Tuesday, November 27, 2012

Best Buy’s failed expansion strategies


Best Buy’s overseas strategy failure in 2011 relates to what is discussed in the “7 Ways to Fail Big” paper by Paul B. Carroll and Chunka Mui. As per Pseudo-Adjacencies discussed in the paper, adjacent market strategy attempts such as expanding into a related business can lead even well established companies to failure.

Best Buy’s expansion strategy to the international markets turned out to be a failure. Although the company blames it to the recession but analyst attribute its failure to doing wrong thing at the wrong time and in the wrong market. It disclosed its plans to enter the foreign markets too early and gave its competitors a chance to react back. They failed to understand their customers in china as they were selling too expensive products then what their Chinese customers were willing to pay. This explains the role of getting timely feedback from the customers and partners before starting a venture.

What can be inferred from Best Buy’s strategy is that rather than actually expanding its business in the global markets, it was actually trying to cover up for its declining business in the U.S itself which is its core market. The reasons for the declining business were the decreasing credibility, consumer confidence and continued unemployment. Expanding to markets abroad seemed like a poor capital allocation decision.

Referring to the blog post “Types of Strategy: Which fits your business” by Patrick Bertschy, Low-cost leadership and customer relationship are an integral part of a company’s success. And I believe that is exactly where Best Buy failed to hit the mark. It went out for an expensive expansion strategy without knowing who its customers were. These self-inflicted painful and high risk moves lead it to declining profits and eventually to the closure of many of its stores in the new markets.

Now the thing that would be really interesting to know will be that was it a deliberate move on Best buy’s part to move into a high risk market which traditionally favored smaller high street electronic stores with big-box store?

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