Three Ways to Save Best Buy

by Matthew Kuo on February 22, 2013

in Class Notes

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BestBuy

Best Buy recently launched a new online price matching policy, in what appears to be a last ditch effort to save the retailer’s business from Amazon.  The retailer is finally addressing the issue of “showrooming,” which is the practice of playing with products at Best Buy and then buying it from Amazon at a lower price. However, most people are still skeptical about this tactic because it can potentially squeeze Best Buy’s margins even further.

Below are three other potential approaches to saving Best Buy’s business, presented by Professor Terech in our Sales and Channel Management course.

1.  Change the Target Segment

Best Buy was originally started as a high end audio store called Sound of Music.  Best Buy could revert to its high fidelity audio roots and reinvent itself as a chain of Magnolia stores.  Within this smaller industry, it’s much easier to build exclusive supplier relationships, thus potentially allowing Best Buy to box out Amazon’s price cutting interference.

Key Challenge – This approach would require significant downsizing on Best Buy’s part, as the demand for high fidelity audio is much smaller than general consumer electronics.  While Best Buy can clearly lead in this field and preclude Amazon’s involvement, Best Buy’s shareholders likely wouldn’t appreciate the idea of owning a significantly smaller business.

2.  Charge Manufacturers for Showrooming

Manufacturers benefit from showrooming regardless of which channel the consumer chooses to buy the product through.  It would make sense then for Best Buy to charge manufacturers a fee for providing this service.  Theoretically, products that are displayed in showrooms will sell better than those that aren’t, so manufacturers should value this service.

Key Challenge – Charging a service fee will almost certainly cause some manufacturers to end their contract with the retailer.  This would reduce the overall product selection and make Best Buy stores less attractive to consumers.  Additionally, if manufacturers have to pay to have their products displayed anyway, they may just decide to vertically integrate and open their own retail stores, similar to what Apple has done.

3.  Charge a Membership Fee

If Best Buy can create a retail experience worth paying for, they could potentially charge customers for the right to enter the company’s stores and play with high end consumer electronics products.  Instead of passing on the cost of showrooming to the manufacturer, this expense is now passed on to the consumer.  Best Buy has been piloting concept stores called “Escape” which could serve as an outlet for this program.  This approach would be similar to the Costco model except without the volume discounts.

Key Challenge – The Costco model works because of both its bulk discounts and heavy return traffic.  Best Buy’s consumer electronics offering simply doesn’t encourage the same amount of return traffic as Costco’s more diverse product array.  This will make it hard to justify a monthly or yearly membership.

BB Escape

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