'Worst Buy': A Revenue Problem

May.21.13 | About: Best Buy (BBY)

Best Buy (NYSE: BBY) reported this morning; here's the short version:

THE CONTEXT: Its adjusted earnings beat Wall Street expectations, but revenue fell short as the company faced tough pricing competition during the quarter. The company has been working on a turnaround plan as it faces increased competition from online retailers and discount stores.

Uh, revenues fell short?

Remember, the issue is that the firm extended its "price match" guarantee against online retailers (read: Amazon) in the quarter.

Revenue was off 10%, which shouldn't be happening if the company's price-match was actually doing what it expects, which is to entice people to buy locally rather than over the Internet.

This strongly implies that either it is not really price-matching in a form and fashion that consumers are willing to deal with or the stores suck, the retail experience sucks, and thus the customers are buying online even though it's not cheaper.

There are plenty of firms that will "price-match" if you catch them with a higher price than someone else. That sort of policy runs the risk of leaving a bad taste in the consumer's mouth if it happens all the time. What this says to the customer is that you believe they're a sucker in that you'll post a much higher price but take less if and only if challenged.

Some people think that's just fine, but others will think back about all the previous times they were in your store and presume you robbed them during those previous visits. If that's the take-away they get from your policy there is a very real risk they simply turn around and walk out.

The message being sent is similar to instructing your cashiers to short everyone who pays with cash by $5 in their change, but to immediately fork the $5 over if challenged. The first time I catch you and you immediately give me the remaining $5 I am going to think about the previous times I was in your store and wonder exactly how many of those times you stole $5 from me and got away with it. Think about it.....

It is my premise that treating customers like sheep to be shorn while deferring the shears if someone squawks is exactly the wrong thing to do and risks a severe and fatal customer backlash. You may get away with it with some percentage of the customers, maybe even most of them, but anyone who is offended by that sort of tactic is unlikely to come back and shop in your store again.

In any event, with revenues down 10%, what the company is doing is objectively not working.