new entrants is low and Best Buy is taking the benefit of having a major share in the market in US, Canada and Mexico (Best Buy, 2018).
Bargaining Power of Buyers
The bargaining power of the customers of Best Buy can be identified as low. The customers of Best Buy are individuals who are looking for computers and other electronic items in reasonable price. The target market is sensitive to price changes, therefore the company can’t charge a premium price for the electronic products available in store. A higher price would propel the customers to look for other options. However, there are only few companies operating in the electronic retail industry, lowering the bargaining power of the buyers. Another factor which has strengthened the company’s position in the industry is its focus on understanding consumer needs (Hitt, Ireland & Hoskisson, 2012).
Bargaining Power of Suppliers
The bargaining power of suppliers is moderate in case of the consumer electronics retail industry. The changes in the market dynamics can play a central role in shifting bargaining power of suppliers since an increase in the businesses manufacturing electronic items in China has provided the companies with alternatives in selecting a brand supplier (Porter, 2007). Best Buy has developed a framework of selecting exclusive suppliers who follow the company’s standards of work ethics and fair treatment of the labor. Some of the main suppliers of the company include Apple, Samsung and Hewlett-Packard supplying more than 55% of the products available at the retail stores (Best Buy, 2018).
Threat of Substitute Products
The substitute product comprises alternative businesses that are supplying similar products to the customers. In case of Best Buy, the company has the advantage of maintaining a dominance in the electronic retail industry. There are few platforms which are selling similar range of consumer electronics, making the threat of substitute products low. The online sellers are one such example of substitute products, which can pose some risk to the company’s profitability. Best Buy has handled this threat by offering online purchase option to handle the competitive pressure from these substitute service providers (Best Buy, 2018). In 2018, Best Buy recorded highest level of revenue from its online orders. In addition to the online sales, Best Buy has minimized the threat of substitute service providers by providing the option of skilled in-home advisors for the customers who can offer them guidance about their purchase decisions (Best Buy, 2018).
Competitive Rivalry
The last variable that constitutes a part of the industry dynamics is the threat of competitive rivalry. Best Buy is a part of consumer electronics industry which has few players in the market, including Walmart and Amazon. Walmart has a chain of retail stores which provides electronic items to the store visitors, while customers can also place order through online options. Amazon is another competitor of Best Buy which is competing in the online channel, providing the customers similar products through its website. Apart from these large companies, the vendors and suppliers of electronic good also constitute a part of the competition as customers can place order with them directly instead of making a purchase through Best Buy (Best Buy, 2018). Even though the threat of competition is moderate, Best Buy is making effort to maintain a leading position in the industry by keeping its focus on customer needs (Cheng, 2018).
References
Best Buy (2018). Fiscal 2018 Annual Report. Retrieved from http://s2.q4cdn.com/785564492/files/doc_financials/2018/annual/Annual-Report.pdf
Cheng, A. (2018). Why Best Buy Remains Relevant In The Age of Amazon. Forbes. Retrieved from https://www.forbes.com/sites/andriacheng/2018/08/28/why-best-buy-is-relevant-in-the-age-of-amazon/#38b91b451462
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2012). Strategic management cases: competitiveness and globalization. USA: South-Western Cengage Learning.
Porter, M. E. (2007). Understanding industry structure. Harvard Business School, 13, 1-16.