Channel Issues for Discussion 1: Best Buy

The success of a company’s marketing strategy depends much on the understanding of all internal and external factors influencing its environment, and how it can exert its market power. In turn, the market power depends on what place it takes in the marketing channel system, participants of which get in three main categories: manufacturers and producers, retailers and wholesalers, and end buyers or final users (Rosenbloom, 2011, p.32). Marketing channel systems are determined by negotiation and information flows between its participants, therefore negotiation power influences the way a company prioritizes the distribution of tasks and reaching out to final buyers. Best Buy is the world’s leading retailer of consumer electronics with the main retailing market based in the U.S., Canada and Mexico, employing over 125 000 workers. Its main competitors are Walmart and Amazon. After Hubert Joly took the position as a CEO in 2012, undertaking “renewed blue turnaround strategy”, the company’s stock has increased by 111 percent by the end of 2014 (Bailey, 2015). This paper analyzes the power in the marketing channel in regards to its suppliers that promotes the Best Buy’s success as the giant retailer.

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In today’s competitive world, the consumer electronics producers are in a position where they have to dedicate much of their efforts to developing products that would meet consumers’ demands to outperform their competitors. To offer the best product that a customer wants to buy, they invest more into the technological advancement and manufacturing process to cut costs, leaving distribution tasks to intermediaries (wholesalers and retailers) that possess much more expertise and capabilities to reach the end buyer. Rosenbloom (2011, p.34) points out that even those intermediaries that have sufficient expertise in  economies on a  scale efficient for manufacturing are not necessarily the as efficient in distribution. Some distribution tasks include pre-sale and after-sale customer support, orders processing and delivery, financial assistance, storage and inventory control, market analytics and coverage, etc. That is why the market power of the retailers allows them to dictate what distribution strategy to undertake and by what means.

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Mainly large firms and giant retailers with 80 percent of total sales dominate retailing in the U.S. (Rosenbloom, 2011, p. 52); it increases the retailer’s power to bargain and set its own standards for partnership with suppliers. For example, Best Buy supports its premium suppliers such as Windows and Samsung to enhance their relationships by opening stores-within-a-store to encourage the buyers’ shopping experience (Bailey, 2015). “In shop-in-shop deals, manufacturers invest millions of dollars with Best Buy […] but still spend less than they would to build their own stores” (Wieczner, 2015). This tactic created a brand image of Best Buy as “the electronics industry’s biggest showroom”.

Another point is that Best Buy’s power grows out of these developments: 1) size and buying power; 2) advanced technologies; 3) modern marketing strategies. As for the first point, Best Buy is a giant retailer with over 1400 huge stores, suppliers of which are considerably smaller and cannot attract as many buyers. As for the second point, it has an army of IT experts, the Geek Squad, ready to give any support for the most sophisticated gadgets, as well as better delivery (shop-from-store approach) and increasing speed, improving inventory availability; even Amazon cannot offer such services (Wieczner, 2015). As for the third, Best Buy’s power is due to its strong marketing multichannel strategy. The company invests heavily in the retail business but also its online business grows stronger creating competitive advantage. One of the great maneuvers was matching Amazon’s prices to beat off showrooming (buyers test the product in-store, but buy it cheaper on-line). As a result, Best Buy’s online sales grew by 20 percent in 2014 comparing to the previous year (Bailey, 2015).

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As a result, Best Buy, the leading consumer electronics retailer, has all the capability to exert its power. Not only does it decide how to fulfill distribution task, but also dictates to its suppliers what products and under what conditions it is ready to sell to its customers. This behavior is inevitable for giant retailers striving to be leaders in the market because modern competitive environment changes very quickly, and the best tactic is not to adapt to those changes but anticipate them and be more aggressive to be one step ahead of your rivals.

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