Consider the case of consumer electronics and the experiences ofCircuit City and Best Buy. Circuit City had traditionally used acommission pay plan that paid off big for experienced,high-performing salespeople. Top salespeople knew the products andkept up to date and customers knew that they could get expertadvice at Circuit City. The strategy differentiated Circuit Cityfrom archrival Best Buy, which featured self-service stores withhuge inventories, but less expert salespeople. Best Buy hiredyoung, less-experienced people and offered lower wages and smallerbonuses. However, Best Buy’s sales and total shareholder returnssoared past those of Circuit City. Subsequently, Circuit City laidoff 3,900 top-earning salespeople in 2003 and replaced them with2,100 less-experienced people who received lower wages and smallerbonuses. Circuit City said it could no longer afford to pay bigcommissions to its sales staff while its rivals paid less. In2007, Circuit City fired 3,400 of its highest-paid store employeesand began to replace them with lower-paid workers in hopes ofreducing labor costs. In the following quarter, Circuit Cityreported that the company lost money. Some commentators attributedthe loss to the fact that Circuit City had gotten rid of many ofits most experienced and highly trained employees, which theybelieved translated into a poorer customer experience and, in turn,lower revenues and profits. For example, according toBusinessWeek, “In the world of pricey consumer electronics, wherecustomer service is arguably as important as quality products,Circuit City Stores is missing the mark and further eroding itsprofits.” However, a company spokesman said that only a fewsalespeople per store were affected by the workforce reductions andthat many of the employees affected worked as customer servicerepresentatives or in the warehouses. As such, he questionedwhether the cuts had significantly affected the in-store customerexperience and thus whether the cuts had caused the decline in thecompany’s performance. Eventually, the bottom fell out of CircuitCity’s profits and stock price and it had to liquidate, closing itsover 500 stores (resulting in over 30,000 employees losing theirjobs). Now consider the next part of the story. Best Buyitself subsequently sought to further cut its own labor costs byessentially demoting 8,000 senior sales associates to positionsthat could pay half as much. A question was whether the Best Buypay-level cuts would have the same consequences as what one persondescribed as the “disastrous personnel moves” made at Circuit Cityjust a few years ago. Apparently, Best Buy did not see it that way.Subsequently, Best Buy announced that it would close 50 stores andalso cut 400 corporate jobs in an effort to cut $800 million incosts. Why is Best Buy aggressively cutting costs? USA Today statedthat Best Buy “is trying to avoid the fate of Circuit City,which went out of business in 2009. It faces slower sales ofexpensive items like TVs, plus increased competition fromAmazon.com and discount stores such as Walmart and Target.Employment at the headquarters has been an ongoing target and isnow around 5,000 employees, down from its peak of 9,000 in themid-2000s. After those cuts, store closings, and pay cuts, Best Buynext (in 2014) cut employment by around 2,000 in its stores andregional offices. However, the cuts are being made in a way thatBest Buy hopes will minimize any negative impact on the customerexperience. Most of the cuts target middle managers, many of whomhave six-figure salaries and who supervise product categories atmore than a dozen stores each. That will leave fewer middlemanagers (spread more thinly across more stores) and give moreresponsibility to the store managers who will now have the “fullability to run their (respective) stores.” The cuts, which targetregional offices rather than stores and employees who directly helpshoppers, are intended to minimize the impact on customer serviceinside stores, while helping Best Buy continue to lower costs as itcontinues to successfully compete on price (and service) againstAmazon, Walmart, Target, and others with low cost structures.

Answer the following questions. Thanks!

a. Evaluate whether the replacement of highly paid workers withlower-paid workers did or did not cause Circuit City to perform sopoorly. How confident are you in your evaluation? Why?
b. Do you believe that the compensation changes at Best Buy are amajor reason for its current difficulties?
c. Why are Walmart, Sam’s Club, and Costco doing better than BestBuy (and Circuit City)? Do they have high pay?
d. Are there larger problems in the competitive landscape for BestBuy that cannot be solved by compensation strategy changes alone?When customers look to buy electronics, what options do they haveother than Best Buy and why would they choose these options overBest Buy? Where do customers “test drive” the product and where dothey buy it? Can compensation changes address these challenges?Explain in detail
e. Is Best Buy focusing too much or too little on cost reduction?Explain in detail.