Monday, August 03, 2009

Best Buy vs. Better Buys
WSJ, July 21, 2009

This tidbit highlights the unintended consequences of competitor actions, in this case bankruptcy. In the U.S., Best Buy and Circuit City were national retail chains that focused on selling electronics and were bitter competitors in almost every region of the country. About a year ago, Circuit City went bankrupt. The immediate expectation was that Best Buy would benefit.

I raise this issue because in my experience, both as a practitioner and consultant/teacher, I found when a business person firmly stated they knew what their competition (and for that matter, their customers) were going to do in reaction to one of their moves, they were inevitably wrong. In planning, you must force the organization to do a version of Scenario Planning (1 to 3 year time horizon) to try to appreciate all the possible outcomes of any change in the market—the idea of managing assumptions is critical.

"With fierce corporate rivalries, a competitor's bankruptcy represents the ultimate triumph. Or does it?
..........It took years for Best Buy to overtake Circuit City Stores, once the dominant specialty-electronics chain but now bust......
But Circuit City may have been pushing shoppers into Best Buy's arms......electronics usually are expensive enough that consumers want to shop around.
When Circuit City was in business, shoppers could compare prices easily, what with the two retailers often operating in nearby locations. Without Circuit City, many shoppers need to venture online.
Take televisions., which often undercuts Best Buy's prices, gained 2.5 percentage points of market share for flat panels in the first quarter, compared with a year earlier. Meanwhile, Best Buy lost 0.7 percentage point...... Recent data suggest ....... for Best Buy, virtual challengers look likely to be harder to snuff out."

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