MIS Paper Best Buy - business PDF

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MIS Paper Best Buy Bobby Bosch Millersville University Management Information Systems BUAD 307-0 May 7, 2020

2 TABLE OF CONTENTS Section 1 – introduction............................................................................................................................ 3 Section 2 – company competetive strategy ............................................................................................... 4 Section 3 – Data requirements ................................................................................................................. 6 Section 4 – Long Tail ................................................................................................................................ 7 Section 5 – moore’s law ............................................................................................................................ 8 section 6 – disruptive innovation ............................................................................................................ 10 Section 7 - Amazon ................................................................................................................................. 11 Section 8 – network effects ..................................................................................................................... 13 Section 9 – social networks..................................................................................................................... 14 Section 10 – sharing economy ................................................................................................................ 16 Section 11 – face book ............................................................................................................................ 18 section 12 – rent the runway .................................................................................................................. 19 section 13 – software ............................................................................................................................... 19 section 14 – software part 2 .................................................................................................................... 20 section 15 - data ...................................................................................................................................... 21 section 16 - internet ................................................................................................................................ 22 Section 17 - security ................................................................................................................................ 23 section 18 - google .................................................................................................................................. 24 section 19 – data analysis ....................................................................................................................... 25 Section 20 – Data Base development ..................................................................................................... 26 Section 21 – the future ............................................................................................................................ 27 Section 22 - Conclusion .......................................................................................................................... 28 Section 23 – refrences ............................................................................................................................. 29 Section 24 – Appendix ............................................................................................................................ 32

3 SECTION 1 – INTRODUCTION

The company that I will be analyzing is Best Buy. Best Buy is a multinational retailor that provides home office products, consumer electronics, appliances, entertainment products and related services (companieshistory p1). In 1966, Richard M. Schulze opened a company called Sound of Music. The company focused on producing high fidelity stereos. By 1983, Sound of Music had expanded into seven stores with $10 million in annual sales (companieshistory p4). Schulze decided to rename his company to Best Buy Company, where Best Buy officially started (companieshistory p4). In 1987, the company debuted on the New York Stock Exchange, and in 1989 The company introduced a new concept called “Concept II” (companieshistory p5. Concept II had venues with brighter and more fashionable stores. They also began to put all the stock on the sales floor instead of in the stock room, and they also no longer had salespeople (companieshistory p5). Suppliers such as Whirlpool and Sony were not happy about Best Buy no longer using salespeople and decided to no longer sell their products in Best Buy stores. This didn’t last long after the suppliers saw Best Buy’s sales and revenue continue to grow even after the Concept II (companieshistory P5). In 1992, Best Buy hit the $1 billion mark in annual revenues, and in 1995, Best Buy debuted their Concept III, which were larger than the previous stores (companieshistory P6). The Concept III stores had expanded product offerings, which included interactive touch screen kiosks that displayed product information for both customers and employees, and they also had demonstration areas for products like surround sound stereo systems and videogames. (companieshistory P6). In 1998, Best Buy expanded into New England and launched its Concept IV stores, which included an open layout with products organized by category, cash registers located throughout the store, and slightly smaller stores than Concept III (companieshistory P7). In the 2000’s, Best Buy made

4 some big moves. They bought Redline Entertainment and acquired Magnolia Hi-Fi, Inc. (companieshistory P8). In January of 2001, the company acquired Minnetonka and then bought Future Shop. In May 2006, Best Buy acquired a majority interest in Chinese appliance retailer Jiangsu Five Star Appliance for $180 million, and at the time Jiangsu was the fourth-largest appliance chain in china. In June the company opened Geek Squad precincts at Office Depot in Florida (companieshistory P12). In 2009, Brian Dunn replaced Brad Anderson and became the CEO of Best Buy. He had most recently served as president of Best Buy, a position he held since 2006 (companieshistory P17). In 2010, Best Buy opened its first United Kingdom-based Best Buy-branded store. The company eventually opened 11 best buy stores in the United Kingdom, but the company later closed all 11 stores in 2011 (companieshistory P20). Best Buy is in the Consumer Discretionary sector and is in the Finance industry. In the last 5 years, Best buy has been on a steady incline in the S&P 500. In 2016 they were as low as 27.11, but they have grown up to 72.30. They had two drop offs in December of 2018 and March of 2020 but have gone back up in both. Other companies in the Consumer Discretionary sector include Home Depot, Lowes, Target, and Amazon. Best Buy is important to study based on what I learned in class because Best Buy changed their industry and have stayed on top it ever since they came in. Best Buy was important to study because they started from the bottom and built their empire up, then when it almost came crashing down, they reevaluated their whole company and saved themselves. They had a ton of information on everything covered in this paper, so while writing it I learned a lot, but I also had to make sure not to add too much information.

SECTION 2 – COMPANY COMPETETIVE STRATEGY

5 Best Buys bargaining power with suppliers is high because of the company’s reliance on low manufacturing prices and strong supply chain relationships. Most of the companies in the Electronics Stores industry buy their raw material from multiple suppliers. Suppliers in dominant positions can decrease the margins that Best Buy can earn in the market. There is also a low number of suppliers in the consumer electronics market. The main suppliers in the market are Dell, Samsung, LG, Panasonic, and Sony. Best Buy uses an efficient supply chain with multiple suppliers to contain the high bargaining power of suppliers (fernfortuniversity). I would give Best Buy 5 stars for their bargaining power with suppliers because they have a really high bargaining power. Best Buys customers have a low buying power. They have a low buying power because they have built a large base of customers. This is helpful because it reduces the bargaining powers the buyers have, and it provides an opportunity for the firm to streamline their sales and production process. They are also rapidly innovating new products. Customers often look for discounts and offering on established products, so if Best Buy keeps on coming up with new products, this will limit the bargaining power of buyers. New products can also reduce the defection of existing customers of Best Buy to their competitors (fernfortuniversity). I would give Best Buy 4 stars for their bargaining power with buyers due to their large base of customers and constant innovation of products. Best Buy has a low threat of substitute products. They have a low threat because there a limited substitute available for the products that are produced within the industry. The few substitutes that are available are produced by low profit earning industries, which means there is no ceiling on the maximum profit that firms can earn in the industry that Best Buy operates (essay48). The few substitutes that are available are of high quality but are much more

6 expensive, compared to the ones that sell at a lower price with adequate quality. This means that the buyers are much more less likely to switch to substitute products (essay48). I would give Best Buy 5 stars for their low threat of substitute products or services. New entrants in Electronics stores can bring innovation, put pressure on Best Buy, and find new ways of doing things (fernfortuniversity). In the industry that Best Buy operates, the economies scale is fairly difficult to achieve (essay48). This is due to strong product differentiation, high capital requirements within the industry, and the government’s policies within the industry requiring strict licensing and legal requirements (essay48). Best Buy can tackle the threat of entrants by taking advantage of the economies scale it has within the industry and focusing on innovation to differentiate their products from those of new entrants. I would give Best Buy 4 stars for having high barriers to enter. Best Buy’s competitive rivalry is low. This is due to the number of competitors in the industry being very few. Most of the competitors in the industry are large in size, meaning that they will not make moves without going unnoticed (essay48). There is also a positive industry growth within Best Buy’s industry, which means that competitors are less likely to engage in completive actions due to the fact that they do not need to capture a market share from each other. I would give Best Buy 4 stars in their competitive rivalry.

SECTION 3 – DATA REQUIREMENTS

Best Buy uses APIs for users to access a wide range of date across the history of Best Buy (BestBuy). These APIs include information such as product, category, stores, and more (BestBuy). The data is collected by the store and put online for customers to access. For their Products API, they include pricing, availability, specifications, descriptions, and images for more

7 than one million current and past products (BestBuy). Their Categories API it covers a lot of ground. It allows customers to traverse the many categories on their website and perform product searches based on category names or identifies (BestBuy). It also allows customers to search for specific product attributes within a specific category, for example TVs less than $100 (BestBuy). The Stores API allows customers to access data on Best Buy stores, such as addresses, location, hours and services, and kiosks (BestBuy). Their Recommendations API allows people find trending products and suggestions about their products (BestBuy). I think the company collects relevant information and does not need to stop collecting any information that they are currently collecting. Best Buy is also considered a leader in the omnichannel approach. They use mobile technology to strengthen their omnichannel approach and provide an exceptional customer experience across all of the touchpoints (multichannelmerchant). Best Buy does have a showrooming problem, sometimes their salespeople can be inexperienced, and their customer return lines. Best Buy is attempting to combat their showrooming problems by replacing standard barcodes with “Best Buy-only” barcodes that cannot be scanned or compared (Forbes).

SECTION 4 – LONG TAIL

Best Buy sells the most popular products. From TV’s, to phones, to computers, to stereo systems, Best Buy carries all of the popular products. The Long Tail refers to large numbers of products that sell in small quantities, in contrast with the small number of best-selling products. Best Buy is using this opportunity for analytic improvements by thinking about store layout not as a single decision but as a store by store decision (fico). Best Buy also uses analytics to reconfigure each individual store based on local demographics (fico). Over the last four years, Best Buy has cut its staff turnover rate by 14 percentage points, from 46 percent to 32 percent

8 (bizjournals). Best Buys churn rate has also been very strong, averaging between 4 and 6 percent churn rate (Best Buy). They keep their customers by being atop of their industry and also having excellent sales team and personnel to help customers out in the store, while also having a very user-friendly website for online customers. Best Buy has been using Collaborative filtering since 2015 (emerj). Their strategy is based on query search and click data (emerj). They use this data in an attempt to predict what the consumers interests are. Best Buy uses a recommendation system for eCommerce, which works by predicting what a customer is interested in based on their individual browsing and purchasing data (emerj). In 2016, CNBC reported a 23.7 percent growth in online sales for Best Buy, which in part is attributed to the company’s recommendation system (emerj). I would consider Best Buy to have a very strong brand, they have a great reputation with customers and proven ability to retain customer loyalty. They also have a large footprint in the United States with 1,731 stores (pestleanalysis). Best Buy also has a good relationship with popular brands and a successful track record in e-commerce (pestleanalysis), and they also have a large revenue flow with $42.88 billion in 2019. I would consider Best Buy to be selling bits. In the electronics world, everything is always changing. Computers are getting smarter, phones are getting faster, TVs are getting larger. To be able to keep up with customer needs, Best Buy sells the most popular products for consumers, which are always changing due to the new technology that comes out every year. By selling bits, Best Buy always has customers coming in for the new technology they have on hand.

SECTION 5 – MOORE’S LAW

9 Moore’s Law has a huge effect on Best Buy. Since Best Buy is known for selling technology, they always have to be looking for new products with new technology. With the new technology they get, it also brings in new customers. Not only does Best Buy sell the new technology, they also make it with their brands that they own such as Insignia and Dynex. Best Buy must stay on top of this when creating their products to be able to put the newest, best products out there. Best Buy has a very prominent recycling program for E-Waste. Since 2009, Best Buy has helped customers recycle more than 2 billion pounds of electronics and appliances (corporate). Their Geek Squad Agents and In-Home Advisors now offer to take items with them to be recycled. They take things like cables and cords, Wi-Fi gear, audio equipment and much more that don’t contain personal data (corporate). Best Buy also allows customers to bring in their electronics like phones, laptops, and tablets to be recycled free at their stores. They also have trade in available at many of their stores, so customers can receive credit for recycling their electronics too (corporate). Best Buy is the nation’s largest collector of recyclable electronics and appliances and their recycling program continues to grow (corporate). In 50 years from now, with Moore’s Law in effect, Best Buy would still be in business. Best Buy staying atop of the market due to their ability to keep up with Moore’s Law, and I believe that there is no way Moore’s Law will slow Best Buy down. I believe that super small computing would not be able to be used in Best Buy to replace some computers. Best Buy is always using hi-tech technology to help build their business and help their customers. Best Buy does although sell super small computers to customers. Best Buy does use Super Large computing, and IBM actually invests in Best Buy. Best Buy also sells IBM products to customers.

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SECTION 6 – DISRUPTIVE INNOVATION

To disrupt the market, Best Buy has made a startup acquisition that enriches its customer value with innovate digital products called GreatCall (forrester). GreatCall is a San Diego-based startup that offers health and medical alert devices and services (forrester). Usually when retailers make an innovation they stay in the same market, but Best Buy decided to change it up and go to the healthcare market with its own products and services that allow senior citizens to have fast health insights, treatment reminders, and urgent engagements with doctors, nurses, and other medical care workers (forrester). I would consider Best Buy to be a disruptive innovator. They are a disruptive innovator because they joined the electronics retailing industry when it first started growing and they have stayed on top of their industry ever since. They are one of the few companies to still be succeeding and profiting off their business. They are even making their own products to keep a strong foothold in the industry. I do believe Best Buy is a giant waiting to be killed. I think it would be hard for Best Buy to be “killed” although, because they have a strong online website for customers to shop on their and they have a very strong foothold in the electronic retailer’s market, so unless if the entire market crashes, I do not see anyone “killing” Best Buy. The current tactics that Best Buy is using to avoid irrelevance or extinction is by using the brick and mortar strategy and exceeding at it. Buying technology is tricky, and often times when a consumer wants to make a purchase, they would rather go into the physical store, so they can preview it before they buy it. Best Buy is the most popular technology brick and mortar brand, making it an easy go to for electronics shoppers. Another way that Best Buy is avoiding irrelevance is by teaming up with their competitors, Amazon. In reality, Amazon could most

11 likely run any company in any market out of business. Best Buy has avoided this problem by selling Amazon products in their stores. This has created a mutual relationship with Best Buy and Amazon. Bit Coin does not directly affect Best Buy because they do not yet accept it as a payment method, but people are able to buy gift cards to Best Buy through online sites such as eGifter. Best Buy is working towards accepting the Bit Coin currency but has had no recent statements on where they are at with that process (BestBuy). Currently, the only way to use Bit Coin at Best Buy is to buy a Best Buy gift card beforehand.

SECTION 7 - AMAZON

In 2012, Amazon was running the market and had almost taken Best Buy out of business. The only thing that Best Buy had over amazon was their ability to showroom, and how well they did it (inc). Best Buy’s ability to connect with their customers was one Amazon could not match. Best Buy had established long-time relationships with their cu...