Best Buy mulls new pricing strategy

After a rough holiday season, the retailer considers using Wal-Mart's model of everyday low prices.

By Kim Peterson Feb 18, 2011 12:52PM
Credit: (© Gary Malerba/AP)
Caption: Best Buy storeShoppers have outwitted Best Buy (BBY).

For years, Best Buy was doing fine with its tactical pricing strategy. Yes, its regular prices were high, but the chain would offer blowout discounts on specific items to entice customers. The promotional strategy worked well, especially when Circuit City imploded.

But now shoppers are getting wise. They price-check on their smart phones. They know what deal they want. And they know that items will eventually get into Best Buy's sale rotation. So they wait.

Shoppers are so smart, in fact, that Best Buy is questioning its entire pricing strategy. "Why do we carry inventory when we train consumers only to buy it" on sale, executive Mike Vitelli asked at a recent staff meeting, Bloomberg reports.

Another executive admitted to Bloomberg that without the "everyday pricing" model favored by Wal-Mart (WMT) and others, shoppers will wait it out. "Our inventory sits and waits for that next promotional moment," said the executive, Rick Rommel.

Post continues after video:
And so Best Buy now finds itself in a quandary. It could go to everyday pricing -- a strategy whereby it offers a consistently low price -- the lowest price it can while still making money. But that carries new risks Best Buy may not be prepared to take on.

The thing with everyday pricing is that you need more transactions to make up for the discounts. Wal-Mart has perfected everyday pricing and brings in the volume to justify it. But Best Buy doesn't have that kind of traffic.


Which prompts a big question: If Best Buy sacrificed margins through everyday pricing, would it get enough customers to pay for the gamble? No one knows.

But it's clear that Best Buy needs to do something. And fast. In December, the company cut its profit outlook for its fiscal year to $3.20 to $3.40 a share -- down from $3.55 to $3.70. The reason, Bloomberg reports, is falling U.S. demand for TVs, notebook computers and video games. Those savvy shoppers turned to -- you guessed it -- Wal-Mart and Target (TGT) for TVs when those retailers cut prices over Black Friday weekend.

Best Buy didn't cut prices until December. And Best Buy only recently dropped its horrendous policy of charging fees to take back merchandise -- a turnoff for many shoppers.

Best Buy is losing market share, and its stock price is around $33.47, down about 30% from last April.
So now the company is in the early stages of discussions about switching to everyday low prices. It would be a huge change and perhaps an acknowledgment that the world doesn't need a niche electronics retailer of its size anymore. Shoppers know what they want and how to get it, and if Best Buy doesn't play that game, it won't survive.
13Comments
Feb 18, 2011 1:52PM
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How about letting your employees negotiate prices.  I used to shop at best buy and most recently I went in to see if Best Buy would price match Amazon for a $560 shelf system and they told me they dont price match. 

 

So I walked out and bought it from Amazon.  Saved over $100 off retail price.

 

Sure you may have made $100 less than 100% markup (msrp), but you would have sold an item.  Last week I was in there and the same unit is still there and they still have 2 in stock. 

 

Now I refer to the company as BAD BUY.  Since Circuit City went out the prices have gone up and the sales discounts have moved from items a lot of people buy to the crap they can't rid of that nobody wanted to begin with. 

 

Unless they do something major this company is in its decline of the life cycle. 

Feb 22, 2011 9:40AM
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Best Buy is going to need to do more than just lower it's prices. They need to keep their sales people well trained in what they are selling. I want the sales person to tell me what do I get for the $100.00 more I spend on TV a over tv b. If they can't answer that simple question in a clear and respectful manner I will not shop there. I will go on the internet and read professional reviews. And that's an idea. Why not print out some of the reviews from the internet and have them there in the store for customers to read. If you are going to keep the physical building you have to offer more than ordering over the internet. Educated sales people with additional information about the items would be a big help.
Feb 18, 2011 4:27PM
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I don't get the Walmart experience.  They do not fix what they sell.  So when I buy electronic trash, something designed to fail/outdated in less than one year, why buy something with no support?
Feb 22, 2011 10:19AM
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The price match gurantee is a gimmick for most purposes.  Bigger manufacturers such as Sony, Sharp and Samsung  (funny, all start with 'S')  have been catering store specific models of their most desirable equipment .  So when you compare that Costco TV with an apparently  identical TV in Best Buy, they will tell you "it's not the same model, looky here, the number in ours ends with a 'B'... "  - So, No soup for you.

 

Your best bet is to wait until your wishlisted model is a couple months old, and  has been switched from the top bin for  the next best thing, unless you have the extra bucks just for bragging about having the ultimate newest crap - which is exactly what they want from all consumers.   - In that case, 'Happy Spending !'

 

By the way, BB's tech buyback is also laughable. Go sell your old stuff in ebay for 400% more.

 

Feb 22, 2011 12:10PM
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Best Buy sucks.  The first time I walked into the store I was impressed at the size and selection but it wasn't long before I was turned off by the lack of attention.  When I go into a store like that, I expect at some point a sales guy is going to walk up and ask if he/she can help.  I went back a few years later, only because my favorite store (Circuit City) had just closed it's doors.  I needed new wiring for my HD setup.  Best Buy wanted over $500 for the wiring and the same wiring online was well under $100.  I buy almost everything online now, mostly because I don't feel like I have a good choice (BB is not a choice IMO).  This year I decided to get a new TV for the bedroom.  I decided to use BB so I could see what I was going to be buying online.  While in the store this year, DirectTv was there and I've been having issues with cable so I decided to give them a shot.  One of the incentives they were offering was if you bought a TV for $500 or more you'd get a $200 BB card back.   So I started shopping.  I found a good Panasonic on Amazon for $549, BB wanted $779 for it.  I called and asked if they would price match, they said they don't price match Amazon.  Amazon was the middle man for B&H video in NY on this TV so I went to their site and printed the screen.  I took the ad in, and low and behold, it's not one of the stores they price match (there are many fine printed items in the so called price match...mostly like how they're never going to price match any really good deals).  I wanted the TV so I decided to forgo the Giftcard at BB and buy the TV from B&H.  I paid $549 - no tax and free shipping.   A couple weeks later, Sears.com had the same Panasonic TV for $549.   I decided I would buy another one for the other bedroom and try and get the GC from BB.  I went into one BB and after waiting to get help for 30 minutes, they informed me they were out of stock and didn't know when (or if) they could order more.  I decided to try my luck at another BB.  This time I went straight to a TV salesman and told him what I wanted and showed him the ad.  He checked stock and it was in.  He said it should be no problem but I had to go to the Customer Service desk and get the price match.  I waited in line for 10 minutes, then waited for the girl to call Sears and talk to the manager.  After 45-60 minutes they informed me that they couldn't do the price match because it was Sears.com and the price was just too good for them to match.  I gave the paperwork to my wife and sent her on one last trip.  Somehow she was able to get them to price match in very short order.  We got the TV from BB for $549 and I got the $200 Gift card in the mail last week.  After I spend the $200 at BB, it will be highly unlikely that they'll ever see another one of my hard earned dollars.
Feb 22, 2011 12:55PM
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Last summer I went in to Best Buy to buy a computer - they kept me for 4 hours. The sales people double-teamed me; the noise was so loud in there; and I ended out buying services for my computer I didn't need. I got my money back the following week. They pushed me into running my credit;if they had only played fair I would have bought two computers and a couple of TV's. They were horrible!!! Then my hard drive crashed in Nov. I went to them and they told me some cock and bull story about how they had to send it away to a high priced machine to have the 'virus' removed and it would cost $130 up front. This was infront of my grandson who is 16 and savvy. We went home and I called Toshiba - which I never thought to do but Best Buy never suggested either. They sent a postage paid box and took care of the whole thing. If it had been a virus - it can be removed over the phone by Toshiba. I hate Best Buy and their sales and customer service are horrible!!!!! That's why they are losing!!!!
Mar 13, 2011 6:42PM
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I have bought TVs, computers, home theaters, car sterios and various other items from Best Buy, without concern. I have returned a 2000 dollar TV for full credit and never recieved any flack from any of it. I even bought the computer I'm typing this on there, with the best customer service we've ever had anywhere, especially at Wal-Mart. The only thing better is Best Buy online.  http://www.foreverpatiofurniture.com
Feb 22, 2011 9:37AM
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@ WS6 Trans Am

 

if you call thier 1 888 number you can get a price match for sure. the store was bsing you id call and report that cause they do the price matches and price guarentees as well !!!

 

Feb 22, 2011 3:19PM
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I have had numerous bad experiences with Best Buy.  I think the online discount retailers are a better bet.
But I also hope Best Buy doesn't close.  I like having their showroom close by so I can check out the things I am not going to buy from them before I go elsewhere.
15% restocking fee............BAH!
Dumb sales personnel who think they know it all (but clearly don't),  double BAH!

Feb 22, 2011 1:18PM
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I won't be surprised if Best Buy does go out of business. I bought a new charger for my laptop.. $89 for a universal charger which didn't last long. I then wised up and bought one on ebay for $15. I didn't think it was a good one because of the price difference.. but in fact, it works better and hasn't broke like the other one.

Feb 22, 2011 12:39PM
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Toy story 3 DVD:

 

$19 in walmart

$8:78 in BestBuy

 

 

Kitchen Towels/Tissues

Cheaper in Target than Bestbuy

 

 

4 tires - Michelin

$512 in Walmart and with get one tire free it comes to about $419

Exact same tire from Sears is $378 for 4 tires

 

 

Now there are some stuff thats cheaper in walmart.

Feb 22, 2011 4:38PM
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I quit shoping BB when I went to get an expansion for "Dark Age of Camelot" I needed 2 a friend needed 1 & there was for sure 2 others in Duluth Mn. that needed it. They wanted to wait from Wednesday release till Saturday to put it on the shelves to draw in people. I was lucky & caught a new person on floor who brought me my 2, my friend got his but they didn't want to but he threatened to call manager to get it because {i got it} somebody had gotten it already, the biggest thing was they only had 5 discs & they wanted to hold them.
Feb 22, 2011 7:14AM
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Think outside the box.  Hire young, hip, attractive salespersons, TEACH THEM HOW TO SELL AND CLOSE, and encourage them to dress salaciously.  SEX SELLS, even to your old fogey customers like me.

Make lots of cd./dvds with open source or freeware products and include them free with every purchase.  You can get AWESOME stuff at sourceforge.net, etc.  VLC media player, TrueCrypt, PFMAP, ERASER, keepass, google chrome, OPERA (AWESOME BROWSER), GPG, OpenOffice.Org or LibreOffice, SPICE, OPENTAB, scribus.  Checkout the free or open source stuff at filehippo, a great compilation.

When I ran a phone room selling computer diagnostics, I wanted my sales persons NEVER to discount the product, but to add various low cost items into a PACKAGE deal to close the sales, and it worked well.  

Also, collaborate with other vendors by giving free "shorties" or small samples, say a little bowl of chili, or short starbuck coffee, etc to encourage people to go to other non competing vendors. Customers will buy, given a chance for something free that saves money elsewhere. 
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