Best Buy Brand Exits China
A problem of differentiation and relevance
Best Buy, one of the most popular and widespread electronic retailers in the world, is closing their branded shops in China to cultivate the growth of a Chinese chain they own, Five Star. Best Buy is one of several foreign brands that have recently decided to utilize a local subbrand in China, as was also seen with Levi’s dENiZen and KFC’s East Dawning. Best Buy closing its doors to focus on Five Star reveals the newfound power of local brands and foreshadows challenges that will be faced by many foreign brands in China in the years to come. A brand can no longer rely on its foreignness alone to stand out in China’s competitive marketplace.
Best Buy was a new-comer in an extremely competitive and cheap electronic goods market, entering only in 2006. The store was at a competitive disadvantage against powerful and established brands like Suning Appliance Co. and Gome Electrical Appliances that have high brand awareness and are easily accessible as well as affordable. For foreign brands such as Best Buy to build their brands in China, they must clearly differentiate themselves from local players by offering something highly unique and attractive to their target consumers. It seems Best Buy was unable to do this.
Best Buy may also have suffered from a lack of brand relevance. Relevance has to do with what the brand does for the consumer, how appropriate it is for them. Based on consumer comments, it seems Best Buy pricing was high, and their locations fairly sparse. They did little communication activities, all contributing to a lack of brand relevance in the eyes of consumers.
Although branding mistakes were made, Best Buy now has a second chance at success through the third largest electronics company in China, Five Star, that they acquired. Five Star has a stronger foothold in the Chinese market and are planning to open forty to fifty stores in the next few years throughout China. But just because Five Star is local doesn’t guarantee it success, this brand too will have to demonstrate its differentiation and relevance in a competitive marketplace to effectively build its brand equity.