What Best Buy Is Doing Right: Rewarding Loyal Customers

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Best buy Customers
Best buy Customers

Finally there's some good news for Best Buy (BBY) shoppers -- and perhaps, eventually, its shareholders.

Lost in last week's dreary announcements of job cuts, superstore closures, and potentially problematic employee incentive programs was a mandate to beef up its customer loyalty programming.

Reward Zone Silver -- the program that Best Buy reserves for customers spending at least $2,500 a year at its stores -- already offers some enhanced features that include free ground shipping on most BestBuy.com orders and relaxed terms on returns and reward point expirations.

Last week's quarterly report promises even more advantages to Reward Zone Silver members, who already account for a significant chunk of the company's business.

  • Reward Zone Silver customers will soon be upgraded to free expedited shipping on their BestBuy.com orders.

  • Members will receive "premier access to many of the most popular products and major sales events" at the store.

  • Silver members currently have a 45-day window for returns, slightly longer than the 30 days that other buyers have. The new policy will offer "no hassle" returns and price matching for up to 60 days.

  • The beefed-up plan will include a free house call from Geek Squad, Best Buy's tech support arm. The current plan already offers a complimentary home theater consultation, so one would think that this is related to other home tech issues.

How to Keep Shoppers From Straying

One can always argue that there aren't too many people spending $2,500 a year at Best Buy, especially these days, when lower prices are typically easy to find online.

However, customer loyalty plans work. Just ask members of frequent flier programs whether they even bother to check the fares at rival carriers when they need to book a flight. The same can be said for lodging chains with their customer reward programs. You'd be surprised how the promise of free WiFi or in-room amenities will keep travelers ignoring cheaper rates at nearby hotels.

Video game retailer GameStop (GME) has been able to hold its own during the past three years, which have been disastrous for the sale of games and gear, by growing the number of its PowerUp Rewards members.

PowerUp Rewards is a free program that offers GameStop shoppers points on purchases which can be used for discounts, exclusive game codes, and more. There is also a $15-a-year PowerUp Reward PRO option that includes even more goodies, 10% discounts on pre-owned purchases, and a magazine subscription.

Taking a Page Out of the Amazon.com Playbook

If some of the new Reward Zone Silver initiatives seem familiar, it may be because the meandering consumer electronics giant is eyeing some of the ideas that have been working for Amazon.com's (AMZN) Prime program. (As far as companies to emulate, Amazon's a good choice: Motley Fool analysts named it one of the cash kings changing the face of retail.)

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There are reportedly millions of Prime members paying $79 a year for the program, which provides free two-day shipping on all of the Amazon.com-warehoused goods. Yes, that's the "expedited" shipping that Best Buy appears ready to roll out to Reward Zone Silver members.

Amazon also offers Prime customers some unique digital perks. They get a free Kindle "rental" once a month from a select group of titles. Amazon also has growing video catalog of 17,000 titles that can be streamed at no additional cost.

Best Buy obviously doesn't have an e-reader platform to promote. It does have a digital movie service, but CinemaNow doesn't appear to be gaining any kind of traction. However, Best Buy is giving Reward Zone Silver members some neat perks that regular shoppers are certainly not getting.

Saving Best Buy -- Is There a Chance?

Is Best Buy the next Amazon.com or the next Circuit City? Negative store-level sales in four of its past five quarters, layoffs of hundreds of employees at the corporate and support levels, and plans to close 50 of its superstores this year may indicate that Best Buy is walking the path of Circuit City and smaller failed retail concepts.

However, Best Buy's resilient profitability gives it time to tweak the model and see if something works.

It may be too late. There are already too many ex-Best Buy shoppers with unpleasant memories of buying in the store, only to find the same thing elsewhere for less. Others are simply turned off by the litany of insurance protections and services that employees try to attach to merchandise sales.

We still can't underestimate the value proposition of a strong loyalty program. If Reward Zone and Reward Zone Silver can be magnetic enough to turn buyers to Best Buy the next time they need a printer cartridge or a washing machine, the company's prospects may not be as dim as last week's stock hit would seem to suggest.

For a free Motley Fool report about the cash kings changing the face of retail, click here. Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Best Buy, Amazon.com, and GameStop. Motley Fool newsletter services have recommended buying shares of Amazon.com. Motley Fool newsletter services have recommended writing covered calls on GameStop
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