As Competition Heats up in the Consumer Electronics Market: Who Do Consumers Prefer – Wal-Mart or Best Buy?

With the demise of Circuit City and Tweeter, the two biggest retailers in the consumer electronics market – Best Buy and Wal-Mart – are fighting it out, leaving consumers to be the biggest winner. This ConsumerGram explores what shoppers want when they look for electronic goods, and preliminary survey research finds that shoppers think product quality, knowledgeable staff and finding in-store help are more important than price. In terms of which company does a better job serving the customer, shoppers rank Best Buy higher than Wal-Mart in all respects – including highest overall in comparison to Wal-Mart – with the exception that consumers believe that Wal-Mart offers lower prices on consumer electronics. However, independent price analyses find that Best Buy’s prices for consumer electronics are comparable to those of Wal-Mart. As we edge toward the holiday season, these preliminary results amplify for consumers the importance of comparison shopping, before making a purchase.


Introduction
Buying consumer electronics is much more complex than, say, buying eggs or bread. Consumer electronics are produced by many manufacturers and are widely differentiated by models, types, colors and features. Technical specifications add a layer of complexity to consumer buying decisions – with terms including memory, storage, pixels, format, connectivity, compatibility, compression, HD decoders and so on. This means that collecting information can be a critical step for those shoppers wishing to make good buying decisions. To better understand how consumers deal with this complexity, this ConsumerGram explores what consumers believe to be the most important considerations when shopping for consumer electronics, including quality and price. It also compares prices between the two biggest consumer electronics retailers – Best Buy and Wal-Mart.

Consumers Say Price Is Not Most Important
The survey asked electronics consumers to rank (on a scale from 1 to 5, with 1 being least important and 5 being most important) how important various factors are when shopping for consumer electronics goods. The factors included the importance of high-quality products, having the most knowledgeable staff, being easiest to find help, having lowest-priced products, having the widest product selection and having more after sales support options (such as installation, repair, warranty and delivery). The chart below shows the percentage of consumers who ranked the factor as being “most important” to them when shopping for consumer electronics. As the chart shows, lower product price is less important to consumers than higher product quality, having access to a more knowledgeable staff and being able to find store help, which may reflect, in part, consumers’ need for good information when shopping for consumer electronics products.

 

Next, consumers were asked to consider each of the above factors – higher service quality, a more knowledgeable staff, easiest to find help, lowest price, widest selection and most options for after sales support, and to judge which store – Wal-Mart or Best Buy – ranked better or worse. According to the survey results, consumers feel that Best Buy provides significantly better quality (66% vs. 7%), has a more knowledgeable staff (85% vs. 6%), makes it easier to find in-store help (69% vs. 15%), and provides a wider product selection (81% vs. 8%) than Wal-Mart – in addition to providing better after sales support (69% vs. 7%). Overall, consumers picked Best Buy – by 68% to 19% over Wal-Mart. However, consumers did perceive Wal-Mart better in one area – price. These results are shown in the chart on the next page.

 

 As shown in the chart below, a closer examination of the demographics of consumers of electronics finds that shoppers with lower household income value price higher than others, and perceive that Wal-Mart is lower priced. Statistics also show that as consumers spend less on consumer electronics, they tend to believe that Wal-Mart is lower priced. However, unlike opinion research, whether or not Wal-Mart has, in reality, lower prices is a testable hypothesis.

 Price Comparison
While ranking quality and other attributes is purely a subjective consumer assessment, price can be measured objectively and directly. For instance, Deutsche Bank Securities, in their August 31, 2009 consumer retail research report, analyzed prices for identical models of High Definition Televisions (HDTVs) in both Wal-Mart and Best Buy, and found Best Buy to have maintained lower average prices over the last 11 consecutive months.

In order to expand on the Deutsche Bank assessment, TeleNomic Research compared a market basket of electronic hardware – including digital camcorders and cameras, computing equipment, HDTVs, home theatre, MP3 devises, DVD players and so on – and found the in-store price differential to be only 1% in favor of Wal-Mart. However, when other attributes were considered the differential appears to be insignificant. For example, Best Buy offers free delivery, installation and removal of the old television for many of its HDTVs, a value that could well offset the price differential. Wal-Mart offers none of these services. Furthermore, when comparing online prices for the same market basket of consumer electronics goods, Best Buy had slightly lower prices than Wal-Mart, once shipping costs were included. In short, Best Buy and Wal-Mart appear to be priced very evenly, which highlights why consumers need to do their research before buying their electronic products.

Summary
Survey research finds that consumer electronics shoppers have an over all preference for Best Buy, particularly in regard to having better quality, selection, pre-sales assistance and a knowledgeable staff. However, many consumers, particularly lower income consumers, believe that Wal-Mart has lower prices, when in fact prices are essentially the same.

The idea that Wal-Mart has lower consumer electronics prices is one based on perception, but not fact. The fact that both stores offer competitive prices demonstrates that it is important for consumers to do their homework first, shop around and watch for weekly sales before buying their consumer electronics.

Posted: September 28, 2009

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