Marketing Best Buy and Amazon

Marketing Best Buy and Amazon are roughly the same size in terms of their revenues. Best Buy earned revenues of $50.2 billion in fiscal 2011, while Amazon earned revenue of $48.07 billion. However, Best Buy earned a much higher profit than did Amazon, earning $1.27 billion in net income compared with $631 at Amazon. The difference between the two companies, however, is in their respective growth rates. Best Buy earned revenues of $35.9 billion and net income of $1.37 billion in fiscal 2007; by contrast Amazon had revenues of $14.8 billion in fiscal 2007 and net income of $476 million.

Amazon has a much better balance sheet than does Best Buy. It has cash of $9.5 billion and carries just $1.4 billion in long-term debt, and its equity has increased from $1.2 billion five years ago to $7.7 billion today. By contrast, Best Buy has just $1.1 billion in cash. Although the company has a low level of long-term debt at $711 million, its equity level is at $6.6 billion, compared with $6.2 billion five years ago.

Thus, the most prominent difference in the finances of Amazon and Best Buy is that the former is growing very rapidly while Best Buy appears to be in a more mature stage of the corporate life cycle. That said, Best Buy does have good strong financial numbers and has had them for longer than Amazon has. 2. Best Buy carries primarily electronics, so a comparison between them and Amazon must focus on electronics as a key.

There is some overlap between products in this area, but there can be slight differences between the models offered, for example in computers. In general, Best Buy tries to undercut Amazon, as this is more in line with its business model. However, going to a physical Best Buy store is nowhere near as convenient as ordering from Amazon. There are only a few items that are better purchased in person (with vehicle) than online, such as televisions. In general, Best Buy offers better service.

Amazon takes the view that the best service is when the customer does not need to use a service department, and so tries to ensure that there are fewer problems from the outset. The biggest advantage with Best Buy is that you get your goods right away. With Amazon, of course, you must wait for shipping. Between the two, Amazon is the better shopping experience. It is faster -- a customer can shop right away from home.

But just as important, Amazon does an excellent job with its recommendations and with its reviews. Best Buy in the store does not have these things, just service staff if you can find them. All told, Amazon gives you more help with your purchase. At Best Buy, however, there is the after-sales service element, because dealing with people directly with regard to your problems is much simpler than trying to work with somebody online or over the phone.

Still, aside from after-sales service, Amazon is the easier of the two companies to deal with and the one that gives you more help in making the purchase decision. 3. The profile of Best Buy shoppers was fairly neutral. The store was crowded, and therefore there was a wide range of customers reflecting the geographic area. The age demographic was almost entirely adults, but these ranged widely. Ethnically, the composition was akin to that of the area. Shoppers were looking at a lot of different items.

In general, there were a lot of shoppers in the personal computers section, probably the busiest section was where the video games were, both consoles and games. Another popular section seemed to be accessories for mobile devices, although this section seemed to be most popular with young people. I noticed that a lot of shoppers physically examine the products prior to purchase. They read the back of video games and Blu-Rays, and they play with computers and cameras before they purchase.

Yet, you cannot really do that much with either of those devices in comparison with how much you would use them in the real world. So there is only limited benefit in playing with those things before purchase. As a marketer, however, that people are willing to handle just about anything prior to purchase indicates that perhaps they like to see and feel things just to give them some comfort in their minds. 4. The idea that Best Buy is Amazon's showroom is hyperbole.

Best Buy sells $50 billion a year, and almost all of that is in the U.S. Amazon sells around the world, they sell dozens of major product lines that Best Buy doesn't sell, and they still only do $48 billion. Their share of the electronics market is small compared with that of Best Buy (remembering that of the $18 billion in "electronics and non-media," some of that will be non-media, which is products that Best Buy generally does not sell.

The rapid growth of Amazon in general and its electronics business specifically is a threat to Best Buy, but right now Best Buy still has the dominant market share in the industry. The key to maintaining that share is that Best Buy needs to overcome three distinct disadvantages. The first of those is that Amazon helps the customer more with making the purchase. The recommendations and reviews help support the purchase decision.

If Best Buy can increase the purchase decision support in its stores, it can take the audience of people in its stores and retain their business. If the customer comes to Best Buy, plays with something, but still needs to go home and read reviews on Amazon before feeling good about.