Pricing Term Paper

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Erika Gaddist Procurement 5830: Pricing Term Paper: Best Buy Professor Douglas Mowczko December 7th, 2011 Introduction Best buy is a highly successful, consumer electronics retailer, with revenue of 8.4 billion dollars in 2010. The company has been around for decades, and is very customer centric. Back in 1966, Richard Shulze opened a small business in St. Paul, Minnesota called Sound of Music. Over the years Shulze's small store grew rapidly into a multi-million dollar megastore. In 1983, Sound of Music changed its name to Best Buy Co., Inc and opened the first superstore in Burnsville, Minnesota. With the new name, came more change, the store began carrying more name brands, appliances, VCRs and offering its own central…show more content…
Best Buy has seen great success with the Best Buy mobile brand which it established in late 2006/2007, which offers a plethora of mobile phones with various carriers. Circuit City, formerly Best Buy’s biggest competitor went out of business in 2009 after filing for bankruptcy, allowed Best buy to let down their guard and believe they were monopolizing the electronic industry. During that time Target and Wal-Mart were focusing on the necessary changes to become fierce competitors in the very profitable electronics industry. My primary focus in this research paper will be on three major topics from the textbook The Strategy and Tactics of Pricing , by Thomas T. Nagle, John E. Hogan, and Joseph Zale; value creation (chapter 2), price and value communication (chapter 4) and Competition (chapter 11). These three topics play a major role in all pricing strategies, not only at Best Buy but in any organization. Strategic Pricing The primary goal of strategic pricing is profitability. “The purpose of strategic pricing is to price more profitably by capturing more value, not necessarily by making more sales” (Nagle 4). Marketers often confuse the two objectives, then mistakenly price products at what consumers are willing to pay as opposed to what the actual product or service is worth. Strategy is defined in the book as, “the coordination of otherwise independent activities to achieve a common objective”, the objective in this case being profitability. Within any

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