Introduction
In today’s marketplace, every company strives to achieve maximum competitive advantage. The famous American economist Michael Porter, using five structural units characteristic of each industry, described the ways of creating a competitive advantage and long-term profitability of a product. Best Buy, one of the largest consumer electronics retailers in the US and Canada, is an example of the practical application of Porter’s Five Competitive Forces Model.
Threats of New Entrants
The degree of influence of new players depends on the entry barriers of the industry and the growth and profit of the company. The threat of potential new entrants to the consumer electronics retailer is relatively low as Best Buy offers a wide range of brands with an impeccable reputation and high service levels. A big obstacle to entry is a large number of competitors in this industry. However, Wells and Ellsworth (2016) assert that Best Buy has the largest US market share at 20.5%. Thus, it will be difficult for new entrants to compete with such a successful rival. Best Buy should create new products and services and regularly set industry standards to keep new actors out to strengthen its position.
Bargaining Power of Suppliers
This figure is relatively neutral in the consumer electronics trade as both Best Buy and its competitors offer relatively identical products. Thus, according to Wells and Ellsworth (2016), the leading suppliers of Best Buy are Apple, Samsung, Hewlett-Packard, Sony, and Lenovo, which account for about 56% of the total volume of purchased goods. Through strategic delivery procurement management and effective interaction with suppliers, the company achieved a high position in the market. To remain a strong player, the company should expand its supplier base and acquire dedicated caterers whose business will depend on Best Buy’s procurement.
Bargaining Power of Buyers
Customers looking to purchase a quality product at the lowest price can significantly affect Best Buy’s profitability. Nevertheless, the company maintains a significant position in the market by focusing on consumer needs. According to Wells and Ellsworth (2016), it is evidenced by its total revenue, which amounts to $ 43 billion versus $ 39.4 billion in 2017. Thus, judging by the indicators, the company managed to develop a successful competitive strategy. Such measures as introducing new products and related services and an active discount policy will help Best Buy maintain its position in the long term.
Current Industry Participants
Competition among the major electronics retailers is fierce, which plays a vital role in Best Buy’s decision-making. Thus, Wells and Ellsworth (2016) claim that the key competitors of Best Buy are Amazon, with a market share of 17.6%, Walmart – 14.8%, and Apple Retail Stores – 7.5%. Thus, Best Buy’s 20.5% share is the largest in the consumer electronics market. However, in the online segment, the company is inferior to its competitors. The largest online sellers on the market are Amazon with a 59.7% share and Apple with an 8.7% share; Best Buy, with a share of 8.2%, takes only 3rd place (Wells & Ellsworth, 2016). Therefore, the company should attack new entrants violently, change the basis of competition from price to differentiation, scale up sales, and build partnerships with competitors to increase the market size rather than fight for market share.
Threat of Substitutes
Today, substitute products do not directly threaten the consumer electronics market because they cannot replace this category of products. Best Buy mitigates this risk by offering additional services, such as extended warranties and technical assistance. However, the company should focus on the core customer’s needs and concentrate not only on the product but also on the service to maintain its impact. Therefore, Best Buy, despite the identified risks, has a competitive advantage and is making effective efforts to increase the profitability of the organization.
Reference
Wells, J., & Ellsworth, G. (2016). Reinventing Best Buy. Harvard Business School Case. Web.