Introduction & Assignment

Case Background

Executives at electronics retailer Circuit City Inc. considered various options when the company was looking to branch out into other businesses during the 1990s. They comtemplated expansion into sporting goods, auto parts and furniture, but ultimately decided to launch a used car superstore chain after considerable research revealed a high level of consumer dissatisfaction with the car buying process.

Circuit City's senior vice president, Austin Ligon, became the first president and CEO of the company's used car division, the CarMax Group, which debuted in Richmond, Va., in 1993. CarMax aimed to attract consumers with its vast and varried inventory of vehicles and a marketing pitch of a hassle-free shopping. CarMax salespeople weren't going to haggle with customers over pricing, or try to sneak in warranties and extras to inflate customers' costs. The prices displayed on the vehicles at CarMax outlets were the prices that customers would pay out the door. CarMax also offered customers the novelty of one-stop car shopping, as its superstores featured hundreds of cars, trucks and SUVs in dozens of makes and models.

By 1999, CarMax had 30 locations nationwide, and while company sales were approaching $875 million, years of fierce competition from a rival used car superstore chain, AutoNation, had hurt CarMax's standing in the used car retail market. AutoNation, which began doing business in 1996, had copied CarMax's business model so effectively that it had surpassed CarMax as the country's largest used car retailer by 1999. And even though AutoNation exited the used car business to focus on its new car franchises in 1999, CarMax continued to grapple with dwindling profitability - the cumulative effect of its battle with AutoNation and the ongoing internal business issues that beleaguered the company. In the early 2000s, CarMax executives began devising a restructuring plan to help the company take charge of operations and regain its financial footing.

Company website: http://www.carmax.com/

The Assignment

Readings

1. CarMax SOM online case study

2. "A Note on the Competitor Perspective," Sharon Oster and Joel Podolny, Sept. 26, 2007. (Document located under the Concepts & Findings tab).

Questions

1. What sort of consumer prefers CarMax to a traditional dealership?

2. Can CarMax increase the size of this segment(s) of consumers?

3. Can CarMax alter its product (either entirely, or by tailoring some aspect of it) to make it appealing to those outside the segment(s) you identified above?

4. Other than consumer preference for its format, what are CarMax's competitive advantages over traditional franchise dealers?

Website written and compiled by Allison Mitkowski, Case Writer, and Jaan Elias, Director of Case Study Research, Yale School of Management. Case development by Allison Mitkowski; Jaan Elias; Fiona Scott Morton, Professor of Economics and Associate Dean for Faculty Development; and Joel Podolny, Dean of the Yale School of Management.