Entering content area for Canvas for the Innovative Mind

blog posts

  • Best Buy: The Beginning of the End?

    Farhad Manjoo has an interesting article in Slate about Best Buy. The essential argument that Manjoo makes is that Best Buy must prune its vast selection of electronic items. Manjoo contends that Best Buy’s selection cannot match that of Amazon and the other e-retailers. Going small with the selection would entail lower search costs for Best Buy’s customers, and enable Best Buy’s employees to become experts on a smaller selection. Intimate stores coupled with friendly staff will boost Best Buy’s sagging fortunes.

    I find this recommendation problematic on two fronts. First, the problem is not due to the vast selection of Best Buy. The problem is that these products sold by Best Buy are easily comparable in terms of prices. With the touch of a button on their smart phones, customers can ascertain across any outlet in the world if what they see is a good deal. As it is, Best Buy’s product assortment does not and cannot match Amazon’s offerings. It is limited as it is. Pruning further is not going to help.

    Second, if Best Buy decides to prune its selection and its employees become super-educated on the products, how would this help? Would customers be willing to pay premiums for customer service on products not unique to Best Buy? This strategy of educating sales staff and enhancing customer intimacy goes against Best Buy’s current business model of scale economies and low prices. More importantly, it is possible that the customer base that regularly buys at Best Buy may be turned off by further lack of variety imposed by a pruning strategy.

    The advantage of Best Buy is simple: immediate gratification. You can walk into a store and walk out with your product. If the segments of customers that trade off buying convenience against instantaneous gratification keep growing as we expect them to, the decline of Best Buy stores is inevitable. If you want evidence, ask Blockbuster.

    _________________________
    Raj Echambadi
    Professor of Business Administration and
    James F. Towey Faculty Fellow and
    Executive MBA Academic Director