Best Buy’s Price Match Problems Illustrate Merged Channel Hurdle
Written by Evan SchumanIt was the Christmas holiday season in 2007 and Best Buy Associate Boris Manzheley was doing what he was trained to do. According to his sworn court deposition, that meant cheating customers out of price match deals.
“Best Buy had a corporate undisclosed policy of discouraging and denying customers the benefits of its price match guarantee,” Manzheley said in his deposition. “Management mandated that all price match requests that resulted in a product being sold at less than 5 percent above cost would be denied. Best Buy provided a financial incentive for denying proper price match requests.” That incentive involved weekly bonuses, he wrote.
Juan Ortiz, another former Best Buy employee, made similar comments in his court deposition, adding that one technique used to discourage those price matches was “a multi-level procedure to request a price match in which the customers would have to escalate their price-match request to at least three levels of Best Buy representatives to have their request considered.” The theory was that most consumers would give up.
Among other techniques that he saw in the Connecticut stores he worked in, according to the deposition, was that the store “denied customers’ price-match requests claiming that the local competitor was out of stock, without calling or checking” and “denying that the advertisement was from a local competitor regardless of its source.”
In case some are wondering whether Ortiz might have worked under a renegade store manager who made these rules up, he said in his deposition where he learned to do these things: “I learned these and other techniques at Best Buy’s district facility in White Plains, New York, and Best Buy’s training store in Westchester, New York.”
Infinitely More Complex
We offer these deposition quotes not to establish whether they did or didn’t happen—Best Buy didn’t respond to our request to comment for this story—but to illustrate some of the many challenges when chains try and embrace merged channel strategies.
What seems like a bold and obvious strategy at headquarters becomes infinitely more complex in the field. And something as mundane as regional sales bonuses can set off a domino effect that can undermine—and potentially derail—the largest merged channel (and even cross-channel) efforts.
Let’s drill down into these Best Buy allegations a bit. There’s nothing wrong with a bonus plan that rewards underspending budget, but it needs to have explicit limits. There are already lots of implicit limits. No manager would condone deliberately charging customer credit cards twice the price or switching the products in the packaging so that a customer paying for an $800 camera finds inside a $25 camera.
And yet, price matching—especially where it involves matching Web pricing—is considered fair game. The problem is that these programs—price matching, buy-online-and-pick-up-in-store, money-back guarantees, etc.—are also the heart of the store’s brand reputation. The store’s GM may see a world of difference between overcharging a credit card $150 and improperly denying a price match that would have delivered to the customer $150 in savings, but the customer won’t. Both sour the brand quickly and send customers elsewhere.
Back in October 2008, Circuit City tried dealing with another merged channel hurdle: having the same pricing online and offline. Traditionally, E-Commerce pricing has been lower because of the lower overhead. But when the chain owns both, why not split the difference and equalize all prices? As Circuit City pointed out at the time, that chain’s price matching policy and the Web’s relentless price comparison sites made having multiple prices ridiculous.
The Circuit City plan and strategy was a good one. OK, so the chain needed to announce that it would permanently close its doors within a few months. I said it was a good strategy, not a perfect one.
Focus On The Realities
Faced with one of the nastiest economies in recent memory, retailers these days are panicking and E-Commerce is the big target. Canadian Tire has already surrendered its home delivery and financially troubled Borders has all but halted E-Commerce investments. And when Circuit City announced it was shutting down, the Web was an almost immediate casualty, while the stores were permitted to live during the clearance sales.
But this is when E-Commerce and mobile commerce are needed the most, and need to be integrated the most, with all other channels. To do that, though, corporate must focus on what realities exist in the stores. If, for example, memos had stressed that improperly denying a price match was a firing offense, then store managers would get no bonus if any improper price match allegation was confirmed within their jurisdiction.
Dictating the broad vision but leaving the logistical details to lower-level managers is simply begging for plans to be derailed. Some execs think the silence provides cover. “We didn’t tell them to cheat, so we’re blameless.”
Web projects never make any money, right? This statement has got to be the mother of all self-fulfilling prophecies. Done properly, multiple merged channels strengthen all sales and give the brand meaning. Allow policies to be set at the store level, with instructions of silence, and you’ll guarantee that your brand will have meaning. But your stockholders won’t like what that meaning will be.
-Marc
February 19th, 2009 at 8:10 am
It would be easy to say that Circuit City’s demise was even partly caused by its “unified pricing strategy”, but in fact, it was caused by a series of poor management decisions (anyone remember those $1100 Panasonic Plasma TV’s from 2006? The ones the company sold below cost? That decision started a sequence of unfortunate events), followed by an inventory re-valuation by its asset-based lender which rendered the company insolvent at the worst of all possible times – right before Christmas. In other words, the final demise was bank-driven.
It would also be nice to say that BB has a “merged channel strategy”. However, a confusing melange of “store only sales”, “web only sales” as advertised on the company’s web site are very hard to execute…and in-store employees look at customers blankly when asked about those “in-store only” specials.
Along with using technology to support the web, BB might be well served using technology to determine a pricing strategy, and then finding appropriate training and execution management tools to insure the company can actually execute on that strategy.
February 19th, 2009 at 8:16 am
Um, this is a surprise? It’s the retail way. Always has been, always will. Take a bunch of uneducated losers, pay them minimum wage, fail to train them, and what do you get?
February 23rd, 2009 at 8:14 pm
I’ve worked at a Best Buy store in the Midwest since October 2006. I can’t speak for what goes on in big city areas with perhaps tighter margins and more cutthroaat cometition, but no one in management or elsewhere at Best Buy has ever suggested NOT price matching; in fact, it’s always been encouraged. Before I began working there, I was constantly buying movies and DVD’s there which I price matched first with Wal-Mart, Target, etc., and never once had a problem getting the lowest advertised price- and I used my Reward Zone points towards getting even greater savings. If I didn’t bring the ad in with me, Customer Service called the competing store to verify the sale price.
That’s one of the reasons I took a job there- and, sorry, David, I’m an over 50 retiree and was hired at well over minimum wage.
Also, David, I don’t know of anyone there who was hired at less than $2.00 OVER minimum wage- and almost everyone is a college student.
From the article, it appears that the people in the “sworn court disposition” (What court? Where? In re what matter?) were in management, as floor employees don’t get to those training centers, etc. Again, the management people at the Best Buy where I’m working have never done anything EXCEPT encourage price matching in order to increase our sales and to be competitive in the marketplace.
February 23rd, 2009 at 9:43 pm
Editor’s Note:
Jim asked What court? Where? In re what matter?
State of New York, County of Kings
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
THOMAS JERMYN, on behalf of himself
and all others similarly situated,
Plaintiff, CLASS ACTION
COMPLAINT against BEST BUY STORES, L.P..
Docket No. 08 CV 00214
February 25th, 2009 at 10:55 pm
There have been various articles in my local papers and on the internet for years concerning Best Buy’s “anti-consumer” related business practices. They were even in trouble with the federal government not long ago for an issue. I hate to shop in places that take advantage of consumers/customers and I never have a good feeling about shopping there. I truly feel it’s a company without many scruples!
March 5th, 2009 at 9:48 pm
There has been something troubling to me for years about Best Buy. Unfortunately, tonight 03-05-2009 I just purchased an HP Laptop. Advertised for $699.99. Guess what, I had to pay an additional $59.99 for optimization and a few backup disks by the Geek Squad and they loaded the computer with their stuff. Nothing was posted or mentioned that this charge would apply. Manager told me to bring the disks back. Well, I will, but I have filed a complaint with the Attorney General’s Office State of Florida for unfair and deceptive trade practices. Consumer relations tried to justify the charge. No way. Even HP states you don’t need backup disks because there is a restore program on the computer. Just another way to cheat the public. I should have paid more attention because this is just on big PIMA.
March 19th, 2009 at 2:11 pm
Mary Jane I work with computers and my friends and family will ask me when they buy a computer from BB about this and I always tell them don’t spend money on something they can do themselves. The optimization is another thing for them to charge you extra. If they get an HP product, I always tell not to buy the extra warranty from them since you can get it for less from HP. The only perk you will be getting from BB is you can take it to their store for repair and they will give you a replacement for your battery if it dies.
April 1st, 2009 at 4:03 pm
This is not an ad for Best Buy but I just bought a TV from Best Buy, when I saw it advertised for $470.00 less a coulple a weeks later I went right and got a rebate for the amount. It was that easy. But I was sealing with what seemed to be “quality” people and not the minimum wagers.