Is 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 always look for good and bad customer service examples to share with my students. I want 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 I forgot to bring the case with me every time. We recently needed a flat-screen TV to use in one of our classrooms, so, just like many times before, I headed to Best Buy 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 looked at what was available, another clerk came up to me, handed me the case I wanted to exchange, and said I could not return it 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 returned the phone to customer service and asked to speak to the manager. I told him what had just happened and asked him if it was worth it to lose a customer for life 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. It has been my experience that frontline people closely reflect their superiors’ attitudes, 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 the review filed on 2/12/16). I looked over many negative reviews to understand what to expect. I observed the same indifference as was reflected in the store. I filed my complaint and received a boilerplate apology for the inconvenience, but they were sticking to their policy. 

OK, so Best Buy has demonstrated that it does not care about its customers at every level. I then wondered if I could find any evidence this policy was damaging their business to show my students the folly of 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 of poor customer service, but in 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? Were 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 drove its customers to their competitors in significant numbers. 

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

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 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 its 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. 

Best Buy improved 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 behind Apple and Walmart. Amazon’s EPS is low because the firm is in a growth phase and is investing heavily in Research and Development. To correct this distortion, we can turn to another financial ratio that financial analysts use to measure management performance, EBITA (Earnings Before Interest, Taxes, and Amortization).

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

The spin on this one is almost shameful. The CEO/President’s letter boosts an improvement of 450 basis points. It 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, their sales will continue to decline until Best Buy and any other business realize they must treat their customers as individuals with different needs and expectations. 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 cherish your customers and never even treat them so poorly that you lose them for life. So ask yourself, Best Buy, was it worth losing my business for life to avoid exchanging a phone case?

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