Pricing Term Paper

1853 words 8 pages
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
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In Strategic pricing there are four primary variables that drive pricing; cost, customers, competition and shares. For decades, Best Buy operated under a customer- driven pricing policy. Two major problems arise when using customer- driven pricing, 1) customer typically aren’t honest about the price they are actually willing to pay for a product/service, and 2) the role of the sales department is to effectively increase a customer’s willingness to pay to a level which better illustrates the product’s true value.
Value Creation
One way organizations can set themselves apart from the competition is by creating a value that competitors don’t offer or can’t offer at the same level. A value is defined in Webster dictionary as, “a fair return or equivalent in goods, services, or money for something exchanged 2: the monetary worth of something, or 3: relative worth, utility, or importance” ( Value creation is defined on as, “The performance of actions that increase the worth of goods, services or even a business. Many business operators now focus on value creation both in the context of creating better value for customers purchasing its products and services, as well as for shareholders in the business who want to see their stake appreciate in value” (, this seems to be the definition that Best Buy has taken on. Best buy creates value in many ways by offering


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