Case Report: Showrooming at Best Buy

Mladenka Vuchkova
University of American College Skopje

Introduction

Best Buy is a multinational retail company for consumer electronics, appliances, computers
and new smart tech products with its headquarters based in Richfield, Minnesota. It is both
an online retailer, and it also has Brick and Mortar presence in Canada, USA and Mexico, and
it used to operate in Europe until 2012.

As the increased trend towards online shopping started to slowly abate the profit rates of
Brick and Mortar retailers, Best Buy was one of those who were significantly affected by this
and started thinking about reshaping their business model. After working on expanding their
online presence, they were still endangered by the existence of many online retailers, such
as Amazon, who enabled price comparison mobile applications for their online stores and
were selling their products at very competitive prices as well. Best Buy was still working at
high operating costs because they had more than 2000 physical stores with over 160,000
employees.

The Brick & Mortar Presence and the decrease of in-store purchases

The Brick and Mortar presence started to become a disadvantage to the business, and
online retailers like Amazon or Ebay who had low or no physical presence at all, had
significantly increased profit rates on each year end, compared to the profits they had
during a previous year. One of the worst truths to face for Best Buy was that competitors’
product buyers were visiting their physical stores only for showrooming. After all of this, the
top priority issue for Best Buy was to survive among the competitors, and counter-attack
with the proper tactics after they manage to overcome the losses they were encountering.

Only very short after, there was a counter-attack followed by Brick and Mortar stores who
have launched their own online applications, either store-owned or supported by third party
providers. The experience was positive for most of the retailers, and it helped increase the
number of in-store visitors and buyers. The executive vice president at American Eagle said
that their mobile app helped them increase the in-store traffic, and users who had the app
on their phones were buying two times more than the non-users.

The 2012 plan that reshaped the model and redefined strategy

As soon as Hubert Joly became Best Buy’s CEO at 2012, he immediately started leading
initiatives for price matching and faster deliveries for online purchases. In a literature review
by Peltz and Flemming (2017), it is stated that Joly reshaped the business model by using
the “store within store” approach, especially for brands such as Apple and Microsoft. Giving
trainings to employees was part of the initiatives that were within his plan to save the
company from the continuous fall of profit rates. This was the year when Best Buy went on
moving completely onto the Permanent Price Matching from nearby Brick and Mortar
stores, but they have carefully excluded some online stores. Only shortly after they have
announced that they want to start price-matching online retailers too. But after the sales
results ended up being disappointing on the closure of the year, Best Buy came up with a
conclusion that they need to make a big change, and they decided to make price matching
permanent.
For e-commerce shops like Amazon, Best Buy, Ebay and many others, price matching was a
great game changer. For some of them it was a positive change, and for the others it went
on as a negative change and affected them for years. As mentioned above, there are many
Brick and Mortar stores that experienced a real struggle for survival, while some other e-
commerce businesses who initially appeared in the market as online retailers were
achieving great profit rates continuously. The problem will be ongoing, unless Best Buy finds
a different permanent solution, that will help the company achieve greater profits and
become competitive in terms of prices, exclusive deals, unique product offering and online
app optimization. Their permanent price matching strategy shouldn’t change, but the value
proposition can be further reviewed and improved.

Finding a best solution to counter-attack competition

While focusing on improving the online store experience for consumers, Best Buy should
launch campaigns that would attract buyers to visit their physical stores. Redundancy of the
physical presence will be terrible and will end up with leaving around 16,000 people jobless,
so this is definitely not the solution we are looking into. But minimizing the physical store
presence to 30% and maximizing the e-presence up to 70% might work out in a great
benefit for the business. Around a third of the employees can move onto becoming Best
Buy’s online support agents who will work with the consumers 8 hours a day and online and
provide them information about the products in real time. In this case the operating costs
will go down significantly, and no Best Buy employee will lose their job. Additionally, no
employee should be forced to leave their onsite job for working from home, until they
choose this as a preference. A survey would be very helpful throughout the process.

In addition to this, a special loyalty program can be enabled for consumers that combine the
“Online and Physical shopping”. A gamified application can be created to support users, and
a customer map can be designed and added to the application that will help clients collect
information about the customer journey and collect points and bonuses. If the clients go to
Best Buy’s physical stores for showrooming and find the products they were looking for,
they can later on get a special deal from the same supplier online, and the final stage can be
from the type. The final part of the journey will be purchasing the third product from either
their online or physical stores and winning a 10$ voucher for their physical stores that is
valid for 30 days. This idea might help in getting more loyal consumers that would be part of
this program. Additionally, there will be an “invite friends” button on the application, and if
shared with 40 friends online the user will get additional 5% off on all Best Buy deals on
weekends.

Conclusion
In a dynamically changing marketing environment, it is very important to have an agile
marketing strategy and stay informed about what competition is doing. From this Best Buy
case we can conclude that it is always very important to stay close to competition, but also
try to be far more authentic and innovative than they are. The reason why Best Buy
struggled is because of their permanent matching price policy, and the tendency to still stick
to the full Brick and Mortar presence. There comes the necessity of reviewing alternative
shapes to the business model that needs to be completely in tune with the current trends
out there. I believe that my proposed solution to this problem can help Best Buy improve
their value proposition, and work in their benefit to finally scale up their profit rates.

References:

Peltz, J.F., Flemming, J. (2019). ‘Why the grim reaper of retail hasn’t come to claim Best Buy’