Case study:Dual Branding in China
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John Noble of Best Buy faces a strategic decision on implementing a dual-brand strategy in China after acquiring a majority stake in Five Star, China's third largest electronics retailer. Best Buy had successfully used a dual brand strategy in Canada previously. Noble must determine if it will work in China given differences in the market and consumer behavior compared to Canada. Best Buy has done extensive research on the Chinese market and competitors. It believes factors like consumer centricity, universal appeal of dual branding, standardized operations, and after-sales service through Geek Squad position it well to replicate the dual brand model in China if it tailors the strategy to China's unique economic and consumer conditions.
Case study:Dual Branding in China
- 1. Charan Teja - Uma M MBA,DMS-PU
- 2. The Case • June 2006, John Noble, senior vice president at Best Buy International, the largest retailer of consumer electronics (CE) in the United States, faced a major strategic branding decision. • Acquired a majority stake in Jiangsu Five Star Appliances (Five Star), the third-largest retailer of appliances and consumer electronics in China. • Noble was tasked to decide and plan how Best Buy should implement a dual-brand strategy in China. • The dual-brand strategy adopted in Canada four years earlier seemed to have worked well. “Will the dual-brand strategy work in China?” he wondered. “How should I make it work?”
- 3. It all started when… • Founded in 1966 -The chain Sound of Music, by Richard Schulze • 70’s retailing audio components • Survived recession • 80’s Retail video • 1983-mass merchandising-superstore format- yellow Best Buy banner. • 1995-biggest seller of home personal computers (PCs) • 1996 top CE retailer in the United States
- 4. BEST BUY • Best Buy Co., Inc. is an American multinational consumer electronics corporation headquartered in Richfield, Minnesota; America’s third largest • Vision “meeting consumers at the intersection of technology and life.” • Core strategy “bringing technology and consumers together in a retail environment that focuses on educating consumers on the features and benefits of technology and entertainment while maximizing overall profitability.” • Products at moderate to upper moderate price points. • Growth rate:15-20% every year; Sales revenue: US$30.9 billion in 2006; 20% share of the retail American consumer electronics market, valued at US$152 billion in 2006
- 5. Building the Brand • Identifying the core customers • Best Buy was building its brand promise on the very lines “being fun, honest, young and techno-savvy.” • Establishing SOP • Concept of Centricity 1. Identifying customers generating the most revenue 2. Segmenting these customers 3. Realigning the stores to meet the needs of these customers 4. Empowering the store sales staff, known as Blue Shirts, to steer these customers toward products and services that would encourage them to visit more often and spend more on each visit
- 6. Contd… • 1989: 3 strategies # Self-service-“Blue Shirts” # fixed pay # discount style Innovations • Spotting A trend - marketing digital devices and home networks to homes and small businesses- opportunity pegged at worth US$20 billion a year • October 2002- Acquired Geek Squad, for after sales service!
- 7. Store operations Division Senior Vice 1 President Regional District 2 District 1 Managers District Managers/ Store 1 Store 2 Store1 Loss Prevention Manager Product Security Personnel control inventory shrinkage
- 8. Competitors E- Retailers Mass Merchandisers Factory – WallMart, Outlets – Dell Costco Home improvement Retailers
- 9. International Expansion • 2000: When Best Buy decided to go International neighbour Canada was a logical step • 2001: Founders of the two companies met and decided “together we could accomplish infinitely more than if we were to go our own ways and compete with each other.” • 2002: Best Buy acquired 100% ownership in Future Shop. When the time came to finalize integration, the management took a surprising decision: retain the Future Shop brand and let it compete with Best Buy “I‘m not saying it can’t be done, I’m saying its never been done before” – Richard Schulze, On Dual Brand Strategy In Canada
- 10. Factors contributed for Dual Branding • Market Leader Future Shop only had 15% share Fragmente • Room for a second brand d market- leader • Already signed leases to setup stores against Future shop Spaces • Some of the leased spaces were situated right next to Future Shop stores leased • Operation feasibility Conversion • Efficient and easy SOP adherence Cost • Unknown Brand replacing Known Brand?? • Future Shop was a well established brand, with over 95 % unaided brand Brand awareness identity
- 11. Risks with Dual branding Cannibalization Brand Identity Management Cost factor • Best Buy store • Duplication of • Marketing would eat into • Brand identity roles at the the earnings of corporate costs blur a Future Shop • Marketing headquarters • Training store and vice efforts and at Minneapolis, costs versa costs with the two • Particularly brands • Operation when the two • Requiring costs were in close separate staff proximity inputs.
- 12. The Secret of Success Best Buy Future shop Blue Shirts Product Experts Making it Easy for the Customer Trusted Personalized Service Grab and Go Experience Tech Savvy Customers Wide aisles to test and try Technologies First Service Upon Request Attentive Turn on the Fun The place to get it first Relaxed In Store Experience Guided Shopping
- 13. Why China?? • Overall market opportunity – Fragmented market, top 5 accounting to 20% • Consumer fundamentals • Low Labour costs • Third Largest Consume by 2025 (McKinsey) • Macro economic factors – Open economy – M&A- Five Star • Buyer Behavior – Consumer Economy
- 14. Initial Steps • 25 Person Sourcing Office in Shanghai • Market Research and Segmentation of the Terrain • Testing the Waters, Culture and Customs (guanxi) • Estimation on Procedural problems, land acquisitions etc • Calculations on the Breakeven as the income distribution is not same • Division of the Country into Tiers (Product – Segment-region)
- 15. Competitors
- 16. Gome Group • Gome Electrical Appliance holdings and Beijing Gome • 437 stores in 132 cities • Leader In regional markets, Largest CE retailer with 6% Market share in China • Aggressive player and introducer of new strategies like Pre Sales service, Eagle Stores (Category based Displays) • Always try to gain First mover advantages like Tax benefits and good will through employment
- 17. Suning • Air conditioning dealer to CE retailer in just 10 years • 3C (Computers, Communications and Consumer Electronics) store format • Rapid Store Expansion, entry into less affluent tier two cities • Store formats – Flagship, Central and Community, Targeting Mass Market • Service as the USP (500 Service stations)
- 18. Five Star – A Better prospect • Third largest CE retailer in China with 135 stores located in fast growing Cities • Interested in expanding internationally but delays in getting permission stalled the work • 12,000 own employees • Best Buy the best bet – 75 % company offloaded to $180 million
- 19. Ready Set and ….. • Best Buy is all set to make history and the factors are – Consumer Centricity- core competence – Universal appeal of Dual Branding – SOP – Geek Squad • All the factors are favourable and Best Buy seemed to have developed a Template for Dual Branding.
- 20. Dual Branding
- 21. Reasons Macro Economic opportunity Same as Canada But people not same as Canada (though all Chinese look alike :p) Micro Economic Conditions - Income Disparity - Spread Of People - Competitors - People Sentiment
- 22. We meant Thanks
Editor's Notes
- #3: Earlier that month, the company had While negotiating for a majority stake in Five Star, which had 135 stores in China, Best Buy announced plans to open its first Best Buy store in China in Noble had been assigned to the international division just a month earlier from the company’s Canadian operations, where he had held a similar position since 2002. December 2006, to be followed by two more stores in the next 12 to 18 months. Five Star also announced its own agenda of opening 25 additional stores in China, under the Five Star banner, during approximately the same period.
- #5: Globally ConsumerElectronicsSales was forecastedto reach US$700billionby 2009.
- #6: aged15to39,male,highlyeducated,above-averageincomeandeagerforproductsandservicesthatwouldrenderpersonaltimebothproductiveandenjoyable,andresonatewithbeingfun,honest,youngandtechno-savvy.forreplicationacrossthechain,whichincludedproceduresforinventorymanagement,transactionprocessing,customerrelations,storeadministration,productssalesandmerchandising.ensureconsistencyandenforcingdisciplineacrossthenetworkofstores
- #7: Digitaldevicesandhomenetworksweregrowingincomplexity
- #8: BestBuy controlledadvertising,pricingandinventorypoliciesfromcorporateheadquarters.
- #10: Globally ConsumerElectronicsSales was forecastedto reach US$700billionby 2009.Itplannedtoopen severalstoresintheTorontoareain2003,andathree-yearexpansionprogramof15 storesinmajorCanadiancities.BestBuyhadatargetofsettingup60to65 storesacrossCanada, to compete withthe95storesofFutureShop.
- #11: IftheseniorstaffatFutureShopwerefocusedonsettinguptheBestBuyoperation,theiractivitiesriskedaffectingnegativelyontheexistingsalesofFutureShopstores.PuttingtogetheraseparateteamatBestBuy,fullydedicatedtoopeningthegreenfieldstoresofBestBuy,asoriginallyplanned,wouldspeeduptheprocessofthecompany’smarketentry.