Consumers' high level of interest in all these products and their build-to-order configurations also point to significant bargaining power of suppliers.
Suppliers of MP3 players, cell phones and convergence products also have a significant bargaining power relative to Best Buy and other retailers, and this is especially true of Apple with their series of iPods. MP3 as the market standard for music formats has correspondingly lead to significant bargaining power for Apple globally.
The bargaining power of PC manufacturers as they trim down and consolidate their distribution channels is another significant factor in the supplier mix for Best Buy, as they must keep HP, IBM, Toshiba, and other suppliers satisfied with the sell-through rates of their products through Best Buy stores.
Networking products companies including Cisco (Linksys) and NetGear have significant bargaining power as suppliers of home and business networking products. Their ability to define pricing, discounts, and promotions is based on their significant bargaining power as suppliers. As a group, networking products vendors have significant leverage on all retailers given the high level of interest many families and companies alike have in creating their own wireless networks.
Microsoft's Xbox Sony's PlayStation 2, and Nintendo's Dual Screen game consoles all represent, collectively, the bargaining power of suppliers in the time-critical holiday selling season. Best Buy relies on new product introductions from these three companies in the console gaming area to increase revenues in their 4th calendar quarter sales. The bargaining power of each of these manufacturers in the console gaming market is also very significant and when any of these vendors introduces a new model, allocations typically occur, further accentuating their bargaining power.
Wal-Mart's entrance in flat-panel and LCD TVs is the greatest potential threat, as is their move into consumer electronics and higher end MP3 and cell phones. At present Wal-Mart pressures its supply chain to deliver flat panel TVs at costs that allow for $250 price points on models that would normally go for $400 - $500 in Best Buy, creating a significant competitive advantage for the global retailer in high end electronics.
Dell and Gateway continue to attempt to sell higher-end flat panel TVs and LCD TVs, in addition to DVD TV convergence products, and they have both already proven to be entrants into the home entertainment system markets. Their continued growth and testing of the market for digital cameras for example will continue to force Best Buy to not broaden their lines of cameras carried, but me more knowledgeable about them through better trained Sales Associates working on the store floor.
Defining the Best Buy e-Commerce Strategy
In defining the Best Buy e-commerce strategy the transition needs to be noted that throughout the 2005 timeframe an emphasis on customer centricity was heavily invested in and managed from the top down. Brian Dunn, President and Chief Operating Officer (COO) stated during the most recent Best Buy Shareholders Meeting (2006) that the company would in 2006 re-vitalize all operations, supply chain, fulfillment including distributed order management, and in-store staffing and training to create a unified, customer-centric operating model. The COO continued on saying that by creating e-commerce strategies that unified the many inputs from customers and gave Best Buy greater insights into their wants, needs and behaviors of the highest value customers. This strategic shift to put the customer at the center of Best Buy strategies is squarely aimed at the competitive, buyer, and substitute areas of Dr. Michael Porter's five forces model. In addition, the Best Buy went on to say that additional priorities were the profitable cross-selling and up-selling of consumers relying on the Magnolia Home Theater concept to showcase higher end flat panel and plasma TVs in addition to higher-end stereo components. Clearly the need for an integrated approach to guided selling and configuration including strategies for up-selling and cross-selling are critical also for this goal.
The COO went on to say that the additional top priorities are making Best Buy for Business a larger percentage of total revenue, growing international business, and creating end-to-end selling strategies that would unify the entire e-commerce strategy.
Based on the remarks made by the COO and other executive's observations regarding the current state of Best Buy's electronic initiatives, the following main classifications of their strategies emerge. They are as follows:
Guided Selling Strategies - This is by far where the majority of emphasis is today in Best Buy as it provides a foundation for selling quickly and easily customized products (sometimes called Assemble-to-Order) in addition to support for logic workflows that support cross-selling and up-selling. The integration of electronic shopping carts, pricing systems, order status, inventory positions including products in transit throughout their supply chains is critical for the success of any e-commerce strategy according to Columbus (2001). To date, Best Buy has sporadically been able to accomplish these levels of integration yet has yet to make this an enterprise-wide e-commerce strategy.
Enterprise Content Management - There are more than three dozen specific content databases throughout Best Buy, the integration of all of them is critical for the online selling experience of customers to be consistent with the information received in the store, especially when pricing and availability have been quoted for a high-end product, which could be a flat panel TV or plasma TV and DVD player home entertainment system. Best Buy, in creating an sustaining an enterprise content management strategy, is attempting to create a single version of the truth that can quickly be applied to many different selling and service scenarios on behalf of customers. AMR Research (2003) state that enterprise content management systems form the basis of the best performing catalogs, self-service websites, guided selling, up-selling, and cross-selling strategies in companies. The consolidation and integration of the many different content management systems in Best Buy is an area of weakness today that the company must address to further attract, sell, and serve its customers, both from a B2C and B2B perspective.
Best Buy continues to refine and look to improve its supply chain through the use of fulfillment and order management applications that in effect makes the company's several warehouses and distribution centers a single synchronized system. Managing the supply chain to ensure complete visibility from supplier to store shelves, and from the assembly centers the companies uses to create light customization to the exacting needs of customers ordering specialized products, Best Buy is realizing that the performance of these systems are critical to the core of their business model. The guided selling, content management, and website systems are all front-end processes to these core supply chain, fulfillment, and order management systems that ensure both off-the-shelf or standardized products and make-to-order products are specifically made to customer's requirements. This synchronization of fulfillment, supply chain, order management and pricing systems forms is where the majority of companies with successful e-commerce strategies are getting positive ROI, (Columbus 2002) and I the foundation for Best Buy's selling strategies. Porter (1999) has labeled the value chain as the supply chain's integration points to fulfillment, order management, and linking to customer-facing strategies including order capture, order management, guided selling, up-selling and cross-selling.
Best Buy's order capture, order management and online shopping carts all are based on their investment in Guided Selling. Table 1 shows the coverage of Guided Selling functionality in Best Buy's strategies relative to the needs of customers to have customized, higher-end entertainment systems and PCs delivered.
Figure 1: Best Buy's Guided Selling Strategies
Best Buy's e-commerce strategies on their website deal primarily with attracting, selling to, and servicing B2C customers. The cross-sell and up-sell strategies used online are also focused on integrating offers from merchandising partners and services providers, as is the case with the current promotions for high speed Internet with AOL, Roadrunner, and others.
In terms of the company's efforts to continually train their Sales Associates and trim down the employee turnover rate that is currently 61% according to Best Buy Shareholders Meeting (2006) presentation Shari Ballard, Executive Vice President - Human Resources and Legal. Best Buy uses as Intranet portal to keep Sales Associates trained on new product introductions and the development of new selling techniques. It is the company's hope that this level of support for Sales Associates will drastically reduce the employee turnover rate. Scenario selling tools are also offered on the employee Intranet site along with self-testing to give employees a chance to quantify their expertise with Best Buy products, practices, and services.
Critically Evaluating Best Buy's e-Commerce Strategy
Best Buy's many advances in e-commerce, sales operations, fulfillment and supply chain operations are impressive, yet there is room for additional improvements. Best Buy still struggles with a more precise understanding of its customers, and needs to further look to streamline and modify processes that give them a clearer vision of their customers. This entire area of business processes and accompanying software…