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Image of a Best Buy store.

Are Bean Counters and Poor Customer Service Destroying Best Buy?


As the executive director of a business school, I get to choose the classes I teach, and one of my favorite classes is customer service. I’m always looking for examples of good and bad customer service to share with my students. I would like to share a recent experience at Best Buy and what I learned about that business.


I recently attempted to exchange an IPhone case my sister had given me. She bought the case at Best Buy on the recommendation of the sales clerk. She asked for the best case they had for the iPhone 5. The clerk showed her one labeled iPhone 5/5S, and, since it was labeled for the iPhone 5, she assumed it would fit my phone. I did not get around to trying it on the phone for several weeks after she gave it to me. When I did try the case, it did not fit. My phone is an iPhone 5C and even though the box is labeled for an iPhone 5 it did not fit. 

Over the next few months, I went to Best Buy on several occasions to make various purchases, and every time I would forget to bring the case with me. We recently needed a flat screen TV to use in one of our classrooms, so, just like many times before, I headed to Best But to purchase one. This time I finally remembered to bring the case with me. I went to the customer service desk and asked to exchange the case. The clerk told me to go pick out the one I wanted. As I was looking at what was available, another clerk can up to me and handed me the case I wanted to exchange and said I could not return the case because it was past the 15 day return period. I told him I didn’t want to return the case, just exchange it. He said it didn’t matter it was past the return period. I asked him if it was worth losing a customer for life over this? As he was walking away, he flippantly said, “Yes.” 

I took the phone back to customer service and asked to speak to the manager. I told him what had just happened, and asked him if it was really worth it to lose a customer for life just to avoid exchanging the case and, without commenting on the conduct of the second clerk, he said, “I"m sorry, but there is nothing I can do.” 

I have been in business for over 40 years and it has been my experienced that frontline people closely reflect the attitudes of their superiors, so I felt fairly confident complaining to senior management would result in the same attitude of indifference. I was not disappointed. 

I went to the Better Business Bureau site to file a review (see review filed on 2/12/16).  I looked over the large number of negative reviews to get an idea of what to expect. I observed the same indifference as was reflected in the store. I filed my complaint, and I received a boiler plate apology for the inconvenience, but they were sticking to their policy. 

Ok, so Best Buy has demonstrated at every level it does not care about its customers. I then began to wonder if I could find any evidence this policy was damaging their business to show my students the folly in allowing people who have no contact with customers to set customer service policies. 

What I found surprised even me. Usually it is difficult to find definitive evidence of the effects poor customer service, but it this case it was pronounced. 

I looked at Best Buy’s sales for the last five years. Their sales have been steadily declining for the last four years, so I wondered when they implemented their restrictive return policy. As far as I can tell, they started enforcing the policy sometime in 2012, and, since it takes time for the effects to show up in sales, it is understandable not to see the first sales decline until 2013.


Although the evidence was compelling, there could be other factors in play. How had Best Buy’s competitors faired during the same period? Where there factors affecting the entire industry that would account for a decline in sales? The answer was a resounding no! 

I researched Best Buy’s major competitors on Yahoo Finance and found them to be: Apple, Inc., Wal-Mart Stores Inc., and Amazon.com, Inc. A quick review told me what I wanted to know...Best Buy’s treatment of its customers was driving its customers to their competitors in significant numbers. 

I created the following chart to show how dramatic Best Buy’s decline is:
 

% Sales Decline/Growth Over 2012
Year
BBY% 0f 12APPL% 0f 12
WMT% 0f 12
AMZN% 0f 12
201150.27B
108.60B
421.85B
48.08B
201250.71B
155.97B
446.95B
61.09B
201349.14B- 03170.87B+ 09469.19B+ 0574.45B+ 19
201442.41B- 20183.24B+ 15476.29B+ 0688.99B+ 31
201540.34B- 26231.28B+ 33485.65B+ 08107.01B+ 43











Using 2012 as a benchmark (the year the restrictive return policy was implemented), the chart shows Best Buy’s and its competitors’ percentage sales decline/growth compared to 2012. The chart shows while its competitor’s sales were steadily rising, Best Buy’s were in decline and somewhat dramatically. 

You would think the senior management of Best Buy would be panic-stricken by this precipitous decline in business and making a Herculean effort to stop the bleeding, but my experience with their customer service demonstrated they are not. OK, so what are they doing? 

The best place to find the company’s thinking is in the annual report and the CEO/President’s letter to shareholders. If you read the letter you would have no idea of how poorly Best Buy is doing compared to its competitors. The letter touts Best Buy’s Renew Blue strategy (which was implemented in the fall of 2012) and how they have made considerable progress in improving the company’s performance. The letter mentions nothing about how their sales are falling off a cliff. 

The letter makes a big deal out of two benchmarks: Earnings per Share (EPS) and the Net Promoter Score (NPS) (a management tool that can be used to gauge the loyalty of a firm's customer relationships). Let’s take a look at those numbers. 

EPS
YearBBYAPPLWMTAMZN
20113.144.014.481.39
2012
(3.36)6.384.54(0.09)
2013(1.42)5.725.040.60
20141.565.494.90(0.52)
20153.539.285.071.28











Best Buy was able to improve its EPS, not by improving customer relations, but by bringing in a new bean counter and closing stores, reducing other operating expenses, and reducing the number of shares outstanding by 16%. Even though Best Buy’s EPS are up, they still lag Apple and Wal-Mart. Amazon’s EPS are low because the firm is in a growth phase and is investing heavily in Research and Development. To correct for this distortion, we can turn to another financial ratio that financial analysists use to measure management performance, EBITA (Earnings Before Interest, Taxes, and Amortization).

EBITDA
YearBBYAPPLWMTAMZN
20113.31B36.31B34.69B1.95B
20123.30B57.91B36.30B2.99B
20132.16B55.08B35.74B4.11B
20141.78B60.60B36.32B4.49B
20152.1B77.89B35.56B7.99B










By removing the things managers cannot control, i.e., interest, taxes, depreciation, and amortization, we can clearly see how poorly Best Buy is performing compared to its competitors.


NPS
YearBBY% Sales Decline/Growth Over 2012WMT% Sales Decline/Growth Over 2012
APPL% Sales Decline/Growth Over 2012
AMZN% Sales Decline/Growth Over 2012
201531- 2637+ 0847+ 3369+ 43







The spin on this one is almost shameful. The CEO/President’s letter boosts of an improvement of 450 basis points. Sounds like a lot doesn’t it? Not when you realize a basis point is one hundredth of one percent.

Once again, compared to its competitors, Best Buy is dead last among the consumer electronics major players. Also note, the higher the NPS or consumer satisfaction rate, the higher the company’s sales increase was. The evidence is clear...higher customer satisfaction translates into higher sales...wake up Best Buy!

In summary, until Best Buy, and any other business for that matter, realizes it must treat their customers as individuals with different needs and expectations their sales will continue to decline. Bean counters NEVER realize how poor customer service can decimate a business as they make their cuts to shore up the bottom line. The lesson here is to learn to cherish your customers and never even treat them so poorly you lose them for life. So ask yourself Best Buy, was it really worth it to lose my business for life to avoid exchanging a phone case?


Follow-up: Best Buy's decline continues into 2016.


Related courses:

Customer Service

Customer Service for Health Care Professionals

Finance and Accounting for Non-financial Personnel