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Best Buy (BBY) is making its price-matching guarantee, initially a holiday season promotion,...

Best Buy (BBY) is making its price-matching guarantee, initially a holiday season promotion, permanent. Starting on March 3, the company will match the prices of "all local retail competitors and 19 major online competitors in all product categories." The glass-half-full view: Best Buy will cut down on showrooming, rob online rivals of a major selling point, and change consumer perceptions. The glass-half-empty view: Best Buy can't afford to do this, given the extra overhead it has, and those who shop online on account of its convenience won't change their habits.
Comments (25)
  • Paulo Santos
    , contributor
    Comments (20449) | Send Message
     
    "and those who shop online on account of its convenience won't change their habits"

     

    The point is that price matching eliminates showrooming. It's impossible to argue that it's "more convenient" to order online if one is already at the store looking at the product.
    17 Feb 2013, 06:55 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (853) | Send Message
     
    Paolo, the point is that there's a large subset of consumers who shop online in the name of convenience -as well as- pricing. Best Buy (and other offline retailers) isn't getting those customers back, at least not through price-matching.
    17 Feb 2013, 07:59 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (20449) | Send Message
     
    Yes, but BBY is trying foremost to combat the showrooming effect. Regarding those customers the convenience argument can't be made (they're already at the store or it wouldn't be showrooming), and price matching really ought to work.
    17 Feb 2013, 08:06 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (853) | Send Message
     
    I think we're splitting hairs. Bottom line is price-matching helps with some online shoppers, not with others.
    17 Feb 2013, 10:04 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (20449) | Send Message
     
    Perhaps, but BBY did state that the objective of this move was to combat showrooming. And in that regard the move should work - what incentive would someone have to "showroom", and then order online at the same price and with the hassle of still having to take delivery (and wait for it)?
    17 Feb 2013, 10:25 PM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    " combat the showrooming effect."

     

    Another BBY problem is its Geek Squad after sales service program is shoddy and can't deliver the excellence paid for, Six year of continual pain.
    17 Feb 2013, 10:32 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (853) | Send Message
     
    Yep. Now they need to make an announcement to win over those who like the convenience of shopping from home, and don't feel the need to try a particular item out in a store. Only way to do that is to have BBY's prices (both online and offline) match the competition's from the start, no price-matching needed. Which will lead to further margin pressure.
    17 Feb 2013, 10:34 PM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    the reason Dell had to come up with a new model after its vaunted online sales strategy threw it from #1-#3, was because corporate saw no reason to upgrade its PCs 2005-07.

     

    So the sales thrust was changing from desktop PCs to notebooks. And those customers wanted instant gratification from playing with it to bringing it home spontaneously.

     

    That is another reason Dell kiosks didn't work ordering still needed to be shipped from Austin.
    17 Feb 2013, 10:43 PM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    that is also why all my Windows PCs were bought at bricks and mortar shops because you don't know what you are going to get.

     

    Whereas my Apple PC and 15 iPod touches were all bought online.

     

    The importance of excellent and convenient after sales service.
    17 Feb 2013, 10:46 PM Reply Like
  • benitus
    , contributor
    Comments (1962) | Send Message
     
    Paulo...I agree fully with you. It doesn't make sense to go home and place an online order for something that you've just seen at the store, especially when you can buy it there and then. The problem is the buyer isn't sure if that's the lowest or best price possible, until they actually check the prices online, and once they're at home to confirm the price, which may be the same or lower than BBY, they would be stupid to go out again to BBY and make the purchase when they can do it online there and then, unless they need the product urgently or they're afraid the product might be delivered wrongly or damaged if purchased online, in which case, they'll have reason to go back to BBY and ask for price-matching. The possible exception nowadays is that those with smart phones can check the online prices on the spot without having to go home but the number won't be much,

     

    For those who've seen the product online and know the price, then there's no question that they'll go out and buy it from BBY, since they can get it at the same price, have it immediately (instead of waiting a week or more), ensure it's the right item and not damaged, while having the convenience to return it to the store if they don't like what they bought without having to incur shipping charges. That is a surefire win for BBY and will kill the online retailers, which is what BBY is banking on with their new and bold strategy.

     

    I'm sure that BBY has spent several months for analysts to figure out every possible scenario (which may be more extensive than I described), so they know it can be done, viz. keep the business from their competitors and starve them out, and they must have the resources to take the hits to their bottomline. The only consolation is that everybody else will also be taking the hits, if they try to beat BBY by doing the same, i.e. BBY must be able to outlast the competition.

     

    On the other hand, BBY's competitors are equally smart at what they do, so what will likely happen is that none of their real competition will do anything to follow BBY's tactic, to avoid suicide, and instead, they'll rely on customer loyalty to continue generating business, which has worked for them thus far, and hoepfully, let BBY bleed themselves to death.

     

    Many businesses sell their products at higher prices than the market and they remain profitable because not everyone will look for the cheapest prices. If buyers want something, they'll go to their favorite store or online retailer to get what they need, instead of wasting time and energy looking for the best deal. Most Amercians are too smart for that and only Asians will assuage their egos by looking for better prices before they make any purchases, unless they're fully "americanised" (for want of a better word). From my guesstimate, only 20% of buyers on average will do that, but even if all the incentives are there to entice them to look for a better price, less than 50% of consumers would do that, which includes those who enjoy fighting for bargains.

     

    One simple example is the prices at gas stations. Many of them are priced at 5% to 15% higher than the cheapest gas available at any time and yet, their businesses are thriving, so it doesn't mean that the competition will lose business simply because we're selling cheaper than the rest. Most consumers look for convenience and service, i.e. if they get that at BBY, they'll switch to buying from BBY.
    18 Feb 2013, 08:14 AM Reply Like
  • benitus
    , contributor
    Comments (1962) | Send Message
     
    It appears that I was timed out before I could finish editing the last paragraph (lost a lot of good points), so I'll start with the last sentence.

     

    Most customers look for convenience and service, i.e. if they can get that at BBY, they'll switich to BBY. My belief is that BBY will not be pricing their products to beat the competition but simply publicise (in your face) strongly the fact that they match all prices, so that they will capture the smart buyers from their competitiors and make a killing from those who don't bother.

     

    But BBY must ensure that they provide the best customer service possible for this strategy to work, especially to have enough staff available to answer questions from their customers (I used to tell my employees that, anyone who walks into our stores is our customer, and if he or she walks out without buying anything, we have lost their business, not just that particular day but maybe, some future business as well). I often hate shopping at BBY because I've got to hunt for assistance all the time and that's one reason why BBY has been losing businesses, not just from cheaper prices.

     

    It would be a mistake if we rush and buy this stock as we might get burned because the price has been going up too fast and too much lately, so profit-takers are just waiting like vultures to swoop in and make a killing off the "fools" who rush in (maybe, they've already got information that the news will be out, so they push up the prices before others come in). For me, I will definitely short this stock, as what has gone up quickly will come down just as fast. The only question is whether to wait for it to move up first until it runs out of steam or to short it now. Even if I'm wrong and the price continues to zoom upwards, the profit-takers will still be out there (unless demand exceeds the profit-takers) and the price will surely drop, probably sooner than later.

     

    That's my take but hey, what do I know - just an idiot spouting off early in the morning to feel good, so buyers beware and look before you leap.
    18 Feb 2013, 09:00 AM Reply Like
  • benitus
    , contributor
    Comments (1962) | Send Message
     
    Yes, Sam. I agree with you. The Geek Squad is a deadweight, that must be disposed of, because they charge too much for not doing enough. Fry's used to do that, charging an arm and a leg, but now, their prices for service has come down to acceptable levels (still not enough for me, though) for most people. They don't provide this service as a revenue source but to encourage customers to buy confidently at Fry's. So, BBY must improve the services AND the prices charged by the Geek Squad, or get rid of it altogether, since nobody likes to feel stupid at being conned to pay for nothing.
    18 Feb 2013, 09:10 AM Reply Like
  • lpcongas99
    , contributor
    Comments (129) | Send Message
     
    "Best Buy can't afford to do this"
    i hear ya. but they probably can't afford "not" to do this either.....if they don't do it, amazon will put them out of business in maybe 3 years.

     

    I hope you folks dont mind some fundamental analysis from a below avg SA guy.
    I have never seen negative press on amzn like i have read in the last month or so. be it the story about the warehouse somewhere in europe(germany?) or the one(not so negative) in UK..Now that they are building out their warehouses, we are starting to read/hear negative articles about working conditions within amazon. kind of reminds me of all the NY Times among other negative working condition articles on Apple Foxconn plant.........do i smell an Amazon short coming up? Paulo! where are you my brilliant friend?
    Smelling an amazon short position in the making..............and hoping i don't end up gutted, bones eaten an barely a trace leftover of DNA with all those(so called) bond vigiliantes
    17 Feb 2013, 07:02 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (853) | Send Message
     
    Agree. Desperate times call for desperate measures. Some combo of price-matching, lower overhead, and a greater emphasis on value-added services and used/refurbished items (the kind of stuff consumers want to try in person before buying) might be the only way out.
    17 Feb 2013, 08:03 PM Reply Like
  • benitus
    , contributor
    Comments (1962) | Send Message
     
    One good thing that BBY has done was to develop an online auction site for those returned items, which minimises their losses and cut their costs, e.g. save the trouble of returning them to vendors (so as to get a better margin), reduce storage and handling issues, and provide competition for online retailers. I've got some very good deals from their auctions, which can be picked up from their stores of your choice, so that we can inspect and reject the items if unacceptable.
    18 Feb 2013, 09:16 AM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    now i have to moan about cowboom.com

     

    1st they send me the wrong smartphone, then when I do get the right one there is the huge postal cost to mail it in because it does not work.

     

    And from my experience with the Geek Squad it is not necessary they will even get it right even if I tell them what is wrong.
    18 Feb 2013, 09:38 AM Reply Like
  • SoldHigh
    , contributor
    Comments (1013) | Send Message
     
    Circuit City part II.

     

    Only debate is the path to this end.
    17 Feb 2013, 07:10 PM Reply Like
  • lpcongas99
    , contributor
    Comments (129) | Send Message
     
    agreed.i am thinking of changing my moniker to soldlow
    17 Feb 2013, 07:17 PM Reply Like
  • Damu
    , contributor
    Comments (11) | Send Message
     
    How about the tax portion, which consumers don't pay when they purchase something through amazon?
    17 Feb 2013, 07:10 PM Reply Like
  • losbronces
    , contributor
    Comments (701) | Send Message
     
    That is just about gone now. Sales taxes will be collected even for on-line sales.
    17 Feb 2013, 07:32 PM Reply Like
  • JohnBinTN
    , contributor
    Comments (3810) | Send Message
     
    People are legally responsible to pay that tax. I'm sure everyone does... Who wouldn't do their part to support the government?
    17 Feb 2013, 07:51 PM Reply Like
  • patdawg
    , contributor
    Comments (5) | Send Message
     
    The tax-exempt freebie is going away soon, too. All of the states are jumping on the 'lost tax revenue' bandwagon. Just a matter of time....
    17 Feb 2013, 08:38 PM Reply Like
  • Richy Schultz
    , contributor
    Comments (4) | Send Message
     
    Bought 1,000 shares of Best Buy at 11.50 a few weeks ago. I laugh at your negative opinions as I watch the stock's continual climb. They have a new talented CEO and they're making positive changes. You can go see your product in person, take it home and wait for a Best Buy tech to come to the house mount it and set-up your sound system. And what competition does Best Buy have....virtual none that provide these conveniences?
    17 Feb 2013, 08:39 PM Reply Like
  • oxcelovel
    , contributor
    Comments (2) | Send Message
     
    you' right
    First target 18-18.6 then 25-28 if the main shareholder will make next attempts to buy the company
    18 Feb 2013, 06:18 AM Reply Like
  • krk
    , contributor
    Comments (826) | Send Message
     
    I think the timing of BBY & TGT resorting to price-matching is tied to the coming sunset of the sales-tax loophole. Amazon deftly used the loophole to become the price king as B&M could not price compete net of taxes without taking a loss while Amazon very well could although with skimpy $$ profits. Now that the loophole has been closed in many states and is likely to happen nationwide soon, the survivors are in a position to employ price matching to effectively push back, but the bruising loss of market share during all these years of unfair competition will be hard to reverse.

     

    I don't think there is a high enough cost advantage among the major players to wage a “profitable” price war with the goal of driving the competition out of business. Once a status-quo of “market share stasis” is reached in at least one major revenue segment like Electronics where price-comparison is easy and practiced, it will manifests as everyone’s revenue growth in line with market growth and this might lead to a reassessment of Amazon as the unstoppable juggernaut sucking up all and every feckless B&M’s revenues.

     

    One unintended consequence of price-matching might be its degeneration into a tacit price-fixing arrangement among the major players to the detriment of consumers. And with price-fixing shall arrive profitably all around and as long as Amazon can hang on to its market share it might at last become a decent for-profit enterprise.
    18 Feb 2013, 12:22 AM Reply Like
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