Pociask: In The Electronics War Does The Consumer Really Win?
Consumer electronics is one of the largest drivers of the U.S. economy.
According to the Consumer Electronics Association, the average American household owns 23 consumer electronic products and has spent more than $1,200 on these types of goods in last twelve months.
During this holiday season, 80% of consumers plan to buy consumer electronics for themselves or as a gift for others.
Interestingly, with the demise of Circuit City, there are only two national retailers, of any significant size, that address this market. The largest consumer electronics retailer is Best Buy . Behind Best Buy, with a nearly 20% market share, is Wal-Mart, which has aggressively expanded into the consumer electronics market offering “rollback prices.”
Wal-Mart has been successful in adding new categories of goods to its repertoire, and enjoying sizable market share gains. Its success has changed the business models of its competitors in the toy, grocery and pharmacy retail industries.
Key to its success has been its ability to develop its reputation and brand as the lowest-priced retailer.
With its purchasing power and scale, as well as being the world’s largest retailer, many shoppers believe that Wal-Mart has the lowest prices, though actual empirical evidence supporting this view is generally scant and somewhat anecdotal. While the retailer may have among the lowest prices for its goods, so may others; and while it may have the lowest prices in some of its departments, it unlikely offers the lowest prices in every category of products it sells or for every product.
The American Consumer Institute just released a studythat examines the perception and the facts as to whether Wal-Mart is the low-priced retailer for consumer electronics products. The report begins by surveying consumers who have shopped at the two largest consumer electronics retailers – Wal-Mart and Best Buy – and asks consumers their opinions about which store has the lowest prices, as well as other attributes that are important to consumers, such as quality and staff support. Finally, the study determines which store offers, in fact, lower-priced consumer electronics based on the prices of a comprehensive market basket of products available in both stores.
The following are the key findings of the study:
• For retail electronic goods, consumers believe that product quality, knowledgeable staff, and finding in-store help are more important factors than retail price.
• In terms of which company does a better job serving its customer, shoppers rank Best Buy higher than Wal-Mart in most respects, including overall, as well as in terms of higher product quality, more knowledgeable staff, ease in finding help, wider electronics selection and better post-sales support.
• In contrast, consumers (particularly lower income) overwhelming believe that Wal-Mart offers lower prices for consumer electronics.
• However, contrary to conventional wisdom, an analysis of a market basket of electronic products finds no significant difference between Best Buy’s and Wal-Mart’s consumer electronic prices – either for online or in-store shopping.
In other words, the major finding of the study is that there is little evidence to support the public perception that Wal-Mart is the lowest priced retailer for consumer electronic goods.
Why consumers have this belief is another matter – possibly reflecting effective marketing or customer shopping experiences across other departments within Wal-Mart. It may also reflect some common retail tactics – such as selling inexpensive off-brands, offering only the least expensive model in a manufacturer’s product line and avoiding in-house post-sales services (such as repair, delivery and installation).
Whether Wal-Mart can achieve the same level of success in consumer electronics it has in the toy, pharmacy and grocery markets remains to be seen.
It does appear that there are a number of “high-touch” interactions that most customers prefer, even in these leaner times, and that Best Buy will continue to benefit from offering them.
In summary, this research finds that consumer electronic shoppers need to do their homework and carefully compare prices. While many consumers, particularly lower income consumers, believe that Wal-Mart has lower prices, the reality is that Wal-Mart’s consumer electronics products are priced about the same as Best Buy’s products. Additionally, because consumers require more information to make informed decisions on the purchase of electronic equipment, consumers may in many instances receive a better overall value by purchasing from a full-service retailer. As we edge toward the holiday season, these results amplify for consumers, and investors, the importance of comparative shopping before making a purchase.
The full study can be found atwww.theamericanconsumer.org.
Steve Pociask is President of the American Consumer Institute Center for Citizen Research. The American Consumer Institute Center for Citizen Research is a 501(c)(3) nonprofit educational and research institute based in Washington, DC. The Institute focuses on economic policy issues that affect society as a whole, and seeks to be a better and more reasoned voice for consumers, by using economic tools and principles to show that markets work best for the benefit for consumers. It is committed to the use of generally accepted quantitative, cost-benefit analyses of policy alternatives and their transparent application to assure that our methods can be fully and fairly evaluated on their own terms and by those who may disagree with our conclusions.