Best Buy (BBY) announced this week its intention to begin price-matching prices from key competitor websites, such as Amazon (AMZN), Buy.com, Target.com (TGT), B&H, Walmart.com (WMT) and others, for purchases made in its stores.
On its surface, it seems like a smart and aggressive strategy for Best Buy to remain relevant and to discourage its customers from showrooming, using Best Buy to view items, then buying them cheaper online.
Yet in practice, I don’t know how the numbers could work. There’s no way to profitably run a brick and mortar big box retail business that matches the best of online pricing.
For comparison, I just spot-checked a few of Best Buy’s prices.
Best Buy offers a Canon Vixia HF M50 Camcorder for $499. Amazon has the same camcorder for $429. The Epson WF-2540 printer is $129 at Best Buy. It sells for $99 at Amazon. And it’s not just Amazon. A pair of Sennheiser PX 100-II headphones are marked “sale – see price in cart” at Best Buy. That sale price is $55.98. But B&H Photo has the same headphones for $43.46.
And those three items are hardly unique. On almost every item I checked, the Best Buy price was 20-40% higher than prices at Amazon and other sites. The exceptions tend to be large screen TVs, where Best Buy is competitive to the best online prices, and certain brands which are rarely discounted, like Dr. Dre Beat headphones or an Apple iPad.
And that experience is consistent with what I’ve seen in the real world. There was a Best Buy across the street from my old office. Any time I tried to buy anything there, I found their prices to be 25-50% higher than the online price. I might pay that premium for an emergency pair of earbuds, but for anything over $25, I found myself ordering via the Amazon app instead, often before leaving the store.
So, how might Best Buy adapt to a world of price-matching? I see three possibilities:
First, Best Buy can hope that while price-matching becomes a useful marketing campaign, customers don’t bother to actually do it in practice. This seems unlikely to me, unless they either make the process too difficult to perform (“let me find the manager for you” or “you just need to fill out this 12-page form and we’ll match the price”) or perhaps deploy cellular signal jammers in all their stores.
The second option is for Best Buy to work with manufacturers to create custom versions of its products for their stores. This is the trick that the mattress industry has used for decades, to make price comparisons difficult. When mattress discounters like 800-Mattress sprang up, department stores scrambled for ways to keep their artificially high prices up. The solution was for mattress manufacturers to create “exclusive” models available to each department store or retailer. So, you can’t compare the price of the Stearns & Foster Delana mattress from Macy’s, as that model is not available at Sleepys or elsewhere.
Might Best Buy try something similar? Could they ask Canon to make a Vixia HF M50BB (or similar) which is only available at Best Buy? That might be a bit more difficult to do across some product categories (I can’t imagine Apple participating) but for some products I could see it. Truly unique offerings would be most compelling, but that's really hard to do with electronics. Home retailers like Target (TGT) can get designers to create custom collections; FAO Schwartz has unique toys that Toys R Us can't offer. But there's not as much flexibility with electronics. Maybe a custom color for a phone or camera, but that's about it. Another option might be to create custom bundles. Perhaps a flat screen TV, a wall mount and HDMI cable could be bundled together into a package that is exclusive to Best Buy. Smart consumers might compare the bundle to the price of the unbundled components, but you won’t have a one-click price check from a barcode.
A third option might be for Best Buy to treat big ticket items as loss leaders then offer private labeled accessories, unique to Best Buy. This is not far off from their current process for large screen TVs. Their prices on these tend to be fairly competitive, as they know people price compare before dropping a thousand bucks on a flat screen. But they hit you up for a $59.99 HDMI cable and a $119.99 wall mount, items that can be purchased for a third that price at Amazon.
If they truly wanted to be price-competitive, Best Buy would make it easy to check competitive prices in their stores. But they’ve actively avoided this to-date. Best Buy actually incubated a startup, Tecca, which offered mobile apps providing detailed information and comparisons on electronic products. The apps included barcode scanners which returned pricing from Bestbuy.com, Amazon.com and Google Products. Yet although they funded it, Best Buy was never comfortable enough with Tecca to encourage its use in their stores. Tecca was shuttered late last year, but could have been the centerpiece of this new “price matching” strategy.
I think Best Buy will likely employ the use of bundles and white-labeled accessories to improve margins, while using price-matching on major items as loss leaders. That approach may slow the showrooming somewhat, but it doesn’t seem like an effective long-term strategy for a profitable business. They can’t possibly sell enough overpriced accessories to support 1,000 big box stores across the U.S.
How do you think Best Buy will handle price matching? Add your thoughts in the comments.
Photo: Best Buy - Champlain Center Flickr/daysofthundr46