Back to Our Blog

Customer Service: What goes around comes around

Customer Service: What goes around comes around

Showrooming is the process when customers check out products and compare prices at a brick-and-mortar store, and then buy them cheaper online. This phenomenon started with the proliferation of the internet in the early 2000’s and continues unabated even today. Internet has proved to be the biggest equalizer between the haves and the have not’s. This point can be best illustrated by the rise and fall of the electronics retailing giant, Best Buy.

This company was on a tear from the early 90’s until the mid 2000’s. It expanded into many markets across the US and in short order put the smaller electronics retailers in those markets out of business. Heck, it even put its nearest competitor, Circuit City, out of business. Best Buy’s winning strategy was to blanket any new market they entered with big-box stores and offer nominally lower prices than their immediate competition. That strategy worked very well, and for a long time, too. And they reaped huge profits.

The tide started turning against Best Buy when Wal-Mart aggressively started getting into the electronics business. But their fortunes really turned south when Amazon – the giant online retailer - decided to branch out into selling electronics. After Amazon’s entry, it seemed like the flood gates opened, and hundreds if not thousands of smaller retailers started selling electronic goods on the internet.

While Best Buy was dealing with the pressures of this sudden, but formidable threat, i.e., its customers bolting to e-tailing from retailing, it was faced with another reality. With the rapid advances in (electronic) hardware technologies, the prices of the components used in the popular items like flat-screen televisions and computes were falling at a record pace, so big-box retailers like Best Buy, that had fat margins on these high-ticket items, saw their margins squeezed. But it was these high-margin items that made it palatable for Best Buy to discount numerous other products it sold, that brought customers into its stores in the first place. The secret to Best Buy’s success was simple: volume over margin. But with declining volume and margins, that successful strategy blew up in its face.

Like they say, what goes around comes around. For Best Buy this was death by a thousand small cuts. All the brick and mortar small businesses that Best Buy stepped on to reach the top were suddenly the ones – albeit in a newer incarnation, as virtual store fronts –it could not compete against because of its size. The smaller more nimble operators not burdened with the crippling fixed costs and huge inventory, like Best Buy, started passing on the savings to their customers, and in the process beat Best Buy at its own game: sales at lower prices.

Time and again, it has been proven that getting to the top of any segment in the marketplace singularly on either price or volume is akin to a house of cards. Because there will always be other players that will come along to challenge the market leader on either price or volume, and will eventually put a severe dent in their business. The only constant that no one can ever take from a business is the goodwill it generates by providing great customer service. Because when a business earns its customers’ trust and loyalty, that goodwill is like money in the bank that the business can draw upon in time of need. 

Image Source: mfomarvelous.com



Last Updated: 2017-10-26 19:27:13

close

Letters remaining :

close
close

Add a Post

Letters remaining :

close

Add a Video