Strategic Management - Case Study Assessment Answer

November 10, 2018
Author : Ashley Simons

Solution Code: 1DCH

Question: Strategic Management Case Study

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Strategic Management Case Study Assignment

Assignment Task

The 2 questions have to be at least 2000. The case os on our book which is case number 12

1. What would be a good diversification for best buy? Why discuss and answer.

2. Map & describe the value chain of best buy.

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Solution:

Executive Summary

Best Buy is one of the leading electronics companies in America. However, it has been experiencing some stiff competition from emerging companies such as Amazon. The company had to look for strategies to implement to ensure that it gained a competitive edge in the market. The company sort to add value to its products in a bid to retain customers. This lead to the introduction of the Geek Squad that comprised of a team of technicians who provided IT support for their customers. The company also introduced an online shopping platform that allowed customers to shop for their desired products and have them delivered to their doorsteps. The company also had a large footprint that had a global reach. It also engaged in signing deals with suppliers that allowed them to lower the prices of their products and offer warranty services on the behalf of the suppliers.

Introduction

Organizations exist for the intention of generating income for the business owners. To earn a profit from the business operations, organizations should gain a competitive edge in the market. This is the act of offering something different than what other competing companies in the market are offering. To gain this advantage, organizations need to employ various strategies that will work towards ensuring that the competitive edge is gained. Within the electronics industry, Best Buy has employed various strategies that have worked to their advantage within the market. This is evident from the high sales records that have been posted by the company and the high revenue generated (Stone, 2010). These strategies will work to attract more customers to the organization, thereby generating more revenue. It is crucial for the organization to invest in customer quality and experience delivery.

Diversification

Best Buy has been experiencing stiff competition over the recent years over. Other large electronic giants are emerging and giving Best Buy a run for their money. This has increased the level of competition within the electronics industry. The company has been drastically affected by the increased competition. This is evident from the decrease in sales that were experienced by the company (Rothaermel, 2012). The company recorded a decrease in the sales that were made from the year 2007. The share prices of the company also decreased from $56.66 to $30 in the year 2006. This showed that there was a serious need for the company to develop a strategy that would help in ensuring that the company is gaining a competitive edge in the market within the electronics industry. The company has always operated in the electronics industry since inception. This shows that the company needs to become diversified in its operations to ensure that there is an increase in the sales recorded by the company. There are various diversification strategies that could be employed by the company.

Best Buy has adopted the Concentric Diversification type. This refers to a situation whereby a company continuously adds new products that complement the already existing products in the market. These complimentary products add value to the company’s products. This is evident from the additional complimentary services that are offered by Best Buy. The company introduced what it termed as the Geek Squad. This group of people was comprised to IT support staff that would go round to the homes of their clients to offer IT support. For example, a client would buy an electric product from the outlet and the Geek Squad would install the items for them in their homes. The Geek Squad also provided Tech support to people who did not buy their products at the outlet. However, this service would be provided at a fee. If a customer bought a product from the company, would receive the same services for free. These additional services added value to the company’s products. It was implemented as a strategy to gain a competitive edge within the industry.

Best Buy has adopted a related type of business diversification process. The introduction of the Geek Squad is closely related to the business oeprations that are conducted within the company. Best Buy is an IT related company that deals with the sale of electronic products. The Geek Squad functions to install and service the electronic products thata re sold by the company. This helps in value addition to the customers (Audebrand, 2010). Value addition will result in the formation of the of a loyal customer base, which will work for the benefit of the company and the operations it is engaged in. the company has sort to invest in a diversification that is wholley related to its core activities an dobjectives. Increased business activities will directly translate to increased revenue earnings in the form of profits collections. Also, the consumer base will be able to closely identify with this type of diversification that the company has implemented.

This strategy will work to provide more value to the products sold by the company. Consumers are always looking to find a value for money. However, the strategy may cause the company to increase its total expenditure. These will cut into the revenue, profits generated by the company. The ultimate goal is that the company will gain more customers and retain the existing customers. Studies indicate that it is expensive for a company to attract new customers that it will cost it to retain the existing customers. For this reason, the company should try its best to ensure that the existing customers are retained. To do this, these strategies should be adopted. This will give the existing customers a reason to remain loyal to the company. Customer loyalty plays a crucial role in the success of the company (Elms et al., 2010). The proposed diversification will help in adding value to the products sold by the company.

This diversification would be the best option for Best Buy because it will provide a unique product in the market. Competing companies in the industry do not offer these services to their customers. Customers are more attracted to value added services than the cost value of the products they purchase. Human behaviour is always geared towards gaining something more from they have. For this reason, customers will seek a company they feel that offers them the best value for money and one that offers the best value added services. Companies are always competing in the market to encourage consumers to buy their products. Heavy marketing is done by these companies to show the consumers of the various benefits they will get if they buy from their company (Robertson, 2008). This diversification by Best Buy will provide a unique product in the market that is bound to grasp the attention of the customers.

Best Buy will be looking to increase its revenue collection from the increase in sales. The value added services will cut into the company profits margins. However, the increase in sales will cover the gap that was made with the increased expenses. Using this diversification strategy, the company will be able to increase the sales revenue by attracting new customers. These new customers will also come from the competing companies (Vromen, 2010). Consumers will see it fit to leave companies they frequent, and opt to buy their products from Best Buy because they offer good value for money. Despite the additional expenses the company will incur, it will be able to recover these costs and gain more profit from the increased number of sales it will encounter. In the end, the company is seeking to gain a competitive edge in the electronics industry. The big electronics boom has passed, and companies are seeking to add on to the services already offered by trying to find new products and services that will attract consumers to their company. This diversification strategy will help the company to continue to thrive longer. The strategy will make it more relevant to the market. The consumers prefer products that are relevant to their every need (Nerur, Rasheed & Natarajan, 2008). The company should listen to the consumers and develop products that are tailored to meet their needs.

Value Chain of Best Buy

The value chain refers to a sequence of activities that are executed to ensure the delivery of goods and services to the consumers. An analysis of the value chain results in the breaking down of the activities that are engaged by a company when trying to ensure availability of the goods and services to the consumers. These services are divided into marketing, R&D, and production, among others. These services have a significant impact on how the consumers perceive the company and its products. The perception of the value chain by the customers is weighed against the ability of the company and the competitors to deliver them. An analysis of the value chain is crucial in establishing whether the company is in a position to provide unique value in the market. Therefore, it is in the best interests of the Best Buy Company to ensure the consumers perceive a high value in the goods and services they produce in the market.

Best Buy has adopted and effective value chain that has seen the company grow to become one of the top electronics companies in the whole of America. The company has adopted a product mix strategy as a core element in its value chain. Best Buy carries a large inventory of stock items in the form of electronics. Consumers can find a large variety of electronics under one roof. This is perceived as value addition in the eyes of the consumers. Customers prefer engaging in things that are convenient for them. In this case, shopping for everything under one roof is convenient. Best Buy uses this strategy to promote impulse buying in the store. When customers walk in to buy a television set, they become attracted to other products on display as well (Boyne & Walker, 2010). For example, they can see a VCR unit and decide to buy it together with the TV set they are buying. If the Best Buy were selling TV sets alone, then they would not have sold the VCR unit. The customer was attracted to it because they saw it on display. This is what amounts to impulse buying habits (Mahoney & McGahan, 2007).

The value chain adopted by Best Buy has the following structure. The company enjoys direct inputs from manufacturers. This allows them to offer product warranties directly to the customers, on behalf of the manufacturers. The products are shipped from the original manufacturers, which adds to the product guarantee to the customers. Customers have comfort knowing that their products are genuine. In some cases, some of the products are assembled by Best Buy. This reduces the costs of transporting the products from the countries of origin to the stores owned by Best Buy. As a result, these benefits are passed on to the consumer in the form of reduced prices for the products sold by the company. The company also provides free delivery services of the products to the customers. This is a form of value addition on the part of the company.

Impulse buying habits can only be exploited when an outlet store is selling more than commodity at the same time. Best Buy also has a good supplier bargaining power. The largest suppliers account for about 60% of all the fastest moving products in the store. For this reason, Best Buy is in a position to negotiate better product discounts from the suppliers. In return, the same benefits are carried forward to the consumer. Consumers can buy products from the company at a discounted price, compared to other competitors within the same industry. Customers see this as value addition on their part and prefer to shop at Best Buy (Rothaermel, 2012). The aim of doing this is to increase the competitiveness of the company within the industry. Best Buy has focused on getting as few suppliers as possible, to supply them with their fast moving products. These are the products that customers mostly walk in to buy from the store outlets. However, product demand depends on the location of the store outlet within the country.

In a bid to gain a competitive edge in the market, Best Buy introduced the Geek Squad. This strategy was aimed at reducing the charming practice that customers engaged in. Customers often walked into the store to window shop for their most preferred electronic gadgets. They would even go ahead to request for assistance on how to use them. After they got all the information they wanted, they would go back home and order the products from the various online platforms such as Amazon. Geek Squad was developed to add value to the products sold by the company. It comprised of a team of technicians who visited the homes of customers to install electronic gadgets and service them. The technicians also provided lessons to the customers (Rothaermel, 2012). Best Buy extended these services for free to the frequent and large purchasers for 1-2 years. This helped the company to lower its costs and also retain return customers from the company.

The company has a sound logistics system. It has a reliance on a dedicated fleet to the products to them, and ultimately to their customers. In essence, the company bears the shipping costs on behalf of the consumer. This is a great value addition to the part of the company because consumers receive the goods they ordered at no extra cost. The company has signed deals with some companies, where they allow Best Buy to service some of their products on their behalf under Best Buy’s warranty program. If repairs or replacements are done, the manufacturing companies reimburse Best Buy for the expenses incurred in the warranty program (Clarke & Fuller, 2010). Customers get the value added in that any faults or exchanges are sorted out within the shortest time possible.

Conclusion

Over the years, Best Buy has witnessed extensive competition from other electronics companies that have come up within the electronics industry. The company was forced to employ various strategies that would help it gain a competitive edge in the market. Strategic management also plays a key role in ensuring the success of a company. It is crucial for the company to gain customer confidence in its operations. This will ensure that it continues to remain in service. The company listened to the needs of the consumers and adapted their products to fit the demands of the consumers. The company recognizes that the consumers are an integral aspect of the company. Various value added strategies have been implemented as well, such as the Geek Squad. The company has strived to ensure that the needs of the customers are well taken care of, through value addition.

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