Best Buy to Adopt Walmart’s ‘Every Day Low Price’ Strategy?
Laura Heller Feb 11, 2011
“Every Day Low Price” is the mantra at Walmart, and now it seems
Best Buy is considering adopting the concept as it tries to compete with online retailers and get consumers to shop during non-promotional events.
Shoppers have become accustomed to waiting for sales in many product categories, but the pattern is even more pronounced in the consumer electronics category, where prices actually decline over time. Not only do we wait for sales, but for the prices to come down and then go on sale.
Doesn’t this occur in other retail outlets too? For argument’s sake, let’s say it’s only consumer electronics, would not Target, Walmart and Costco also be affected by ‘waiting for sales’ in many categories? Why is this just a concern for Best Buy? Or are others concerned too – it just hasn’t been made public.
This pattern has been damaging to Best Buy. In December, revenue at its U.S. stores actually fell 3.2% and sales at stores open at least a year dropped 5% compared to an increase of 9.3% the year before, when Best Buy likely picked up sales thanks to the absence of Circuit City.
Who would have thought Best Buy would experience a decrease of 5% in 2010 – after their major competitor declared bankruptcy and closed all their stores. It appears competition is fierce in the electronics sector and some major players (besides Best Buy) stepped in seeing an opportunity with Circuit City closing.
Since then, discount stores like Target and Walmart have gotten much more aggressive, courting electronics buyers. Brands are less likely to sell exclusively through Best Buy, and online retailers like Amazon consistently beat Best Buy on price. The retailer’s response has been to launch a litany of sales: two-day sales, Free Phone Fridays and pre-Super Bowl HDTV sales.
Should not Best Buy try to create more of a service market? Is there an opportunity to improve their service to help their brand?
“If the pricing isn’t everyday, the consumers just wait,” Rick Rommel, a Best Buy senior vice president told Bloomberg. “Our inventory sits and waits for that next promotional moment.”
Ok, let’s assume they do Everyday Low Prices — how much market share will they gain? A few percentage points? Will the lost revenue by decreasing prices be recovered by increased sales by a few percentage points?
And Best Buy’s chief marketing officer, Barry Judge, believes consistent EDLP would make marketing so much easier, including laying out the Sunday circulars, something Walmart hit upon decades ago.
Walmart’s switch to EDLP meant shoppers could shop any time and feel secure they would get the price. There was no need for price adjustments or advertising about specific promotions. Not only is it easier to lay out the Sunday circular, but Walmart doesn’t even issue one: the prices are always the lowest they can offer and the lack of advertising helps keep it that way.
How much money will be saved by less print advertising?
Best Buy also says it’s reducing the number of items, focusing only on the most popular products. Can Best Buy afford to adopt these austerity measures and stop trying to differentiate itself from the discount stores with a bigger selection and the extra service that comes with specialty stores? It doesn’t seem likely.
It certainly wouldn’t be the first time Best Buy shook up the retail industry. In the early 1990s, it did away with commissioned sales, a staple practice among electronics stores. It was a successful strategy for Best Buy and forced competitors to do the same. But for Best Buy to go to EDLP and reduce selection seems more like following than leading.
I agree that it appears they are in a more reactive mode instead of proactively trying to shake up the retail industry. Per my earlier blog on how not to handle an appliance installation from Best Buy, they have a lot of work to do. A proactive move might be providing excellent service with appliance installs? This might help distinguish them in this competitive marketplace.
Some might say Best Buy is exhibiting less leadership or forward thinking with this approach. Time will tell how this model works for them.
If Best Buy has EDLP and Walmart does also, and their electronics inventory is the same, assuming their volume and costs are the same, does that meant they’ll have identical prices? Are the profit margins the same? Do they pay the sam from merchandise? Will that be enough for BB to stem this negative sales decrease?
If they decide to reduce their inventory, I suspect there are many online retailers wanting to capture some of that market.
If you look at their store name of ‘Best Buy,’ you think you’re already receiving EDLP. In fact, you’re not but their store name suggests getting the best deal or Best Buy. If they switch to EDLP, will consumers believe them? How much ads or promos will be needed to change their perception — so people realize getting EDLP.