5. Best Buy – ChinaPosted on October 22nd, 2009 12 comments
One month after Best Buy Inc. (Best Buy), the largest retailer of consumer electronics in the United States, acquired Five Star, the third-largest retailer of appliances and consumer electronics in China, in May 2006, the management of Best Buy is weighing its branding options. Should Best Buy retain the Five Star brand and let the two brands — Five Star and Best Buy — compete with each other in the Chinese market? Or should Five Star lose its brand identity and be hereafter marketed as Best Buy?
The options have a sense of déjà vu: when Best Buy first stepped out of its home turf in January 2002, by acquiring Future Shop, the largest consumer electronics retailer in Canada, it had been facing a similar dilemma. The company had decided, at the time, in favor of a dual-brand strategy, and had thus retained Future Shop as a brand in its own right. The strategy had worked. There had been no evidence of cannibalization — the single largest risk in dual branding. Both Best Buy and Future Shop had grown together as independent brands.
Will the dual-brand strategy work in China for Best Buy with regard to Five Star? How should the company make it work? These questions are the focus of the case study.
ISSUES FOR CLASS DISCUSSION
1. What are the conceptual underpinnings of a dual-brand strategy?
2. What did Best Buy learn from its experience with dual-brand strategy in Canada?
3. How does the Best Buy situation in China differ from its situation in Canada?
4. Does a dual-brand strategy provide Best Buy with a core competitive advantage as it expands into new global markets?
12 responses to “5. Best Buy – China”
Team 10 November 10th, 2009 at 22:29
Team 10: Alonzo Perry, Jr. | Lei Song
Team 5’s Best Buy in China presentation was thoughtful and well-executed. The team began with an overview of both the Best Buy and Five Star Brands companies, offered company background, prior decisions about expansion into the Canadian market, focused on Chinese economic conditions, and finally explained its choice to pursue dual branding in the new market along with recommendations for implementation. This blog comment will focus on the strengths of the team’s presentation style, in terms of design and delivery, and content and offer points of improvement for future projects.
The PowerPoint slides used Best Buy’s iconic bright blue as a background as interchanged the yellow-tag motif with flags for each country that the retailer entered. The slides were organized neatly and the content was easy to understand. Overall, Team 5 did a great job presenting the Best Buy case. We appreciated that they focused on key learnings from Best Buy’s expansion into Canada as a basis for their analysis; Because of their attention to detail, the entire class was able to make informed opinions about the retailer’s branding options.
Given the time constraints, Team 5 did a great job of covering an exhaustive list of Best Buy’s options given their decision to enter the Chinese market. We would have appreciated seeing some of the frameworks that we have covered in class. For instance, we used the value chain framework in our analysis. After seeing the differences in their value creation, we decided that the core competencies for the Five Star Brands companies and Best Buy were very different; such a large disparity in operating models could suffice as support for the company’s choice of dual branding, which both of our teams decided to pursue.
The final part of the presentation was rife with information and was the most interesting part of the presentation. The team managed to touch on the pros and cons of each option, but we think that they should’ve monetized each of the options. Although we agree with the Team’s final decision, having a standard for evaluating each of the options would’ve made the presentation more effective. There were important considerations for each of the options (i.e. cannibalization of sales, no brand equity portability, zero competency transfer across retailers) and having importance weights or monetary estimations associated with each option could have enhanced the analysis.
Ultimately, the most important consideration is that both Five Star Brands and Best Buy can survive because they’re offering the consumer two very different things: Best Buy is known for its customer service and offering a superior shopping experience while Five Star Brands is a predominantly vendor-staffed, low-cost alternative.
We appreciated the team’s focus on the rise of the middle class (zhong chan) as a means of justification for entering the market. Relevant information about the sizable labor force and China’s fast-growing economy helped to frame the decision to expand the Best Buy brand.
The video showcasing the store opening in China was a nice touch at the end of the presentation. It emphasized the importance of retaining the Five Star brand in the market while introducing Best Buy as a premium option in the market. Based on the video, Best Buy achieved great success and ended up pursuing an option that Team 5 supports.
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