Case Study

Best Buy Opts for Tender Specific Loyalty

Best Buy Co. Inc. is a multinational consumer electronics retailer headquartered in Richfield, Minnesota. The company was founded by Richard M. Schulze and James Wheeler in 1966 as an audio specialty store called Sound of Music. In 1983, with seven stores and $10 million in annual sales, Sound of Music was renamed Best Buy Company. By 2003, Best Buy was operating more than 600 stores in the US and opened its first global-sourcing office in Shanghai in 2003.

Best Buy also launched its Reward Zone loyalty program in 2003. The launch followed a successful eight-month pilot scheme in southern California during the previous year. The hallmark of the original program design was an annual membership fee, as members paid US$9.99 per year for the right to participate and earn 100 reward points for each US$1 spent. The annual fee was partially offset by a 5,000 point enrollment bonus. The program effectively offered a 4 percent rebate as reaching a 12,500 balance triggered a US$5 award certificate, applicable to any Best Buy purchase over US$10. Reward certificates were automatically issued.

In 2006, Best Buy announced the launch of a ‘Best Buy Reward Zone Program MasterCard’ credit card, issued by HSBC North America. At that moment, the annual membership fee was removed, offering free access to the programme for everyone. According to Barry Judge, Best Buy’s senior vice president of marketing at the time, “Customers told us that they wanted a rewards program that was free. They were also looking to accelerate their reward potential. The changes we have made to the Reward Zone programme directly address those requests.” The new credit card provides automatic enrollment in Reward Zone and purchases made using the card earn 4% on Best Buy purchases and up to 2% on purchases made elsewhere.

Reward Zone continued to be a core part of the Best Buy value proposition for customers, enduring through changing times that presented tremendous challenges to brick and mortar retail during the period of 2010 through the present. In 2016, Best Buy made significant changes to its program, adding three tiers to the program with free shipping benefits, but devaluing points earned by fifty percent or so depending the customer tier impacted. The changes effectively concentrated benefits towards “Elite Plus” members who spent at least $3,500 per calendar year at Best Buy.

Fast forward to last week and the program now known as My Best Buy® has reached its zenith. The current program offer allows members to earn 1 percent back in rewards and a $5 reward for every 250 points accumulated. Now, the company’s website says that “Beginning January 9, 2023, My Best Buy® members will get free shipping with no minimum purchase required” (but with some restrictions on shipping options) and “On February 14th, reward points will become a benefit that’s exclusive to My Best Buy® Credit Cardmembers.”

That message is diplomatic loyalty marketing speak to say that points will no longer be earned by program members and will be available only to holders of the My Best Buy Visa card. The program terms and conditions, which you can read in full here, say that My Best Buy Credit Cardmembers will receive 5% back in rewards (2.5 points for every $1 spent) made with a My Best Buy Credit Card. Nearly 20 years since it first launched a loyalty program, Best Buy has returned to a payment tender specific model, an interesting choice considering that most retailers discarded this approach many years ago in recognition that it was the customer that mattered most, not how the customer chose to pay for their purchase.

Having tracked the Best Buy rewards initiatives for over two decades, The Wise Marketer was sad to see the program take its latest turn. We reached out to industry expert Phil Rubin, former CEO of rDialogue and Founder of Grey Space Matters for comment. Phil commented “Clearly BBY sees the value in its addressable and trackable customer base as greater via one of two outcomes; more credit card penetration because the card value prop is elevated without a non-tender option for rewards, or reduced expense from the costs associated with points issued. Best Buy is capable of very good relationship marketing but they are in such a commoditized business that the loyalty proposition was, at least for some, a differentiator versus Amazon or other merchants.  It’s hard to see the wisdom of reducing investments in customers when your comps are double-digit negative, even accounting for the COVID boost the company saw a year prior.  It’s harder to see a company like BBY, which used to be a loyalty leader, walk away from its core value proposition. The evolution of what was originally Reward Zone will make a fascinating case study, especially if and when Best Buy re-enters with a new loyalty proposition.”

Best Buy Opts for Tender Specific Loyalty
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