Best Buy's Gift Card Giveaway

Best Buy (NYSE: BBY  ) made an extremely interesting move today: It volunteered to give gift cards to HD-DVD customers who have gotten shut out now that the high-definition format wars have ended. I have to admit, it took me a while to figure out whether I thought this was brilliant or just another way to blow money in a beleaguered economy.

I'm leaning toward "brilliant."

Best Buy ... cares?
Best Buy said it will spend $10 million to give people who bought HD-DVD players from it before Feb. 23 each a $50 gift card. Furthermore, Best Buy isn't going to make customers jump through a lot of hoops to get the gift cards; it's going to proactively send the cards to those it can identify as having bought the players through its loyalty program or online. Customers who bought an HD-DVD player from Best Buy and don't receive a gift card can go to stores with proof of purchase and obtain their gift cards.

I was a bit alarmed at first. For starters, $50 wasn't going to cover the price of the Toshiba players that lost out to Sony's (NYSE: SNE  ) Blu-ray technology (especially not for the earliest adopters, since players were more than $500 at launch), and I simply figured many people who bought HD-DVD players will be pretty irritated no matter what.

Then again, the more I think about it, the more Best Buy's plan makes sense. I'm pretty sure when Sony lost the VCR wars with its Betamax brand lots of people just got burned, plain and simple, and had to bear the cost of the decision to go with Betamax and start all over again. And I'm sure most people knew the consequences if they picked the wrong horse in this century's format wars. (Indeed, many people have delayed upgrading, since they wanted to know the winner before they plunked down the cash.)

Things sure have changed, seeing how there's a retailer taking the stance that it actually gives a hoot about how such a development affects its customers who made their own choice about which format to go with.

But that's Best Buy for you. The retailer has long been carving a niche for itself in the consumer electronics space, utilizing a customer-centric approach to lure customers from rivals like Circuit City (NYSE: CC  ) and RadioShack (NYSE: RSH  ) . Both Circuit City and RadioShack are already in cost-cutting turnaround mode, which generally doesn't allow for throwing money at stellar customer service. It seems like Best Buy's going for the jugular during a difficult time -- again, pretty smart.

Last but not least, Best Buy says the gift cards will be in the mail by May 1. Which reminds me that the government's sending out those infamous tax rebate checks in May, too, with the hopes that people will blow some cash. I can't help but wonder if Best Buy's thinking that of those recipients who overlap, perhaps they'll pool the resources and participate in some economic stimulus via Best Buy. Crazier things have happened, right?

The Customer Comes First Club
Of course, this may be an expensive precedent for Best Buy. It may find customers always come to expect a little something to ease the pain of having purchased an obsolete technology. Then again, even if that's the case, it could end up being why customers choose to go there in the first place.

This kind of strategy isn't unprecedented in the retail universe. Some retailers bend over backwards to make their customers happy, even when it seems as though such actions would be a cash drain. Nordstrom (NYSE: JWN  ) is a prime example, long known for its over-and-above customer service that, from the short-term view, might seem like a hindrance to profits but, over the long term, gives it an excellent brand and a high level of customer loyalty. (That's why it was among the nominees for our "Best Customer Service" Fool Award at the end of 2007.)

Best Buy's "something" is better than nothing, and the retailer's volunteering to do something it doesn't have to do. That's smart, customer-centric strategy (and makes its rivals look a little less warm and fuzzy, too). That's one of the reasons that, as difficult as the short term may be for Best Buy, given elements like a slowing economy, I still think the stock's a really solid idea for the long haul.


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