One of the reasons I love the Consumer Electronics business is that the products we sell are in a constant state of upgrade. I have been in the business for about a decade. The driver businesses at that time were 400 pound tube TVs, stationary Desktop PCs, landline phones, VCRs, Walkman disk players and, of course, shiny CD disks and VHS tapes. Wow, detailing the list of stuff we used to sell just 10 years ago makes my point. Every product category, literally, has been completely remade. Throw the web, mobile web and social networking, to name just a few disruptive events, on top and its easy to project that the pace of product change will only accelerate. It’s an exciting industry.
But, how do consumer’s cope with such massive change? We know people love the latest & greatest, the enhanced features that make their lives more full whether it be to have more fun, to be more productive, to be more connected, to capture more memories and share to name few of the benefits consumers get from the inexorable march of technology. The problem, however is that the stuff and connections are changing so fast its hard for people to keep up. So, too often, consumers are reluctant to buy the latest technology because they are worried that it will soon become obsolete. We have coined this phrase internally as “techno-stress.” People want the benefits that these new technology features bring but are in a constant state of anxiety about “timing it right” as to when they should jump into next new device for them.
Now that doesn’t sound like a lot of fun and it’s not good for businesses that sell this stuff. The challenge and business opportunity for us is to get people off the sideline, or at least shorten the waiting time to buy the latest technology and reduce the time people miss out on all the great things these new devices enable them to do.
This month, Best Buy introduced a new product called the “Best Buy Buy Back Program,” that we think solves the anxiety about buying technology because something better will come out soon thereafter. This is how the program works: When you buy any Mobile Phone, Laptop, Tablet or TV with the Best Buy Buy Back program we will buy it back at a set price when you are ready to upgrade that device (or you just don’t want it anymore for whatever reason). The “Buy Back price” for all devices is based upon a percentage of the purchase price and the length of time you own it. What’s great is you’ll always know your Buy Back price – no guessing. When you want to upgrade, just bring it to Best Buy and we will pay you on the spot, no haggling, for the price we agreed to pay when you bought it from us originally. That’s why we think this program is so much more convenient than other options consumers have today.
So say you want a new IPhone but hesitate to buy one because you think a newer one might come out soon. You pay $199 for the IPhone with a phone plan, while the full retail price may be closer to around $600. The Buy Back Program can eliminate that hesitation. Buy the phone from us with the Buy Back Program ($59.99) and for up to 6 months from purchase date we will buy it back for 50% ($300) of the list purchase price. Want to wait 12 months, we buy it back for 40% ($240), 18 months for 30% ($180) and finally at 24 months for 20% ($120).
I have included all the details of how the program would work on other programs in the attached link http://www.bestbuy.com/buyback. Also, we’ll be updating this page with more interactive tools soon.
We know from our consumer work that this product has tremendous appeal. For me it’s a no-brainer for almost anyone on tablets, phones, laptops and sophisticated TVs, which are going through significant product cycle improvements. In addition to all the reasons consumers like buying from Best Buy presently, we believe Buy Back protection is a significant consumer reason to choose Best Buy for purchasing one’s technology. We will be promoting the program aggressively this year. I am certainly interested in people’s take on the product.
Interesting idea for a program. I do think that this will get some people over that hurdle to buy, but $60 seems like a fairly high price point for the program. Still, I think that it could be great for the consumer.
My real question is whether this is a true service to the customer or a way to trick them. Meaning, does BB have a contact strategy to let the individuals know, at key points, what their specific device is worth and when the deadline is for turning it in at that price? Or will this use a ‘take the $60 and hope they forget approach?
It all comes down to the internal strategy of whether your plan is to try to increase or decrease the breakage rate of people signing up for the program.
The economic model actually requires consumers to redeem as we have a secondary market to dispose of the product. In addition, for the program to have legs, people have to feel like it is filling a need meaning they have to use it. As a result, we have a contact strategy in place to let people know of the value they can receive at various points along the way.
Buy Back is a long term differentiator for us. We hope people find it valuable and redeem them.
Well this is interesting and, if true, more than a little disappointing.
TechCrunch is saying that you guys just completely stole this whole program from TechForward (http://tcrn.ch/ibASPN) and were not even nice about it.
From the post:
Best Buy announced to the world that it was implementing its own buyback program — called the Buy Back Plan (“BBP”) — which is virtually identical to TechForward’s Guaranteed Buyback Plan in its program structure, marketing materials and terms and conditions. To make matters worse, the Best Buy executives who supposedly “developed” this buyback program are the exact same executives who worked with TechForward on the pilot Guaranteed Buyback Plan program for Best Buy and who received TechForward’s highly confidential information.
Interesting idea. I’m anxious to see how well it does. One question, though. If I buy that iPhone 4 for $199 and then Best Buy buys it back for $300 in 6 months, I would still have to pay $600 for my next iPhone (5) since I wouldn’t be eligible for the carrier discount – right?
Nope. You get the cash back in gift cards. You can then buy anything you want to. Or hold onto them until you need something.
Ok, but that $199 iPhone price was typically the upgrade price for renewing for 2 years with AT&T. If I sell back my old one, I usually wouldn’t be eligible for the new one at the $199 price until my contract expires.
Great idea Barry. Nice job getting it operationalized, I’m sure that was a bear. Are you able to share any info on what BBY plans to do with the merchandise you buy back?
This caught my eye for a couple reasons:
1) as a consumer and ‘technophile’ I always want the latest electronics (dating back a decade + to my front line CE retail experience)
2) working in corporate retail, I think this is an interesting, possibly game changing strategy. In CE- upgrade cycles are what make the business tick- they make the business exciting and keeps consumers spending- but it is also a problem as Barry points out. This is an interesting way to keep capitalizing on the cycles while mitigating the perceived downside for consumers.
My conclusion: Best Buy’s initial application of the program appears overwhelmingly greedy, and therefore may represent a bigger risk than opportunity. Charging for the program seems reasonable if it ultimately provided good value to the consumer, but looking at the buyback program pricing table, it does not. The rapid value decline in the table, to me, doesn’t solve the consumer anxiety issue- but exacerbates it. Simple consumer insights would probably show that, while the average CE consumer is anxious about the expected decline in value of their upcoming purchase, they probably don’t expect it to be worth half in 6 months, and 1/10th in 36. (1/10th LESS whatever they paid to participate in the buyback program!) When the friendly blue shirts try selling consumers the program, explaining the excellent value of a $60 6-month 50% today’s value put-option, I think many consumers may be driven away, not towards, incremental purchasing.
Best Buy should only offer this program if they figure out a way to demonstrate obvious value- which I think may be possible. They can provide a reasonable service, and take some reasonable margin.
Let’s look at Mr. Judge’s iPhone example (cleverly chosen as the price paid initially hides part of the cost of the phone). None the less, breaking down the scenario: If I were to buy an iPhone 4 today for $199 (+ 2yr commitment), and opted for the $60 buyback plan, in July when the iPhone 5 is released I could sell back my phone to BBY for $300 and purchase a new one for $599- netting $360 for the upgrade. Now, if I’m minimally savvy and not horribly lazy, I could think through the buyback plan, opt-out, and in July spend 5-10 minutes selling my iPhone 4 on ebay or craigslist (going price after 6 months on the market = ~$450). After the $600 for your new phone, the cost for your upgrade nets to $150. That’s $210 savings over the buyback program… but obviously more work.
What’s the upgrade plan worth? Is it worth $210, or 30% of your purchase price to have Best Buy manage the resell hassle? It’s up to you.
From the BBY end, assuming Best Buy is capable of selling the used phone at the market price, that means they profited ~$210 off of your plan.. +, maybe more importantly, they got you back in the purchase cycle, and sold you a new $600 phone with some margin… and maybe another $60 buyback plan. Not too shabby for Best Buy. If the buyback pricing schedule was in line with the expected market (and the profit was limited to the $60 price tag to pay them for their risk)- this is a win win for BBY AND consumers. Today- just BBY.
Some people may be willing to sell on craigslist/eBay as you describe – but the Buy Back Program offers something different entirely and over the last year of research our customers have told us they’re really excited about the unique benefits our program provides.
With Buy Back, you always have a trusted buyer in Best Buy – unlike craigslist/eBay, where you may not be able to sell your product if there isn’t a lot of demand for it. Second, you’ll always know how much your product is worth as soon as you buy it – unlike craigslist/eBay, which involves guessing and haggling about the price. Third, and perhaps most important, when you’re ready to upgrade to something new you can instantly get a gift card by conveniently coming in-store – unlike craigslist/eBay which requires screening buyers, arranging for secure payment, then packing and shipping the product or meeting a stranger somewhere. Our customers have told us they think our program will be more convenient for them and we think our program’s benefits will stand out in the marketplace
Excellent points- despite my unfortunately negative tone I actually do agree entirely with the value proposition. I was sincere when I noted that this seems like it could be a game changing strategy for CE retail- for which, hats off to you.
I still stand by my rough original back of the envelope analytics, which results in the BBY margin / cost to the consumer being more than it’s worth. HOWEVER – this is a ‘technophile’ / nerd heavy perspective, which means the ebay/craigslist challenges are less significant.. and the value may well be there for most consumers.
However, I still am concerned about the average consumers’ perspective. When you tell John Smith that his TV could be worth a whopping 50% of it’s value today in 6 months if he gives you $60, don’t you think cognitive dissonance may sit in more strongly than it might otherwise would have?
[...] it, via a SuperBowl ad no less! Read Barry Judge, Best Buy’s CMO’s thoughts on the Buy Back Program here. Will Best Buy start selling previously owned products as [...]