Running the Numbers on the Best Buy "Buy Back" Program
Let me state my bias up front: I really like Best Buy. I think that they have consistently demonstrated a savvy about the consumer electronics business that other companies only dream about. It's a tough market too, littered with big failures, most recently Ultimate Electronics. But somehow, the savvy Best Buy team seems to nail times time and again.
Which is why it's very interesting to see that they've introduced a "Buy Back" program that lets customers sign up at point of purchase to guarantee that their consumer electronics will have some sort of value down the road when they're ready to upgrade.
But is it a good deal? Let's run the numbers...
Note: this is based on what information I can find online. Best Buy hasn't done a good job of cleanly and clearly explaining the exact terms of the program yet.
Let's say that 11 months ago I bought my shiny Apple iPad from Best Buy. $699 would have bought me a 64GB wifi unit and for 11 months I would have been happy with the device. Until a week ago, when Apple announced the iPad 2. Ohhh, time to upgrade!
Now if I were smart, I would have enrolled in the Buy Back program. That would have cost me $69.00.
The terms of the buy back is that they'll guarantee you 50% of your purchase price for the first six months you own the product, then 40% for 6-12 months, 30% for 12-18 months, and so on. This comes as a gift card to Best Buy, not cash or a check (typical Best Buy savvy: you have to turn around and buy something else from their store).
That iPad would have cost me $699.00, and 11 months later, the tradein would have been 40% of that value, $279.00. But remember, I also paid $69.00 to enroll in the program itself, so we're really talking $219.00.
Not so great a deal, really. You'd have lost approximately 70% of the value of the product in less than a year. That's like your fancy $35K Toyota Prius dropping down to $10K less than a year after you drove it off the lot. Yikes.
Here's the other wrinkle: A quick search of Craigslist reveals that people are selling their 64GB first gen iPads w/ 64GB for $550-$600. Yes, it's a hassle to sell your used equipment, but if you can get $600 for it instead of $219, well, you can do the math.
Given that, I won't go as far as to say that the Buy Back program is a bad deal. Instead, I'll call it a convenience tax: if you want to go through the hassle of selling your used consumer electronics equipment (and a big TV, for example, is a lot more trouble to sell than a compact laptop or personal device) then you are clearly going to get more money for it. That's true of anything used.
As with everything, as with extended warranties, calling cards, and even gift certificates, go in with your eyes open. Run the numbers yourself and ask yourself honestly, are you really going to be upgrading your gear in a short enough time period that it's worth the enrollment fee? Note that it's not refundable: if you don't sell your gear back to Best Buy, you're just out that $$.
I'm again impressed with Best Buy's savvy in this situation. They have run the numbers and understand that for many of their customers, it's in with the new, push aside the old and let it just collect dust. If you are - realistically - going to just have your old laptop, TV, cellphone or music player just sit in a drawer, heck, even 25% of its value as a gift certificate is better than it slowly depreciating to zero and being eventually discarded.
Further reading on this subject: Miami Herald, Sacramento Bee, Time Magazine Blog and Time's Money Blog.
Posted by Dave Taylor at March 14, 2011 4:22 PM
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