Tuesday, January 18, 2011

The Marketing Strategy Behind Best Buy's Buy Back Program

Best Buy recently comes with a new promotion called “buy back program”. It offers a guarantee that consumers can sell certain gadgets, such as laptops, tablets, smartphones, and televisions back to Best Buy within certain periods of time. However, this “future proof” service is not attached to the product. Consumers need to pay a set fee in order to have this service and the fee depends on the sale price of the product. Another interesting point is that Best Buy does not buy its products back with cash. All consumer payments are in the form of Best Buy gift cards.

This is a great marketing strategy played by Best Buy. I think there are at least three profitable points from this promotion. First, buying sold products back creates a second value for the company. Best Buy has its own retailing networks, which allows them to sell these used products. Second, they capture a new group of consumers who tend to sell used products online. As they sell products back to Best Buy, they gain gift cards which can only be used in store. These gift cards will transform into new spending and thus increase the sales. Third, the entry fee for the program itself is indeed a huge amount of profits already. According to the deadweight loss theory in economy, imposing entry fee on consumers decreases their surplus and it will be transferred into producer’s profits. As you can see, the above three facts are the reasons why Best Buy starts this new promotion. Ultimately, they all bring profits to the company.

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