Strategic Planning Circuit City

Success of Circuit City

        The success of circuit city can be attributed to their concept of strong management, customer service focus and a good merchandising formula which capitalized on innovative electronic consumer products. They created world-class competencies in efficient and effective logistics expertise. Their deployment of sophisticated point-of-sale and inventory tracking technology, IT investments which helped them to connect the flow of information among geographically dispersed stores was the best in the industry. These core competencies allowed them to track customer preferences and enabled them to adapt quickly to changing trends. Added to these competencies, their highly trained sales personnel who provided superior service helped them maintain customer loyalty. Based on these competencies, the “4S business model” – service, selection, savings and satisfaction, was born which were applied to big-ticket consumer electronics with an unmatched degree of consistency throughout the United States (Rothaermel, 2014).

        Circuit City pursued a differentiation strategy during the company’s high-performance run and many of its competitors were unable to replicate the company’s core competencies. The collaboration and carefully connected network was consistent with a culture that allowed the retail kingdom to remain flexible, profitable, and prosperous for two decades (Mehrmann, 2009). Their 4S business model – service, selection, savings and satisfaction where the customer has a choice of a wide variety of merchandise, received 110% back if they found a better deal, 30-day money back guarantee and the customer service of high trained sales professional help the company establish a competitive advantage. Their point-of-sale systems facilitated quick transactions and took care of their inventory (Wells 2005).

Connecting the stores by a carefully constructed nerve center of technology that enabled the consumer electronics retail giant to track loyal customers, identify purchasing trends, and provide world class customer service (Valuable). Circuit City succeeded in expanding a network of stores from coast to coast. A framework of logistics centers supported these stores to minimize freight and inventory which gave the company an advantage for securing and protecting margins on products by reducing overhead and freight (Rare). Highly trained sales personnel who were also well compensated were placed in local stores to provide exceptional customer service (Costly to imitate). As market conditions changed, Circuit City management carefully adapted strategies to accommodate service needs, relying on a network of best-in-class service provider partners to provide professional and courteous customer support (Organized to capture value). This VRIO framework was the backbone of their success through late 1990s (Mehrmann, 2009).

The Downfall

        One of the major decisions that are attributed to the downfall of Circuit City is the layoff of their highest paid sales force from their local stores. This decision was based on the fact that the company was trying to pursue a cost leadership strategy in order to compete in the saturated market. The highest paid employees were the more tenured and experienced ones. These experienced, successful, well paid, and loyal employees were trimmed from Circuit City and quickly became a wealth of talent available for their competitors (Mehrmann 2009). This turned out to be “stuck in the middle” scenario for Circuit City. They neglected to upgrade, and protect their core competencies which the competitors took advantage of. The company’s decision to pursue noncore activities like creating CarMax, a retail chain for used cars and introduction of a proprietary DivX player, which was a huge flop and the attempted merger with Blockbuster lead to further erosion of the company’s competitive advantage (Rothaermel 2014).

        In 2001, the company re-branded itself with a new logo and renewed their commitment to customers, stating, “We’re With You” and continued their differentiation strategy. With customers focused on price, especially with the recession setting in, Circuit city had learned that losing focus on its core business was a huge mistake and changes need to be done. They tried to capture the lost market share by copying their competitor, Best Buy’s cost leadership strategy. They redesigned their floor plan to imitate that of Best Buy. Exiting the appliance market cost them 1,000 jobs and 14 % of their sales (Wells 2005). They pursued ‘B’and ‘C’ type real estate locations which was inferior and inconvenient to customers when compared to Best Buy’s prime locations (Eames 2009).

Recommendations

        Circuit City could have responded to external economic pressures with greater dexterity by adopting flexible organizational adjustments and retaining the competitive advantage of experienced sales personnel. They should have considered all financial implications of strategic decisions, not just the payroll. Keeping the top performing sales people could have helped the company achieve goals and the revenue would have been different, but having the right people on the bus and then deciding where to drive it would have made a difference (Mehrmann 2009).