After acquiring a stake in Five Star, a retailer of appliances and electronics in China, Best Buy’s VP John Noble is responsible for launching a dual brand strategy to China as he did in Canada back in 2002. The plan was to open three stores in less than two years in China while Five Star was planning on opening 25 additional stores. Entering China would prove to be much more difficult than neighboring Canada as a country with 1. 3 billion consumers which is a lot of people to please.
China was chosen as the second international expansion market primarily due to the overall market opportunity, consumer fundamentals and macro-economic factors (Ivey, 2006). ” In addition to the Chinese being very frugal, there was also the issue of the concept of credit, or lack there of in China. About four percent of households in China used credit cards, compared to 75 percent in the United States (Ivey, 2006). Best Buy quickly realized that branding in China was not what really attracted the consumers (Ivey, 2006).
Best Buy Inc Best Buy had been interested in entering China since the 1990’s.
By that time, China had been hosting many of the United States and Europe as far as different manufacturing products. The option of dual branding was what Best Buy was thinking in order to essentially join forces with Chinas retailer of electronics and appliances, Five Star. By coming together, Best Buy in United States thought that the two companies would be even stronger as one. This sort of dual branding worked very well in Canada and presumably would have the same success in China.
Competitors Some of the main competitors of Best Buy are Wal-mart and Costco.
The competitors were constantly increasing their CE retail market and in particular they increased the products that were less complex therefore easier to sell. Internet shopping and distributors such as Amazon or sites like that are another example of a competitor in the CE market. Also, home improvement stores such as Home Depot and Lowe’s were also venturing into unknown territory which was competition for Best Buy. “Lines were blurring as retailers of all kinds were widening their product assortments in pursuit of revenues and margins (Ivey, 2006). ”
Dual branding in Canada seemed like logical step in that Best Buy and Canada’s Future Shop, the main CE retailer there could join together and become stronger with all of the competition coming about (Ivey, 2006). Dual Branding Canada Canada was paid $363. 95 million dollars to acquire Future Shop. Among several reason why the dual branding took place, the number one reason and most important was that Future Shop was an established brand “with over 95 percent unaided brand awareness among Canadians (Ivey, 2006). ” Though dual branding seemed like a great idea there were also some downsides.
Cannibalization was the main problem of course due to the products of Future Store eating the profits of Best Buy and vice versa. There was also the immanent issue that the consumer would not know which brand was which. Despite these issues, by the first year of operations the dual branding strategy seemed to be working and cannibalization seemed minimal. It seemed only natural to give it a try in China (Ivey, 2006). Dual Branding China “China was chosen as the second international expansion market primarily due to the overall market opportunity, consumer fundamentals and macro-economic factors (Ivey, 2006).
However the Chinese consumer was different than that of the United States or Canada. Also, consumers were not really concerned with branding as much as they were messages relating to functional features. Therefore, the preference of brand did not really translate into revenue. There was also the issue of land acquisition as there were often delays which would force a store to take up to 6 months to even open its doors. The Chinese also preferred to deal with people they knew and had previous relationships with so pricing had to be up to par due to the consumer not providing much slack for it.
With all of these problems, a dual branding in China did not seem as seamless as it was in Canada (Ivey, 2006). Conclusion It is understandable why Best Buy would want to go global to maximize its profit and consumer base all over. Though things seemed to work out in Canada, it would prove to be a much tougher hill to climb in China just based off the consumers alone and the way things are done there and simply the way of life. It will be interesting to see if the places like Turkey and Mexico, other potential targets will have the same success rate as Canada, and not resemble China’s issues.