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Case Analysis of Best Buy

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Best Buy

This essay provides an analysis and an evaluation of showrooming as experienced by Best Buy and other physical retailers. The case under consideration illustrates how the company has been experiencing losses while at the same time recorded a high flow of shoppers in the stores. The drop in revenue is identified to be a result of customers reviewing items in the stores but making their purchases online due to the differences in prices.

The analysis draws attention to price matching as implemented by Best Buy to counter showrooming. Although it is a risky tactic, it is also effective, particularly in a price competitive environment characterized by price-sensitive customers and efficient price comparison techniques. It is recommended that Best Buy reviews its price and place marketing mix strategies so as to remain competitive in both online and offline retailing.

Introduction

Technological development coupled with the last recession caused the majority of the consumers to become more price-sensitive. Aware of the new market dynamics, internet retailers came up with websites and mobile applications that allowed customers to compare the prices of different products in real-time. As a result, more and more shoppers with a tight budget visited the physical retailers to evaluate various products but ended up purchasing these items online. As a result, such online retailers as Amazon began to encourage consumers to visit physical stores such as Best Buy for the sole purpose of checking out an item and inquiring about its features from the salesperson, then going home and purchasing it online at a lower price. This practice is referred to as showrooming. Turning physical outlets into the unpaid showrooms mean that such stores will record an increase in the number of customers visiting the shop and a simultaneous decline in revenue. The success of pulling buyers away from the traditional stores by changing their habits impacts the retail stores’ operation costs which remain high as the company’s competitive edge shrinks. If left unchecked, such retail stores will eventually be unable to pay their employees leading to their closure. This essay evaluates the effectiveness of price matching implemented by Best Buy as a strategy to counter showrooming.

Analysis

The challenge that brick-and-mortar retailers have to address is keeping the customers within the store. The aim is to compete with online retailers by preventing clients from using the store as showrooms. As a result, Best Buy has initiated a price-matching policy despite the fact that it causes higher operational costs than those of the main competitor Amazon. Price matching appears to be a good deal, especially for the customers, as the retail store enables them to review the products before purchase as well as eliminates the shipping time. At the same time, such a policy may reduce competition. Price matching may cause the price to become less critical components of the marketing mix. Retailers typically adjust prices of products as a marketing strategy aimed at increasing the demand and the number of sales of the product. Additionally, since price determines the profit and hence the survival of the company, online retailers may find it unnecessary to lower prices because it will not lead to any significant increase in the market share in a price-matched environment (Teixeira & Watkins, 2015). Moreover, the marketing mix predicts that companies are less likely to reduce the prices as a competitiveness strategy as long as the competitor can keep up or match the price of the product in question. Therefore, price matching has the potential to eliminate the upside of discounting increasing the possibilities of higher prices for some products.

In addition to interfering with “the race to the bottom,” price matching might prove hazardous for Best Buy primarily because of the overhead costs associated with running physical stores (Teixeira & Watkins, 2015). In fact, Best Buy will be disadvantaged as it will produce the products at relatively higher costs but sell them at the same price as Amazon and other internet retailers. Moreover, price matching is only likely to succeed with such products as electronics, which the majority of customers prefer to see before purchasing. In case customers do not have a desire to see the product before ordering or the item is out of stock in the retail store, buyers will opt for the less time-consuming and convenient online purchase (Teixeira & Watkins, 2015). Therefore, price matching may not increase the sales for the brick-and-mortar retailers if the potential customers frequently shop online or in the areas where retail stores are inaccessible. Moreover, price matching will most likely only benefit clients who aggressively compare the prices while leaving out the less attentive shopper who will not be keen to ask for refunds. Finally, some customers view price matching as a confirmation that Best Buy sells its products at higher prices causing them to remain loyal to Amazon for both the search and the purchase.

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Although price matching is perhaps one of the riskiest tactics used in dealing with showrooming, it is also probably the most effective approach in such a case. Thus, for the CEO, it is vital to retain the permanent price-matching policy because of several reasons. First of all, showrooming is a real problem that causes the company to experience massive losses and reduced market share (Teixeira & Watkins, 2015). Considering that showrooming is the product of technological advancement, it would be nave to expect people to go back to depending solely on physical retailers In any case, it is likely that more people will continue to embrace online shopping. Therefore, showrooming is a fact of life and the best approach to addressing it is not fighting it but turning it into the company’s advantage (Teixeira & Watkins, 2015). Furthermore, if left unchecked, it is only a matter of time before the declines in revenue become inversely proportional to the increase in the showrooming trend (Teixeira & Watkins, 2015). Moreover, other alternatives that can be used to deal with such situations have been tested without success. Since price differences have become transparent and easy to compare, it would be hard to survive in a competitive environment without a solid price marketing strategy.

Moreover, the price-matching policy reassures the customers that they are getting the best prices at all times. The majority of the companies implementing price matching are not only assuring the clients of the fair prices but are also implementing successful price strategies to avoid regular changes of items’ prices (Teixeira & Watkins, 2015). Similarly, the continuous implementation of price matching will ensure that Best Buy does not lose customers who visit its stores simply because of a lower-priced alternative. Additionally, trust is critical in e-commerce as customers prefer physical retailers to online shopping due to the shipping uncertainty. In that regard, price matching acts as a safety net that prevents the loss of a sale (Teixeira & Watkins, 2015). Finally, customers’ desires should be highlighted when designing the marketing mix strategy. Through price matching, Best Buy has an opportunity to align the customers’ needs with its marketing objectives. As it can be observed from the case study, customers use the internet regularly for price comparisons and the best deals (Teixeira & Watkins, 2015). With price matching, the business stands a chance of competing with online retailers.

Recommendations

Based on the case analysis, Best Buy’s challenges can be traced back to the failure to put the right products, in the right place, at the right time, and at the right price. Consequently, it is recommended for the Best Buy’s marketers to put more emphasis on price and place in their consideration of the marketing mix. It may be reasonable to assume that Best Buy does not currently have an urgent need to diversify or increase the depth of its product line as there is no evidence of competitors offering a broader range of goods. However, pricing is critical as it shapes the perception of the product in the eye of the consumer. Although the low price is usually interpreted to mean an inferior good, this case is different because the competition is not based on the quality of goods but on their prices. By offering a range of prices on its products and services, Best Buy can encourage customers with different income levels to consider this retailer when shopping.

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The placement, or distribution, is a core competence that Best Buy should utilize. Unlike Amazon that cannot easily address its challenge of the lack of physical presence, Best Buy can quickly revamp its online presence so as to position its products for the easy accessibility for online buyers. At the same time, retail stores spread around the world will make it simpler to distribute products to online shoppers. In addition to advertisements, marketers should also focus on the sales organization, sales promotion, and public relations when informing potential buyers about its price-matching policy. In addition, social media can be an ideal place for targeting online customers. Lastly, Best Buy can take advantage of its large pool of employees by training them about the marketing principles so as to increase customer engagement. Therefore, by translating product, price, place, and promotion into customer value, cost, convenience and communication, Best Buy has a chance to extend its market share. Pricing will ultimately be the primary determinant of the success or failure in this process.

Conclusion

To sum up, technological advancement has resulted in a shift in shopping habits requiring physical retailers to adjust their marketing strategies. Showrooming as experienced by Best Buy and other retail stores occurs when customers evaluate products in the physical store but place the orders online due to the differences in prices. As a result, physical retailers are experiencing losses due to the high operating costs associated with running retail stores. Price matching has been implemented by Best Buy to combat the online competition. This strategy has been identified as the most viable option that can help quickly deal with showrooming. Finally, this essay concludes by recommending place and price as the two central marketing mix areas that the company should concentrate on to remain competitive.

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