Case Study: Why CompUSA Is Losing The Battle For Computer And Electronics Sales
CompUSA, a nationwide computer and software chain, grew immensely in popularity in the late 90′s and seemed poised to own a significant market share in the personal computer and software market for the foreseeable future. Last week however, CompUSA announced it was closing 126, including ten out of eleven stores in New Jersey, a major market for computer sales. This massive change in market placement didn’t happen overnight though, so what happened?
Early on in CompUSA’s existence, a different chain named “Computer City” challenged CompUSA. CompUSA, which had the better brand name, and offered special “free after rebate” sales, beat down Computer City, and eventually bought up the chain at a steal of a deal. One down, many more to go.
As in any hot market, more competitors showed up after CompUSA’s original success. Rivals such as Best Buy, Circuit City, RadioShack started carrying software and computer related items.
What were their core businesses originally?
Best Buy – Appliances, TV, Electronics, Movies, Video Games
Circuit City – Electronics, Office
RadioShack – Electronics
Office Depot – Office, Fax, Furniture
Each of these business models changed after CompUSA’s initial success. They all started offering computers, monitors, software and accessories.
CompUSA meanwhile, hot off the success they had in the computer market, decided to battle these rivals on their own turf by adding in video games, electronics, cell phones, TVs, and even cellular service to their own stores.
In line with the “Sharp Knife Through Soft Butter” Marketing Technique I have previously discussed, this started to dilute CompUSA’s brand as “the computer seller”, and actually brought on their demise.
Business Lesson: When you can’t get your core business right, the solution is not to expand the circle of products – rather to look into your company and figure out what you are doing incorrectly in the first place.
When they started, the general public knowledge of computers was very novice (aside from computer professionals), and people were happy to have someone in a CompUSA polo shirt tell them what each thing was (whether or not the information they received was accurate).
As the internet gained in popularity (enabling more computer related learning as well as more avenues for research on these products), and Generation Y grew up around computers, the general public was more informed about computing. Even “computer-illiterate” parents were able to just ask their children what to get and where to get it when it came to computers and software.
Aside from that, it was mostly young people who were providing the customer service and sales at your local CompUSA. Most of their peers were buying online, or attracted to “hip” stores like Best Buy instead. And, as is often the case, Baby Boomers prefer to deal with similarly aged people. The ensuing result was the loss of CompUSA’s entire base. This is actually reminiscent of what occurred to AOL, and why their browser was destined to fail (“built by dummies, made for dummies”).
Prices online almost always beat CompUSA’s prices. The two most organized attacks on their market share were Dell and Gateway’s direct sales model online, as well as “computer superstores online like NewEgg.com. CompUSA, in an effort to regain control, had special sales where after rebate computer related items were free….the same “diehard” computer fans would rush in each time (I was one of them), buy up everything free, and then leave. The normal buyers came later for one free item, saw it wasn’t even in stock, and left, pissed off forever at the store for lying and for the dreaded long lines.
One day, I’ll explain just how important proper return policies are (and I’m sure you’ll have strong feelings of your own about what constitutes a proper return policy), but for now let me just mention that at a certain point CompUSA changed their return policy to state that no opened items could be returned. This is virtually a death wish in a competitive market. Why would I ever risk buying something that didn’t fit, didn’t work, or wasn’t what I wanted if I can’t return it?
A typical visit to CompUSA would go like this:
I would go in, ask for some help finding a part for a certain product, and have a “consultant” show me the part. I would ask, “are you sure this is correct?”, to which I’d receive the reply “yes, this is right – I’m a consultant!”. Well, what do you know, I’d take it home, try to put it in, and find out it didn’t fit, didn’t work, or wasn’t what it claimed to be. I would then waste more time/gas driving back. I would get on the return line, which was on a regular basis twice as long as that to checkout (go figure). Once I finally reached the return desk, I would simply be informed “you can’t return that – it’s open”. I would then explain the situation, and go back and forth with them for 15 minutes while everyone lined behind me got a taste of what they were about to experience. The achievement I would feel, walking back to my car after successfully convincing them to return my item, would not be easy to understand unless you have been through the same.
The most interesting thing about this is my experience wasn’t isolated. I would routinely come across others who had similar experiences…this clearly wasn’t isolated instances I encountered.
The lesson for companies is:
a) Stick to your core business – it’s simple physics: if you are running in one direction at top speed, and never veer off that direct line, anyone else who is interested in catching you would need to be running faster than you or start at the same time as you. This is the strongest strategy.
b) Train your employees to the level of customer service that you would wish to receive at a store
c) Design an enjoyable experience for shoppers of your store.
I like to say, in business, we learn through mistakes; preferably not our own.
Did you have any experiences, good or bad with CompUSA? Feel free to add a comment.