Stability of political factor is vital for manager to consider during strategy making process. It help the manager to make strategies by fulfilling the legal and regulation requirement. Through the case, Federal Reserve has issued new regulation that use to restrict companies from offering deferred interest financing to customers. It had affect the near future revenue of all the companies included Best Buy. It had prohibit Best Buy to extent the line of credit which make a difference Best Buy's revenue.
Economic factors discuss about the influence of economic that will affect the profitability of companies. From your case, the financial downturn had influenced Best Buy's profit. During monetary recessions, consumers have less disposable income. Therefore, their purchasing power is leaner. Their consumption pattern will change and prefer to buy necessities goods than discretionary goods. So, it'll turn into a problem for Best Buy that sell discretionary products.
Social factors
Social factors is discussing about belief, value, lifestyle of persons. Cultural can be an important element to analyze in social factors. In the case, Best Buy had used customer centricity model to conduct their business. That they had study the client needs and behaviors. Best Buy had focused on certain customer groups such as affluent suburban families and trend-setting urban dwellers. Nowadays, internet purchasing had turn into a trend and lifestyle among consumers. They intent to invest their time shop around the internet than visit the retail store.
Technological factors
Technological factors discuss how technology change will influence the business enterprise. From the case, technology improved will shorten the merchandise life cycles and decrease the prices. As shown as the situation, when shorter product life cycle, training cost increase.
Technological factor also pose a threat to the very best Buy. Online marketplace had become a threat for retail industry. Consumer can buy goods from internet rather than visiting shop like Best Buy. Furthermore, the consumers are able to compare the product price, quality and getting ultimately more information utilizing the internet.
Ecological factors
Ecological factor always discuss about the partnership between business and the ecology. Best Buy had encourage their customers to recycling their appliances and electronics by launch a recycling program. It is utilized to lessen waste and reduce the pollution to the ecology. Furthermore, Best Buy also had earn the LEED qualification because their store's design is green and achieved LEED standard (Cheeseman 2009).
Cheeseman, GM 2009, 'Best Buy's Environmental Efforts', viewed 14 November 2012, http://www. triplepundit. com/2009/10/best-buys-environmental-efforts/
Industry environment (Competitive Forces)
Michael Porter 5 Forces
Porter 5 Forces is use to recognize the competitive level of the market by analyzing the entry, supplier power, substitution, rivalry and buyer power.
Threat of entry
It is very difficult to enter the market because the industry was dominated by large company. It also require a sizable capital resources to enter the marketplace. However, globalization and internet had weakened the barrier by reducing the capital requirement. More and more companies entering the marketplace using internet. By using internet to penetrate the marketplace, customer loyalty had become a barrier which can prevent companies to enter the marketplace. Although industry was dominated by certain large company, but internet had reduced the barriers. Hence, it can be an chance for Best Buy to enter the marketplace.
Supplier power
Best Buy had gain competitive advantage through the weak supplier power. Best Buy had gain the bargaining power over their supplier because they always purchase in large quantity which cause them to achieve economy of scale. Hence, it is an chance for Best Buy to gain cheaper resources and gain competitive advantage over their competitors.
Substitution
Best Buy also face strong substitution level because of their rivals such as Walmart. Walmart had expand their market share in consumer electronic industry. They cooperate with several company and provide wider and higher selection of electronic products. Their product also very similar to Best Buy's product and can be substitution for Best Buy's product. Hence, substitution had posed a threat for Best Buy because Best Buy's product is more expansive because of the trained workforce and consumers might want to buy the substitution products.
Buyer Power
According to the situation, there are economical downturn which had reduced the customer power. During recession, consumers disposable income had reduced. Their purchasing power decrease rather than willing to take discretionary item like what Best Buy has sell. So, a weak purchasing power will affect Best Buy profitability. Hence, it also posed a threat to Best Buy because reduce in purchasing power will affect their sales and profitability.
Rivalry
Best Buy is competing in a high competitive level environment. That they had many strong rival such as Walmart stores Inc. , GameStop Corp. which had dominant the market. Those opponents had hold large market share on the market and they're sharing the same band of customers with Best Buy. Therefore, it had posed a threats to Best Buy because the market is too competitive which may lead to lesser profit.
Overall
The PESTE analysis shows that the environment is bad as a result of economy condition is poor, the consumers demand are elastic, the change rate of the technology is fast which may cause a lot problem.
Michael Porter 5 forces shows that the marketplace is highly competitive because of the position of the rival is too strong. The analysis show that Best Buy will be very hard to compete in the market although they have their competitive advantage.
Long term objectives
Profitability
As stated in the case, Best Buy's objective is sustained growth and earnings. Hence, Best Buy put an effort on offering wide range of product and highly trained workforces to increase customers satisfaction. Thus, with meet the customers, they'll more willing to buy Best Buy's products and it can ensure the profitability of Best Buy. Best Buy also change from discounted retailer to service-oriented firm to avoid competition that can reduce their profits.
Employee development
Based on the situation, Best Buy's permanent objectives are centered on employee development. According to the case, Best Buy had put effort on training their workers. They set employee development as their objectives because they're using differentiation strategy. Since the majority of their competitors are employing low priced strategy, Best Buy had making decision to use differentiate approach to avoid a cost war and reduce competition level. They focused on training their workforces to provide better services with their customers. Employee development approach had allow Best Buy to have a highly trained sales associates. However, This approach also increase the products price due to their training cost and better services.
