Threat of Substitute Services (High)
The brick and mortar based retail industry has been facing tough competition since last few years. Online retailers like Amazon have gained large market shares in the short time, due to the fact that they can offer lower prices. It also provides the products to consumers with the convenience of online orders and a reach to the global products as well. Additionally, they have lower operating costs shown in the case study. It can be said that the threat for substitute services is high.
Threat of New Entrant (Low)
Retail industry needs a huge initial setup costs and investments which restricts an easy entry to the market. It will also take time for a new player to be able expand its presence in the market and be able to have accessible stores in major areas. Additionally, the market is already saturated with many retailers and also increasing competition from online retailers as well. A new player will only enter an industry where it can find a gap in demand and supply. It can be said that the threat of new entrant is low.
Rivalry among Existing Competitors (Medium – High)
As discussed in paragraph above, the market is saturated in both brick and mortar and online based retailers. Although, there may have been some gap created due to the fact that Circuit city was liquidated, but it can be argued that the consumer diversion towards the online retailers may have already filled the gap. There have been intense price wars in the past, any new player will intensify the current competition.
VRINE Analysis
The most significant competitive advantages for the Best Buy are pricing, store availability and the service provided by on-store experts. It also has many resources available to it which can be used to gain further advantages.
In the past, BBY had always competed and differentiated itself from competitors based on prices. It is rare and valuable advantage, but BBY has been losing this advantage now due to the competition from Amazon. It can still be exploited and used in the favor of Best Buy.The gross profit ratios of BBY have been comparatively higher for over a decade now. It can reduce the prices a little and reduce the operating expenses to maintain profit levels and compete with Amazon.Similarly, it has a vast network of stores in US which gives it a physical presence. It is valuable for Best Buy. It provides a direct access to the consumers. It is comparatively rare but imitable resource.
The most significant advantage for Best Buy is its service and expertise. It has a number of product experts to help consumers with products, they are salaried so they do not need to push products at the consumers. It is valuable for both customers and the organization because it provides them with the personal service which can never be achieved by online retailers. It was also evident from the fact that some of consumers were visiting BBY stores just to get the expert opinions on products and then were buying it through online retailers like Amazon. It is rare, but non-imitable resource which can be exploited to increase sales. BBY will need to reduce prices and be competitive with online retailers to take further advantage from this resource........................
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