Want Profits? Avoid Best Buy’s Example as Low-Price Leader



Best Buy provides lessons for small business. In adversity, there are two things a company must be hesitant to do: Cut marketing and human resources. Best Buy is a troubled company. Yet in 2014, it cut its marketing budget 26 percent, including its TV advertising budget 69 percent. 

Some of it’s challenges stem from unfair Internet competition, and again it felt compelled to match the prices of online competitors in the 2013 holiday selling season. That’s not good for a company that has brick-and-mortar sales expenses.

Once you start focusing on being the low-priced leader, you’ll stay there. Or worse, you’ll go out of business. In other ways, the company has caused its own problems.

Best Buy’s net income is down, and got a new CEO who is determined to cut expenses. The old CEO resigned his position and left the board in the wake of the discounter’s financial problems. Then, he engineered a plan to buy Best Buy, but to no avail.

You might recall in 2012 Best Buy tried to lower its expenses by $800 million by 2015 in closing 50 of its superstores and by laying off 400 employees. Instead, it will focus on 100 new smaller stores to sell mobile products.

“In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance,” said Brian J. Dunn, CEO of Best Buy, in announcing the cutbacks before he resigned.

“As part of our multi-channel strategy, we intend to strengthen our portfolio of store formats and footprints – closing some big box stores, modifying others to our enhanced Connected Store format, and adding Best Buy Mobile stand-alone locations – all to provide a better shopping environment for our customers across multiple channels while increasing points of presence, and to improve performance and profitability,” he added.

Whew, that’s a mouthful. It appears to be an attempt to create a smokescreen about its business-model issues. 

True, Best Buy has been hurt somewhat by the Internet, especially Amazon.com. The consumer practice of “showrooming” has been devastating. Consumers visit retailers like Best Buy to check out products, but then go online to buy at the cheapest price.

Best Buy is also hurt by the manufacturers. If you buy a product at Best Buy and register a purchase, you’ll be inundated via e-mail by the manufacturer. It seems almost daily – manufacturers the likes of Lenovo and Hewlett-Packard are trying to sell products to consumers directly. 

However, most purchasers want a test drive before they buy a new tech product. Though not known for selling the newest products, Costco makes it work by creating trust with great customer-service policies. Costco also has a better clientele — small businesspeople and high net-worth shoppers. Most are unlikely to pull the showrooming nonsense.

Poor business model

Historically, no company has ever been profitable solely by trying to sell electronics products at the lowest price. It simply isn’t a viable business model. Actually, it doesn’t work in any sector.

For a sustainable business model, customers have to perceive sufficient value.

When shoppers enter Best Buy stores, they perceive that too many employees only want to sell products, and not provide a service.  But Best Buy really needs to invigorate sales with 11 customer retention, referral strategies. 

Further from my perspective in the Pacific Northwest, here are my observations after shopping at Best Buy stores: 

  1. Failure to deliver with mediocre prices
  2. Poorly dressed salespeople
  3. Inconsistent product knowledge among salespeople, and some knew less than I did
  4. Some salespeople were condescending and rude (in particular – Springfield, OR)

Clearly, customer service and sales training are in order. The latter three reasons are enough to drive customers elsewhere. It’s important to get strong results from an HR training investment.

Also, it’s important to understand why people will buy from you – remember it’s always an emotional decision.

Admittedly, about 18 percent of customers – blue-collar and professionals, alike – will only buy if you’re selling at the cheapest price in the marketplace. That’s also helped cause the annoying consumer practice of showrooming.

Assuming you’re selling products of value, avoid those people. They are the most troublesome.

Even if they buy, they’re more likely to show up the next day demanding to return their purchase. Even if they keep the purchase, they complain the loudest and longest.

Focus on people who are motivated by price and value.

For them, here are the five value perceptions of what your customers sub-consciously think in motivating them to buy from you:

Employees, Spokespersons – 52 percent. The key characteristics are integrity, judgment, friendliness and knowledge. Remember, about 70 percent of your customers will buy elsewhere because they feel they’re being taken for granted by your employees. And customers normally will not tell you why they switched to your competitor.

Image of Company – 15 percent. They are concerned about the image of your company in the community. Cause-related marketing is a big plus in forging a positive image. So is cleanliness and good organization.

Quality of Product or Service Utility – 13 percent. The customer is asking the question – “What will this do for me?”

Convenience –12 percent. Customers like easy accessibility to do business with you. That includes your Web site, telephoning you, and the convenience of patronizing your business.

Price – 8 percent. Price is important, but it’s the least concern among the five value-motivating perceptions. Use the eight simple strategies to give you pricing power.

From the Coach’s Corner, here are three salient resource links about sales and profit:

“Where you start is not as important as where you finish.”

-Zig Ziglar


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry

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Seattle business consultant Terry Corbell provides high-performance management services and strategies.