We’ll start in the “remote environment.

” The primary elements found in a discussion of

the remote environment include: Economic Factors, Social Factors, Political Factors and
Technological Factors.

Economic Factors – These are probably things that we are all more familiar with that we
were six months ago. They include things like prime interest rates, inflation rate, the
unemployment rate, the rate of economic growth, etc. These are big things, important
things; they are outside of our control, directly affecting our business.

We are a very passion-driven industry that is motivated by causes; our purpose in the
world and in the marketplace tends to define us. Hopefully, I’ve helped you with some
thoughts about organizing that part of your world, but I am sure that for quite a few of
you, that part of things was fully in place.

The research part of Strategic Management is a challenge for many. It is hard. It

involves going beyond the “I know this stuff – I’ve been doing it all my life” and gets into
some looking under stones to find out what is really going on.

The first area of research is of the “external environment.” I liken this to an onion as it
has many layers. I like to define the external environment as the things that are (1)
outside our organization, that (2) we cannot control, and that (3) do affect us.

You can see the importance of these things and the need to invest time in researching
them by looking at these points in reverse order. If it affects me, it is important! If it
affects me and I can’t control it as it is outside my organization, I need to spend time
learning about it.

Our goal in learning is not for the sake of knowledge alone, but to put us in a place
where we can benefit from elements in the environment that are in harmony with our
practices and to help us changes what we are doing to avoid problems from elements in
the environment that are contrary to our practices.

ADVERTISING

We’ll start in the “remote environment.” The primary elements found in a discussion of
the remote environment include: Economic Factors, Social Factors, Political Factors and
Technological Factors.

Economic Factors – These are probably things that we are all more familiar with that we
were six months ago. They include things like prime interest rates, inflation rate, the
unemployment rate, the rate of economic growth, etc. These are big things, important
things; they are outside of our control, directly affecting our business.

Social Factors – These are bit harder to define precisely, but that is probably true of
anything with human beings at its core. Here we are referring to beliefs, values,
attitudes, opinions, lifestyle choices, etc. that are held in society. Going back twenty
years or so, eating organic foods was a dietary choice held by a small part of society.
During the late nineties through the current time, eating organic become more and
more an accepted part of a mainstream of society. I read a survey yesterday where only
10% of shoppers indicated that they don’t buy anything organic. The thing to look for
here is how are the core products that you bring to the market – organic foods,
natural/organic body care and household cleaners, dietary supplements, etc. – viewed
and accepted in society. A valid sub-thought to this is whether the current economic
challenges are having an effect on this.

Political Factors – With a recent change in administrations in Washington, these are

things that we are also paying a lot of attention to. Make no mistake about it; we are not
referring here to personalities, to whom you like or don’t like, but rather to specific
policies, programs and laws and directly to how those affect your business. How are
things that the IRS, FDA, FTC, INS, USDA and others are doing going to affect your
customers, your suppliers, your competitors, your neighbors, and you?

Technological Factors – What tools and advances are in the marketplace that help (or
hinder) you from serving your customers? What is on the horizon that can help you
communicate, predict, or respond better? With our stores being in a more specialty,
consumer-focused part of the marketplace, one thing to look at in regards to retail-
technology, is that we aren’t so focused on the use of technology that we lose touch with
customer service and human interaction. These are tools that should help us serve our
customers, not remove us from waiting on them, answering their questions and helping
them make good decisions.

Stability of political factor is very important for manager to consider during strategy
making process. It help the manager to make strategies by fulfilling the legal and
regulation requirement. From the case, Federal Reserve has issued new regulation that
use to restrict companies from offering deferred interest financing to customers. It had
affect the future revenue of all the companies included Best Buy. It had prohibit Best Buy
to extent the credit line which can affect Best Buy’s revenue.

Economic factors discuss about the influence of economic that will affect the
profitability of companies. From the case, the economic downturn had affected Best
Buy’s profit. During economic recessions, consumers have less disposable income.
Therefore, their purchasing power is lower. Their consumption pattern will change and
prefer to buy necessities goods than discretionary goods. So, it will become a problem
for Best Buy that sell discretionary products.

Social factors
Social factors is discussing about belief, value, lifestyle of persons. Cultural is an
important element to analyze in social factors. From the case, Best Buy had used
customer centricity model to conduct their business. They had study the customer
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
become a trend and lifestyle among consumers. They intent to spend their time shop
around the internet than visit the retail store.
Technological factors
Technological factors discuss how technology change will influence the business. From
the case, technology improved will shorten the product life cycles and decrease the
prices. As shown as the case, when shorter product life cycle, training cost will increase.

Technological factor also pose a threat to the Best Buy. Online marketplace had become
a threat for retail industry. Consumer can buy goods from internet rather than visiting
retail store like Best Buy. Furthermore, the consumers are able to compare the product
price, quality and getting more information by using the internet.

Ecological factors
Ecological factor always discuss about the relationship between business and the
ecology. Best Buy had encourage their customers to recycling their appliances and
electronics by launch a recycling program. It is used to reduce waste and reduce the
pollution to the ecology. Furthermore, Best Buy also had earn the LEED certification
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 identify 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 large capital resources to enter the market. However,
globalization and internet had weakened the barrier by reducing the capital
requirement. More and more companies entering the market using internet. By using
internet to penetrate the market, customer loyalty had become a barrier which can
prevent companies to enter the market. Although the industry was dominated by certain
large company, but internet had reduced the barriers. Hence, it is an opportunity for
Best Buy to enter the market.
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 lead them to achieve economy of scale. Hence, it is an opportunity for
Best Buy to gain cheaper resources and gain competitive advantage over their
competitors.

Substitution
Best Buy also face strong substitution level due to their competitors such as Walmart.
Walmart had expand their market share in consumer electronic industry. They cooperate
with several company and offer wider and higher range 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 due to their trained workforce and consumers may choose to buy the
substitution products.

Buyer Power
According to the case, there are economic downturn which had reduced the buyer
power. During recession, consumers disposable income had reduced. Their purchasing
power decrease and not willing to consume 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. They had many strong
rival such as Walmart stores Inc., GameStop Corp. which had dominant the market.
Those competitors had hold large market share in the market and they are sharing the
same group 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 has shown that the environment is bad because of the 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 has shown that the market is highly competitive because of the
position of the rival is too strong. The analysis show that Best Buy will be very difficult 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 satisfy the customers, they will 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 case, Best Buy’s long term objectives are focused on employee
development. According to the case, Best Buy had put effort on training their
employees. They set employee development as their objectives because they are using
differentiation strategy. Since most of their competitors are using low cost strategy, Best
Buy had making decision to use differentiate approach to avoid a price war and reduce
competition level. They focused on training their workforces to provide better services
to their customers. Employee development approach had enable 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.