Best Buy's Price Match Problems Illustrate Merged Channel Hurdle

It was the Christmas holiday season in 2007 and Best Buy Associate Boris Manzheley was doing what he was trained to do. According to his sworn court deposition, that meant cheating customers out of price match deals.

"Best Buy had a corporate undisclosed policy of discouraging and denying customers the benefits of its price match guarantee," Manzheley said in his deposition. "Management mandated that all price match requests that resulted in a product being sold at less than 5 percent above cost would be denied. Best Buy provided a financial incentive for denying proper price match requests." That incentive involved weekly bonuses, he wrote.

Juan Ortiz, another former Best Buy employee, made similar comments in his court deposition, adding that one technique used to discourage those price matches was "a multi-level procedure to request a price match in which the customers would have to escalate their price-match request to at least three levels of Best Buy representatives to have their request considered." The theory was that most consumers would give up.

Among other techniques that he saw in the Connecticut stores he worked in, according to the deposition, was that the store "denied customers' price-match requests claiming that the local competitor was out of stock, without calling or checking" and "denying that the advertisement was from a local competitor regardless of its source."

In case some are wondering whether Ortiz might have worked under a renegade store manager who made these rules up, he said in his deposition where he learned to do these things: "I learned these and other techniques at Best Buy's district facility in White Plains, New York, and Best Buy's training store in Westchester, New York."

Infinitely More Complex

We offer these deposition quotes not to establish whether they did or didn't happen—Best Buy didn't respond to our request to comment for this story—but to illustrate some of the many challenges when chains try and embrace merged channel strategies.

What seems like a bold and obvious strategy at headquarters becomes infinitely more complex in the field. And something as mundane as regional sales bonuses can set off a domino effect that can undermine—and potentially derail—the largest merged channel (and even cross-channel) efforts.

Let's drill down into these Best Buy allegations a bit. There's nothing wrong with a bonus plan that rewards underspending budget, but it needs to have explicit limits. There are already lots of implicit limits. No manager would condone deliberately charging customer credit cards twice the price or switching the products in the packaging so that a customer paying for an $800 camera finds inside a $25 camera.

And yet, price matching—especially where it involves matching Web pricing—is considered fair game. The problem is that these programs—price matching, buy-online-and-pick-up-in-store, money-back guarantees, etc.—are also the heart of the store's brand reputation. The store's GM may see a world of difference between overcharging a credit card $150 and improperly denying a price match that would have delivered to the customer $150 in savings, but the customer won't. Both sour the brand quickly and send customers elsewhere.

Back in October 2008, Circuit City tried dealing with another merged channel hurdle: having the same pricing online and offline. Traditionally, E-Commerce pricing has been lower because of the lower overhead. But when the chain owns both, why not split the difference and equalize all prices? As Circuit City pointed out at the time, that chain's price matching policy and the Web's relentless price comparison sites made having multiple prices ridiculous.

The Circuit City plan and strategy was a good one. OK, so the chain needed to announce that it would permanently close its doors within a few months. I said it was a good strategy, not a perfect one.

Focus On The Realities

Faced with one of the nastiest economies in recent memory, retailers these days are panicking and E-Commerce is the big target. Canadian Tire has already surrendered its home delivery and financially troubled Borders has all but halted E-Commerce investments. And when Circuit City announced it was shutting down, the Web was an almost immediate casualty, while the stores were permitted to live during the clearance sales.

But this is when E-Commerce and mobile commerce are needed the most, and need to be integrated the most, with all other channels. To do that, though, corporate must focus on what realities exist in the stores. If, for example, memos had stressed that improperly denying a price match was a firing offense, then store managers would get no bonus if any improper price match allegation was confirmed within their jurisdiction.

Dictating the broad vision but leaving the logistical details to lower-level managers is simply begging for plans to be derailed. Some execs think the silence provides cover. "We didn't tell them to cheat, so we're blameless."

Web projects never make any money, right? This statement has got to be the mother of all self-fulfilling prophecies. Done properly, multiple merged channels strengthen all sales and give the brand meaning. Allow policies to be set at the store level, with instructions of silence, and you'll guarantee that your brand will have meaning. But your stockholders won't like what that meaning will be.