So What?
In 1966, a company was founded by the name of ‘Sound of Music’. After acquiring several companies and going public, the company was rebranded in 1983 as Best Buy Co. In 1983 Best Buy opened it’s first ‘superstore’ with features that are now standard in the retail environment including expanded selling space, discounted brand name goods, and warehouse distribution.
Best Buy landed on the New York Stock Exchange in 1985 and in 1992 Best Buy hit the $1
billion mark in annual revenues. Best Buy has seemingly been ahead of the curve since it’s founding. Things like being the first to sell DVD hardware and software and being the first to officially exit the analog television market. In 2000, Best Buy was one of the first to enter the online retailing business for consumer electronics and launched BestBuy.com.
A full year after this multi-billion dollar company known as Best Buy entered the online retail space, a small company called Newegg was founded and entered the online consumer electronics retail space. It took Newegg just 4 years to break the $1 billion mark, officially having sales of over $1.3 billion in 2005. By 2008, just 3 years after hitting the $1 billion mark, newegg had sales over $2.1 billion and had officially filed for an IPO.
Quite the Experience
As I mentioned before, you’ll grow tired of hearing from Dr. Greene and Dr. Lewandowski in the coming weeks. It’s a safe bet that at some point in any of Dr. Greene’s graduate level business classes, he will ask the question, ‘So What?’ Whether he be answering himself in a lecture or responding to a students answer to one of his questions, you will hear these words echoed week to week.
I had an eye opening experience a few weeks ago. For the majority of my life, Best Buy has been one of the elite companies in my mind. If I needed something electronic that is non-Mac, I’m going to Best Buy. No questions asked. For at least a year I’ve been wanting to get a Flip camera. You have to understand that outside of going to graduate school, working, and writing… I work and write some more. I am one of many people who run and manage a blog about collectible games, found here. Several times a year we make it out to conventions and every time we go I’m wishing I had a pocket-sized camera. There are also plenty of opportunities to provide video content to our readers when we are playing in the office, etc.
You can imagine that after going to classes, working, writing, and doing it over and over, there are times when words are just hard to find. In these instances, it’s so much easier to visually show the readers what I’m trying to get across. While I’m not spotlighting Flip in this article, you can bet I will be in the future. They found a gap and have filled it excellently.
Anyways, back to the story. I’ve wanted a flip for a very long time. When I first seriously decided I was going to get one about a month ago, I started really doing my research. I decided I would try out the Flip Ultra HD and so one morning on my way into work I stopped at Best Buy to pick one up.
I was looking at the camera’s and was shocked to see that they had the 2 hour model priced at $199 (I had seen it everyone online from $139-$149). I told the employee showing me the camera that there was no way I was paying $199. He said, let’s go look it up online and see what the price is.
We went over to his computer and he went to some of Best Buy’s major competitors websites. Ironically, his computer was terribly slow. We can talk about that later. Anyways, after looking at a few other sites and ‘proving’ that none of the competitors were selling it for less that $199, I responded by asking why he didn’t look at NewEgg’s price. Or what about amazon?
He looked at me and said, ‘Oh. It’s because they are online only. They aren’t really our competitors so we don’t price match unless they have a store’. I stood there for a second and let the silence fill the air. I’m thinking… they aren’t your competitors! Are you serious? Then I politely responded, ‘Ok, I’ll just go buy it from your non-competitors’.
Later that day I did some more research and by that night, had decided to buy the Flip Mino HD (normally $239) at NewEgg.com for $175. I made the purchase that evening. The next day I got an email confirming that the order had shipped. Two days later as I was walking out the door for class, a guy was standing there with a box. I sign something and he hands me the box with a smile.
I paid $25 less, for a camera that is far superior to the one I wanted to buy originally which would have cost me $199. So what?
The Double Dip
Brick and Mortar stores who have a price matching policy and refuse to price match online retailers are a bit silly. Their argument breaks down like this: There should be a higher cost associated with having products right now and not having to wait for it to be shipped, because brick and mortar stores have to bear the cost of the brick and mortar.
Yet you will never hear the very same retailers making this argument mention the sales they benefit from because they can offer their customers the benefit of not waiting for a product to be shipped. Nor will they mention the increased likelihood of purchases due to the consumer being able to use, touch, and feel the products that they are selling.
These retailers are using this pity argument to raise prices and get the benefit of having increased sales due to physical locations. They are double dipping. They are getting two benefits from the same cost and what does the consumer get? They only get one dip. They get the product now and they pay more for it. This is fine, actually. If you want to pay more to have it now, as a consumer, that is your choice.
Sadly, a savvy consumer can really put the hurt on these brick and mortar stores. If you really did have to have it now, you could purchase it from Best Buy and NewEgg (or any other online retailer) on the same day. Use the Best Buy version for a few days. Once you get the online one in you could take the original back. While I’m not suggesting this type of behavior, it is something that their policies and rules (along with the law) currently allow.
Know Your Competition
The issue here isn’t that I mind paying extra to have the ability to go pick up a camera right now. The issue is in the fact that somehow Best Buy has no clue who their competitors are. They understand that companies like Amazon or NewEgg are eating at their sales and refuse to answer. They aren’t competing like it’s life or death… and it is.
Every day shipping technology gets better and online companies grow stronger. Due to evenly spaced warehousing throughout the United States, Amazon is now offering an $80 a year membership that gets you overnight shipping for $3.99 on anything. Assuming that the markup at Best Buy is only 20%, 
if you spend at least $400 a year at the retail level for anything you could get at Amazon, you break even on the $80. If you spend even $1 more than that you are better off.
If programs like this continue to be implemented by these ever-growing online companies and Best Buy doesn’t wake up and realize what they are really competing with, we’ll be a world without Best Buy’s in the not-so-distant future.
Zach
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Great insight. I ran into a similar problem with Lowe’s this summer. I was wanting to buy this nice grill, well they were asking about about $300 dollars for it. Well, I knew they had a matching plus 10% discount if you could find it for less. So, I went to Academy to see if they sold it. They did for $50 less. So, I went back to Lowe’s and told them about Academy’s price. They called to confirm the price and informed me they would match it. I asked about the extra 10% and they told me that Academy was not a competitor. I was confused because obviously Academy IS a competitor. I went ahead and bought it at Lowe’s only because Academy was out of stock.
Some business just don’t understand who their competitor’s truly are.
A very interesting read. I was actually talking with some friends last night about places that refuse to negotiate on the price. It’s unfortunate that brick and mortars refuse to acknowledge that though their online counterparts may not be competitors by some strict definition, they will be put out of business by these non-competitors sooner or later if they don’t wake up.
And I think there is yet another double edged sword in Best Buy’s business model. By having stock on display locally, especially items like TVs, the consumer not only gets to see what they are buying and compare directly with other models they also have the ability to return the item easily to the store should it be defective. Again, with a large TV this is a bit of a hassle with online retailers.
But, on the flip side, Best Buy is offering a free compare/contrast service for customers who then buy items cheaper online. And assuming that if the TV makes it through the shipping process from Newegg, the chances of it needing to be returned for defects are probably fairly low. That fact may overrule the safety net of having a local brick and mortar for product returns.
I have to admit, I looked at Newegg when I was looking for a new TV. But I don’t trust UPS with large deliveries after experiencing several incidents of damaged goods over the past few years. I ended up buying from a local electronics shop, not Best Buy. However I wouldn’t even consider buying computer components (or an entire system for that matter) from Best Buy, Newegg gets my dollar every time.
Couple points here: Unless you live in a select few states, including those where Newegg has warehouses (CA, TN, and NJ), you didn’t pay sales tax on your camera, thus saving you more than $25. At the same time, Newegg charges a restocking fee for returns on the vast majority of items it sells regardless of whether it was opened or not. On top of that, you also would have to pay return shipping costs. If you needed to send back your camera, you would lose $26.25 in restocking fees as well as another $10-15 for shipping. Yes, Best Buy also has restocking fees, but it does not impose them on as many items.
Also, you seem very dismissive of “the cost of the brick and mortar” of retail stores. There’s a lot more to overhead than that. You have factors such as: rent, electricity, shelves, security systems, and perhaps most costly: employees. Sure, online retailers have those systems as well, but you’re talking about a handful of warehouse locations around the country, while Best Buy probably has more stores in southern California than Newegg and Amazon have distribution centers around the country. It all adds up pretty fast.
Don’t get me wrong, you’re absolutely correct about savvy consumers being able to save more by buying online. I’m a member of Amazon Prime myself and absolutely love it, and I’ve probably spent close to $10,000 buying from Newegg over the last 5-6 years. I’m just saying that you’ve oversimplifying a bit.
Amazing! Simply put. Hopefully my comments don’t end up being the length of a typical post, however some important issues JUMPED OUT at me. First of all, this is another perfect case of “customer disservice” as famously quoted by financial planner Clark Howard. Yes, it’s an issue to me that Best Buy refused to price match (as my favorite store in the world, even more so now that they have Apple stores inside of them, I have become used to this issue) however, it’s not the bigger issue.
If we use the “So What” question Zach posed earlier, we can dig deeper into the real problem, which in my mind is a management decision. Why has upper management not given floor level sales employees the right to do a simple task such as override a normal policy in a case such as Zach’s? Best Buy does discount big purchase packages. For example, if you purchase a new $2,000 LED TV, a 300 Monster power supply, $50 HDMI cable, and whatever else, there’s a good chance that if you ask, the employee will discount a fair amount of the total. But why not on an Flip camera?
The obvious answer here is margin. They make way more profit on the TV package purchase than one measly camera. Or do they? Many of us know the principal of 80% of a company’s business comes from 20% of its customers. And while this may not always be true, I’m willing to bet Best Buy’s percentage is right around there. So a repeat customer is way more valuable than a new one. So if a dissatisfied customer such as Zach decides to not shop there anymore, they may have lost a lot more than a one time purchase. Also on the subject of margin, I’m pretty sure Best Buy isn’t going to sell out of every single Flip camera, trust me. So if they would have price matched Newegg, they probably still would have made a profit, even if it was only a few dollars, which is much better than zero dollars.
Fhew almost done I promise… The final area I’d like to comment on is that fact that Best Buy said that online only retailers were “non-competitors.” In my mind, this is not an actual term. I began to understand this a few weeks ago after reading “Why We Buy: The Science of Shopping” by Paco Underhill (great book I might add – Thanks Dr. Greene). Anyways, the basic foundation for this idea is based on the fact that every company competes with every other company because of a customer’s time and money. Maybe a customer has in mind that they either want a new pair of shoes or a Flip camera. After much consideration, they decide to go with the shoes. Well, Best Buy just lost a sale to Journey’s, a “non-competitor.” This close-minded thinking must end, or like Zach said, Brick and Mortar stores will continue to lose.