Introduction
Best Buy Company, which is found in Richfield, Minnesota, is the top specialty dealer in customer electronics, home and office goods, individual computers, leisure software, machines, and related services. This company runs retail hoards and profitable websites under several brand names such as Best Buy, Future Shop, Pacific Sales and Speakeasy among others.
According to this company, the main issues to put into consideration while evaluating its stock involve major positive arguments and major negative arguments. The company’s strain on building a better quality service and installation capacity than its competitors could offer it a momentous competitive advantage.
It is, however, clear that Best Buy is not doing so well in china. This could be attributed to the dawdling sales impetus in its home market. For instance, in February 2011, this company publicized the closure of nine stores. This announcement efficiently indicated the termination of the company’s eight-year China narrative in which it used up three years arranging for its market ingress and five years intensifying to nine stores situated in Shanghai.
Another view on the reasons for its collapse in the Chinese market is the fact that it inflated too slowly to endure in the countenance of ruthless competition from other Chinese electronics colossal such as Gome. Specialists say that the company’s decision to adhere to its American business sculpt led to its failure in china.
Unlike its chief Chinese Competitors, who let different branches of a store to vendors of different brands, Best Buy acquires all of its goods directly from dealers and charges them autonomously. The other reason as to why Best Buy Company is not doing well is that it tries so much to please its consumers by lessening the price competition and this does not appear to fit the undeveloped Chinese market.
Best Buy Company could be missing out on a value of about $850 billion in trade due to reduced customer service. This is according to the latest study carried out for this company. 85% of the people reviewed say that they would live Best Buy for companies with improved services (Hartline & Ferrel, 2008).
Competitive advantage is a gain over competitors achieved by providing customers with better value through either lowering prices or offering higher benefits and services which substantiate higher prices. Theoretically, it grows out of the price a company is able to charge its consumers in a manner that it surpasses the cost of production (Porter, 1998 p. 78).
Value is what customers are ready to pay and better value originates from charging lower prices than opponents for comparable benefits or providing exceptional benefits that counterbalance a greater price. Competitive advantage in one firm can be sturdily improved by interrelationships with companies competing in associated industries.
There are two fundamental categories of competitive advantage: Cost leadership and differentiation. This paper will discuss cost leadership as applied in Best Buy Company. A brief example of a company that has succeeded by applying competitive advantage is Apple Computers. This company surpassed the market in the period 2005 to 2009 and was rated the third in the statements Large-cap corporations with sales increase of 37% (Porter, 1998).
Discussion
Best Buy should implement low cost leader strategy since it will be able to achieve competitive advantage by being capable of generating goods at the lowest cost. The low cost leader strategy would save Best Buy since through it factories are constructed and sustained. Labor is also employed and taught on how to convey the lowest probable production costs. Best Buy Company by adopting cost leadership embarks on being the lowest cost manufacturer in its industry.
Since this company has a broad scope and serves numerous industry sections, its breadth is very essential to its cost benefit. The sources of low cost leadership in this company depend on the structure of the company. They may entail economies of scale, wide access to inputs and proprietary expertise among others.
For instance, in the case of TV sets, Best Buy Company requires effective size image tube amenities, a design that is of low cost, programmed assembly and an international scale to repay R&D (Nilsson & Rapp, 2005). In services concerning security, low cost leadership requires low operating cost, plenteous source of cheap labor and sufficient training techniques due to low proceeds. By being a producer through low costs, the company needs to find and utilize all bases of cost leadership.
When implementing low cost strategy, the store size should be large. This ensures that all goods are in one room to sustain low costs. The stores should be located on cheap land in small to medium sized cities. The company should also target a certain group of customers valued by a section of the market. Many final consumers prefer products with cheaper prices. The level of inventory management should also be maintained high (Porter, 1998 p. 78).
Best Buy Company should be the low cost leader in China because low cost production makes a company to become an above average player in its trade provided it can control prices at or close to the firms’ average. At comparable or lower charges than its competitors, the company’s low cost situation would transform into higher profits.
The issues concerning the application of cost leadership involve the fact that it works together with differentiation. For instance, if consumers do not allege the company’s goods as comparable or tolerable, then it would be compelled to discount charges well below the opponents to increase sales.
This may invalidate the benefits of its constructive cost position. A cost leader must also attain uniformity in differentiation comparative to his opponent. Another issue concerning the application of cost leadership is that it generally requires that the company be the cost head and not one of numerous firms competing for this position.
Many firms have up to date made severe errors by not recognizing this. Cost leadership fits perfectly in large-scale industries that provide standard goods with comparatively minute differentiation that are acceptable to many customers (Porter, 1998 p. 78).
Cost leadership falls short especially when there is two or more hopeful cost leaders because competition among them is normally severe due to the fact that market share at each point is understood as vital.
Unless one industry can achieve a cost lead and convince others to discard their strategies, the results for productivity and long run firm configuration could be devastating. Cost leadership is thus a tactic particularly reliant on preemption, except where major technological modification permits a firm to completely amend its cost position (Porter, 1998 p. 78).
Conclusion
Best buy is looking forward for expansion. In the next five years, this company is expected to have a growth rate of 6%, a net income of about $6M, sales of about $300M and 9% net income. The possible flaws in the use of cost leadership strategy involve the fact that it does not consider demand.
The other possible flaw is the absence of a technique of formulating if probable consumers will buy the good at the estimated price. This could be fixed by total cost pricing which considers both erratic and fixed costs. The other method of fixing this problem is Direct Cost Pricing. Total cost pricing is only applicable at times when competition is high.
References
Hartline, M. D., & Ferrell, O.C. (2008). Marketing Strategy. Mason, OH : Thomson South-Western.
Hoskisson, R. & Hitt, M. A. (2010). Strategic Management: Competitiveness & Globalization, Concepts. Mason, OH : South-Western Cengage Learning
Nilsson, F. & Rapp, B. (2005). Understanding competitive advantage: the importance of strategic congruence and integrated. Berlin; London: Springer
Porter, M. E. (1998). Competitive advantage: creating and sustaining superior performance: with a new introduction. London: Simon and Schuster Publishers.