The MEMO of

Failure in

China

The MEMO Introduction – What about Best Buy?

The Failure – How was their lost?

Behind the fiasco – 4Ps failure in a marketing sense

Environment – What happened besides 4P?

The Conclusion

Introduction – What about Best Buy?

TODAY…………

Is known as a speciality retailer or

consumer electronic in the U.S.

Nationaly they acount for 19% of the

national market

Also are operating in Mexico, Canada,

China, Turkey & the United Kingdom

SUCCESS……..

2004 Gave 18.8 million or 1.1% of its

2004 earnings to charitable causes,

including youth programs, scholarships

and national organizations that serve

local communities.

2005 Ranked top ten most Generous

Corporation

2009 Became the primary electronic

store online and in its warehouses

HOW IS ALL STARTED…………….

1966 in minnisota

two guys / started

a store called

“Sound of Music”

1970 they hit the

1million Dollar

mark in annual

revenue

1979 became the

1st

suppliers of

video and laser

equipment :

Panasonic

Magnavox

Sony

Sharp

THEN……………

1981 there was

a Great

tornado that

hit the sound

of music store.

With what is

left of the

store and

merchandise,

they decide to

sell what was

salvageable!!!

And PROMOTED

the event on

June 14th

as………………..

The Failure – How was their lost?

• -Captured less than 1% of the market trying to compete against the more agile and aggressive Gome and Suning.

• -Stores similar to Best Buy in the way they deal such as Home Depot and Kingfisher have met similar dilemmas. Whereas price-sensitive stores where the lowest price is the one that dominates (i.e. Walmart and Tesco) have flourished.

Product

Behind the fiasco – 4Ps failure in a marketing sense

Price

Behind the fiasco – 4Ps failure in a marketing sense

• The Best Buy model aims to please both suppliers and consumers by reducing the price competition between suppliers.

• Best Buy tried too hard to educate consumers about high-end service value when lower price is typically the only value that motivates them to make quick decisions.

• Prices were higher than the Chinese preferred to pay as the middle-market is very price sensitive.

• Prices vary widely depending on the brand name and product.

• Higher than that of local stores.

Place

Behind the fiasco – 4Ps failure in a marketing sense

9 Stores in China 6 in Shanghai 1 in Hangzhou 1 in Suzhou 1 in Beijing They place it in populated area They open it near their competitors

Promotion

Behind the fiasco – 4Ps failure in a marketing sense

They try to differentiate themselves from competitors with their service.

The Chinese name of Best Buy “百思买” contains meaning of “To buy after thinking 100 times”

Internal

Environment – What happened besides 4P?

External

Environment – What happened besides 4P?

down-pass of international retailing chain approval rights

Get into 2nd and 3rd Tier Cities!

YES, SIR!! WHAT ?

YES, SIR!! WHAT ?

53 Outlets in 2009 Totaling 178 2.4 times of Carrefour

One in 2 years Shanghai ONLY Shutting down.

WRAP UP!

The conclusion

• 1. Offered High-quality service and shopping experience when Chinese consumers only want lower prices, not service.

• Chinese = Price, ≠ service.

WRAP UP!

The conclusion

• 2. Chinese retailers electronics and other large-ticket items by leading brands, opposed to category. Supported by sales staff work for the manufacturers rather than for the retailer.

• Leading brands (Chinese) vs Category (US)

• Sales staff from Manufacturers (China) vs Retailer (US)

WRAP UP!

The conclusion

• 3. Trying to Compete on quality in a price sensitive market.

WRAP UP!

The conclusion

• 4. Best Buy seen as too expensive in China.

• Why pay more for something you can get elsewhere? Consumers will only pay more if they are buying something they cannot get elsewhere.

WRAP UP!

The conclusion

• 5. Local retailers can undercut prices - they pay less in salaries, benefits, rent and electricity.

• Piracy in China.

WRAP UP!

The conclusion

• 6. Made the mistake of focusing on building large flagship stores, rather than smaller, conveniently located retail outlets.

• Traffic congestions and lack of parking mean consumers often prefer to shop closer to their homes.

WRAP UP!

The conclusion

• Musts in China:

– Foreign retailers need to localize their product selection, sales formats, and be smarter in their location choice in order to compete with emerging, brand savvy local players.