In the announcement, Ozzy and Sharon Osbourne and Justin Bieber appeared in futuristic clothes, pretending to tape for "5 G spot," and then, immediately, "6 G" phones. "There are Those bloody g?" Ozzy muttered.
Best Buy's response was essentially this: don't worry, Ozzy. Just let Best Buy "future proof" technology with its new "Buy-Back programme."
There is no fine print, however, that Ozzy might want to read. The buy-back plan looks like expensive extended warranty plans of Best Buy, and unless consumers are savants and masters of various actuarial calculations of risk, it may prove an ill-considered purchase for most of them.
Best Buy invoices the share repurchase plan as a way to stay ahead of ever-improving technology. His marketing on its Web site offers this message, "now you can own the latest." The program requires, however, that committed customers and pay in advance for something that may or may not be used. This is an option, in the classic sense: you pay for the privilege of keeping open the possibility of selling the gadget back to Best Buy.
I spoke recently with George Sherman, senior vice president for service at best buy, who provided an illustration of how the program works. When you buy a $ 2000 TV, for example, a customer can pay an additional $ 179, which will provide a Best Buy gift card with a value of "50 percent" of the original purchase if the product is sold back to Best Buy within six months (in fact, seven; Best Buy does not start counting the period up to 31 days after purchase).
The "up to" has your qualifications fine print, and the value of buyback descends steeply over time. If the television was sold back between 25 and 49 months, the customer receives only "up to 10 percent." For other products — cell phones, laptops, computers, netbooks and Tablet PCs — offer ends 25 months after purchase.
There is a risk, however, that improved, new versions of the technology does not come quickly as advertisements. You may end up without a valid reason to buy a new TV within months of initial expenditure of $ 2,179.
The multi-year terms and conditions, Best Buy explains that "time is of the essence". If the option to repurchase was not exercised within this period, you lose all the value. That is not the case with an arrangement of trade-in conventional, such as Best Buy also offers and does not involve the purchase of a put option-back in advance.
If the customer is the company to repurchase the product, Best Buy pays with cash, but not with the gift card. If the customer redeems the never option, all the best for the retailer. "By collecting a fee for a service that is not used is a wonderful business," says Matthew Fassler, an analyst at Goldman Sachs.
In the course of the fiscal quarter that ended on November 27, Best Buy, reported a decrease of 5 percent in comparable-store sales in the United States and Puerto Rico, compared to the previous quarter. A category with a sharp decline in the consumer electronics age, down 10.6%. Services of Best Buy, which include extended warranties, that proved more durable, down only 1.5 percent.
Mr. Fassler says that Best Buy has not disclosed for many years as very extended warranties help its profits. Retail sales of consumer electronics is "historically a low margin business that depends on extended warranties for profitability", says. "Maybe extended warranties have become even more valuable than Best Buy recently, as its content businesses — such as film and music — are compacted."
Consumers who choose the option to repurchase must hope that a clearer vision of the future — and the new technology that will bring — compared to those who buy extended warranties to guard against unforeseen problems. Mark Kotkin, Director of survey research at Consumer Reports, says, "the seller often tells you, ' this will give you the peace of mind should you require a costly repair. Would do it. ' But the probability of a product to bring down a typical extended warranty period are low. "
Even if you break the product, the cost of the repair is not much more, on average, compared to the cost of the guarantee, he says. He concludes that extended warranties are a bad bet ".
AJAY KALRA, a marketing professor at Rice University, agrees. "All statistics are compelling: in almost all cases, you should not buy the extended warranty," he says.
Professor Kalra has co-authored an article of 2009 published the Journal of Consumer Research that examined the purchase records from the Department of electronics of a dealer that is not identified.
An extended service contract is purchased in about 3 of every 10 transactions. Subjective considerations the authors noticed: clients were more likely to add the warranty if the product was to be used mainly for fun. These products, the authors hypothesize, ' arouse feelings of guilt and increasing risk aversion.
I'd love to know that Best Buy is not making ridiculously high margins on extended warranties and other services, compared to sales of the products themselves. Here is a picture of a better future: Best Buy again breaks out the margins earned by each service Add-ons.
Can be long past the day Ozzy Gets his bloody 6 G.
Randall Stross is an author of base in Silicon Valley and Professor of business at San Jose State University. E-mail: stross@nytimes.com.
