Showrooming at Best Buy
As online shopping became the new way of purchasing, the urge to see a product before
buying gave rise to new behavior known as showrooming. Amazon, eBay developed mobile phone
application which compare prices gave further encouragement to showrooming. These apps made
comparison of prices effortless. People started comparing online and offline prices using these
apps while they were inside a physical store. These applications reduced the decision making time
between seeing a product at store and searching deals online for the same product, which increased
footfalls but sales plunged. Promotional deals offered by these new applications forced lot many
customers to switch to online shopping.
By 2012, brick-and-mortar stores started competing with online retailers but higher
operating cost of physical stores over online stores made it difficult to reduce prices to online level.
Physical stores started developing their own applications or partnering with third party applications
in order to boost their sales by providing coupons, tailored discounts etc. Others stores changed
their assortments to exclusive products which were not available online. Some tried different kind
of pricing policies like Minimum Advertised Price with the help of manufacturers or rebates,
loyalty points and cashback. At the end of 2012, Best Buy adopted permanent price matching
which promised to have lowest price as compared to online or nearby physical stores.
Q.1. Should Best Buy keep its permanent price-matching policy or abandon it in favor of another
approach?
Bust Buy must keep its minimum price-matching policy because of the following reasons
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Consumer electronics as the top product type for showrooming.
Best Buy’s 50% revenue generated during holiday season. Customers are highly sensitive
to prices during this time.
Even after partnering with third party applications their share of internet retail remained
stagnant.
Annual Prime membership fee by application like Amazons attracted the customers. People
do not consider the price they have already paid while purchasing. So they considered
shipping charges are zero, which further reduced the price in consumer mind.
Q.2. Looking at the approaches of other brick-and-mortar retailers to combat show rooming, could
Best Buy be better off by doing something differently?
Physical stores tried different type of approaches to combat showrooming. Some thought
that making payment system online will boost their sales, others focused on their service part, e.g.
extended warranties. Most of the Bust Buy’s revenue was generated during holiday season. Price
sensitivity is also very high in this season, so customers ignore the benefits they are getting from
extended services and go for lowest price possible. Walmart and Target developed their own
applications which provided discounts and coupons. Other stores used third party applications to
sell online or attract customers with coupons or tailored discounts. These methods also failed to
curtail showrooming as customers were searching for lowest price possible and coupons and
discounts were still unable to match the prices offered by online retailers. Customers used these
applications to check prices or receive loyalty points.
Those who had a privilege to change their assortment increased product offerings, removed
products susceptible to showrooming, demanded exclusive product for their stores. Best Buy
cannot use this method because the number of products available in consumer electronics segment
is very high. Manufactures cannot create any exclusive product because technology was changing
very fast and manufactures wanted to reap maximum revenue. Some stores tried minimum
advertised price. Best Buy cannot consider MAP because number of manufactures and product
range of each manufacture is very large which lead to a large coordination cost. Other methods
like loyalty programs would be helpful if the purchasing frequency is high like garment industry.
In case of consumer electronics, purchasing frequency is low and consumers do not consider
loyalty programs in such purchases. Punishing customers by charging looking fee or in any other
way is out of options because consumer electronics is an evolving segment and variety of products
are introduced every day. Consumer’s expectations increase only when they see or feel such
products. So it’s better to keep permanent price-matching policy.