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Best Buy Has a Solution for Buyer's Remorse

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Do you need a new phone, laptop, TV, or tablet right now, today, but can't help salivating over new gadgets at CES that won't be released for a few months? Best Buy (NYSE: BBY  ) may have a solution for you. The company launched its buyback program Monday, offering to let customers trade old purchases in for newer models. The program might take the edge off buyer's remorse, but it's likely to benefit Best Buy more than its customers.

You can now pay Best Buy an additional $69.99 (for laptops, netbooks, and tablets) at the time of purchase for the option to trade the product in within two years (four years for TVs) for some percentage of the original price. The percentage you get back decreases over time, so it's better to do so sooner rather than later. The fee differs for mobile phones and TVs.

The program has a lot of benefits for Best Buy. First, while it isn't the only one of its kind -- Wal-Mart (NYSE: WMT  ) and GameStop (NYSE: GME  ) both have similar programs -- it still makes Best Buy more attractive than, say, buying straight from Apple when getting that new iPhone, which is likely to be obsolete within a year.

Second, much like extended warranties and mail-in rebates, a good portion of customers will likely never bother to trade their product in, letting Best Buy pocket the fee. Even if it gets redeemed, the customer only gets a Best Buy gift card, which also has a chance of never being used. Best Buy is no stranger to gift card breakage profits.

And even if those gift cards get fully redeemed, the company says it will likely sell the traded-in products through online auctions, where used iPhones, for example, often sell for close to full retail -- higher than the trade-in cashout.

And finally, the program makes customers feel like they're saving money, but it actually encourages them to spend more. Customers might normally get a new $300 phone every couple of years, but after spending $69.99 to get 40% back after one year, they might feel compelled to start buying more frequently and not let this money go to waste, giving Best Buy a net $249.99 each year for a new phone and trade-in option.

This trade-in program may help some customers (some are even gaming it), but it seems like it will help Best Buy more than anyone.

Fool contributor Jacob Roche holds call diagonals on Wal-Mart, but has no other position in the stocks mentioned. Best Buy and Wal-Mart are Motley Fool Inside Value picks. Apple and Best Buy are Motley Fool Stock Advisor selections. Wal-Mart is a Motley Fool Global Gains recommendation. The Fool has written puts on Apple. Motley Fool Options has recommended buying calls on Best Buy. Motley Fool Options has recommended writing covered calls on GameStop. The Fool owns shares of Apple, Best Buy, GameStop, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On January 15, 2011, at 8:52 AM, jfrankh57 wrote:

    Yeah, gimmicks have been a favorite of retailers for generations, now. The ideal of service is lost and gimmicks fill the void.

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