By MIGUEL BUSTILLO
Since we started the blog, we have followed the travails of three food chains—Starbucks, Dunkin Donuts, and McDonald’s. To me this saga is a great example of the dynamics of competitive separation and what happens when competitors, through their drive for more market share, end up diminishing their separation with the resulting increased competitive pricing. See the Competitive Separation section on our blog site (http://marketdrivengrowth.blogspot.com/).
Although the situation is a bit different, the closing of the electronics giant Circuit City created the opportunity for a reshuffling of the major players – Best Buy and Amazon who enjoyed a solid position in the higher end of the retail electronics market plus Wal-Mart. Wal-Mart first had to overcome an image and positioning challenge in the higher end of the home electronics business:
"Wal-Mart fought for years to be taken seriously by electronics makers that
wanted to cultivate a top-of-the-line image. Apple, for instance, didn't
sell its music players at Wal-Mart until it released the inexpensive iPod
Shuffle, and released the iPhone at Wal-Mart only after it had been selling
through Best Buy."
Best Buy is for sure still the share leader but Wal-Mart is making major gains:
"Best Buy retains a lead in U.S. consumer electronics retailing with 22% of the
total market, based on market-research estimates from Stevenson Co. But Wal-Mart has been quickly gaining. Circuit City filed for bankruptcy last November and
closed its stores in March. Its closing left about $11.1 billion in annual
revenue up for grabs, estimated Deutsche Bank."
The impact on pricing is what you would expect:
"Its moves are fueling fierce price competition. An Acer netbook, or small portable computer, that sells for $328 on Walmart.com is $329.99 on Amazon.com. Bestbuy.com sells a MSI Wind 10-inch netbook for $309.99. The same machine was reduced to $298 from $308 on Walmart.com."
An interesting side benefit for Wal-Mart is also emerging:
"Wal-Mart also is leveraging a more subtle advantage it boasts over standalone
electronics chains: a mom-heavy clientele. Retailers say women often have final
say over household purchases of new video games and televisions. "
As with the coffee wars, we will continue to follow this story. One of the approaches Best Buy has taken to combat the price pressure of both Wal-Mart and Amazon is the creation of the Geek Squad (http://www.geeksquad.com/), a VERY successful service organization that sets up sound and computer systems for Best Buy customers. It will be interesting to see if this approach is sufficient to create competitive separation for them and/or whether the others will take their own action in this regard.