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Value Chain Analysis

Best Buy Inc. is a leading U.S based specialty retailer of entertainment software, personal computers, consumer electronics and related services. Currently, the company operates more than 1,150 retail stores across America, China and Canada. Best Buy’s assortment of merchandize includes private brands like Geek Squad, Init, Rocketfish, Insignia and Dynex. The company operates under two distinctive geographical segments, international and domestic ones. Its international segment comprises of all Chinese and Canadian stores as well as their online operations. On the other hand, its domestic segment comprises of all stores and online operations in the United States, including Geek Squad, Bath Centers, Best Buy, Magnolia Audio Video and Pacific Sales Kitchen (Best Buy, 2009). In order to better comprehend activities through which Best Buy creates share holder value and develop a competitive advantage, this paper separates Best Buy’s business system into a series of value-adding activities known as value chain.

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Best Buy’s strategy is focuses on expanding its customer base and its geographical reach by expanding into new markets and strengthening its current position by implementing a customer centric approach in dealing with its customers as well as acquiring operationally and financially suitable targets. This can be seen in the company’s inbound logistics, operations, outbound logistics, sales, marketing and service.

In regards to inbound logistics, Best Buy receives its input from various suppliers. The company has over eight centers in the United States including New York, California, Ohio, Indiana, Virginia, Georgia and Oklahoma. In Canada the company’s distribution centers are located in Ontario and British Columbia. In regards to its suppliers, the company has over 20 suppliers that account for 50 percent of the company’s merchandise purchased in 2005. By 2008, the company’s largest suppliers, which comprise of Apple, Toshiba, Samsung, Sony and Hewlett-Packard accounted for almost 60 percent of the merchandize purchased (Serres, 2007). In regards to outbound logistics, Best Buy uses both direct and indirect channels to deliver its products and services to customers. The two channels comprise of online and retail mechanisms.

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The company’s sales and marketing strategy has also given it a competitive edge over its major rivals. The company has a gift card program where the proceeds from the sale of these gift cards are usually deferred until a client uses the card to acquire products or services from the company. It has been established that this practice enhances the customer loyalty. On the same note, the company sells extended contracts on behalf of third parties (Serres, 2007). In most cases the commissions from such deals are recognized in revenue at the time of sale.

The primary activities discussed above are supported by the company’s infrastructure, human resource management, technology development and procurement. Best Buy Company’s structure is founded on its culture, which is approachable, friendly and respectful. This culture allows employees to develop strong, independent and enduring working relationship with each other and also with their clients. As a result, the company’s offices have been transformed into collaborative and team-oriented places to work. The company’s human resource is among the largest in the industry. It is estimated that the company employs over 167,000 people, which translates to a 7.2 percent employee growth rate. The procurement program is among the best in the industry. This can be attributed to the fact that the company has been relying on the same suppliers over the years. Serres (2007) argues that to reduce procurement costs, the company has been able to match the timing of merchandizing receipts with distribution, and hence consolidate its distribution. In regards to technological advancements, Best Buy has introduced a new labor model that adds hourly pay and retains commissioned sales. It also prides itself on not engaging in any development and material research activities from 2005 to 2008. It is apparent that this company has been able to create a share holder value and develop a competitive edge because it was named the Company of the Year in 2004 by the Forbes Magazine (Moyer, 2005). Moreover, it was ranked among the top 10 “America’s Most Generous Corporation” in 2005 by the Forbes Magazine.

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