Buy.Com inc - Expansion, Customer Complaints Marked First Year

During 1999 Buy.com added an online music store that featured every title on the Billboard 200 for $9.95, excluding two-CD and box sets. In mid-1999 Buy.com redesigned its Web site to allow customers to buy products from its different specialty stores with one shopping cart. Specialty stores in operation included buycomp.com for computer hardware and software, buyvideos.com, buygames.com, and buybooks.com.

While Buy.com was hoping to gain customer loyalty on the basis of price, it was falling short in the area of customer service, according to some complaints. Protest sites with names like BoycottBuy.com began to appear, criticizing the company's customer service. A survey by ResellerRatings.com that was published in Sm@rt Reseller reported that more than 60 percent of online shoppers felt the company's sales staff was not knowledgeable and easy to deal with. More than 80 percent said exchanges were not handled professionally, and only about half said they would recommend Buy.com to a friend.

One area of consumer concern was the company's billing practices. Buy.com would book orders and bill the customer's credit card even if the item ordered was not in stock at its distributor, Ingram Micro. If the order went unfilled, then Buy.com would credit the customer's account—in some cases days or even weeks after the order was placed. When Buy.com 's advertised price for a Hitachi monitor was mistakenly listed $400 below the company's intended price, it refused to deliver the monitors at the incorrect price. That resulted in a class action lawsuit on behalf of customers who ordered the monitor, and the initial ruling in the case went against Buy.com.

All of this was especially troubling to Buy.com 's new CEO, Gregory Hawkins, who joined the company from Ingram Micro. To smooth things over, Hawkins invited a group of unhappy customers to the firm's Orange County headquarters in Aliso Viejo, California, and promised to hire customer service representatives to improve the firm's customer transactions. Before the end of the year, founder Scott Blum resigned as chairman and director, although he remained the company's largest shareholder with a 48-percent interest. Hawkins became chairman, CEO, and president.

Buy.com continued to advertise heavily in 1999 to build its brand. It took a TV spot in the Super Bowl and was expected to spend $25 million on advertising in the fourth quarter. When Nike Inc. ended its seven-year sponsorship of the Professional Golf Association's developmental tour, Buy.com signed a five-year deal to sponsor the tour starting in 2000.