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Buy.com gets pre-IPO makeover

The company wants to improve its reputation for customer service as it prepares to offer stock to the public.

Chastened by disgruntled customers and preparing to file for an initial public offering, Buy.com is making itself over in an attempt to become more palatable to both shoppers and investors.

Today, Buy.com opened a music store, bringing to six the number of stores it operates online: Buycomp, Buysoft, Buybooks, Buygames, Buyvideos, and Buymusic. The new store brings Buy.com more directly into competition with leading retailer Amazon.com, but Buy.com is also hoping to chip away at Amazon's lead in another area: customer service.

Since it launched a little more than a year ago, Buy.com has distinguished itself with aggressively low prices and heavy advertising to lure customers. Those tactics made Buy.com a leading name in online retail, but its reputation has been tarnished by complaints that it does not always honor the low prices it advertises.

Buy.com is now trying to spin itself in a more positive light. In addition to the music store, Buy.com has redesigned its Web site to emphasize customer service. Its home page now contains prominent links to order tracking and a service agreement, and the company has discontinued its practice of posting charges to the customer credit cards as soon as an order is received. Instead, it will now wait until the order is shipped to post the charge.

Other customer service improvements include "expanded email communication to better inform the customer of their order status," the company said in a statement issued today. In a February episode in which Buy.com accepted orders for a computer monitor that was mistakenly listed hundreds of dollars below the correct price, customers complained that automated email responses were confusing and contradicted the statements of company representatives reached by phone. Buy.com said it is also adding live chat with customer service representatives.

The new policies are designed to project a new Buy.com, but the company has not backed away from its low-price lure. Starting today, the company has pledged to sell any product at 10 percent below the price of its top three online competitors, and has included a search engine to help the shopper compare prices.

Giving customers the ability to compare prices could boost Buy.com's credibility, according to James McQuivey, but he doesn't believe the company can offer both the lowest prices and responsive customer service in the long run.

"When you operate on a zero margin your customer service will suffer," said McQuivey. "You can't have both."

The competitors that Buy.com has targeted vary from market to market. They include Reel.com, CDW, NECX, Barnesandnoble.com, and eToys, but the name that appears most frequently is Amazon.com.

Buy.com has made no secret of its ambition to be a major shopping destination on the Internet, something that Amazon has also set out to do. Last November, Buy.com chief executive Scott Blum told CNET News.com, "We are truly the Amazon of the computer marketplace today," but in the music, book, and video markets, the company is now taking on Amazon directly.

Chris Vroom, an analyst with Thomas Weisel Partners, believes the changes Buy.com has made are intelligent but won't be enough to dislodge Amazon. Buy.com "is going to be an important factor in the e-tailing world, but it's not going to displace other leaders on the basis of price alone," he said.

Buy.com executives won't comment--they have been in a self-imposed quiet period for about a month while the company shops itself around to investment bankers for the chance to take the company public (it has not yet filed with the Securities and Exchange Commission for an IPO). As a private company, Buy.com has watched as Amazon and others have raised billions of dollars in the public markets. With investors' enthusiasm for Net stocks continuing, a Buy.com IPO is likely to be a hot prospect.

But what Buy.com appears to want most is Amazon's reputation for customer service. Buy.com may be an aggressive competitor, but it was unprepared for the consumer backlash unleashed by the monitor price mixup in February. Although Buy.com rushed to add a clause about typographical errors in its service agreement, it was unable to prevent disgruntled customers from creating anti-Buy.com Web sites and discussing the company's policies at length on message boards. Finally, Buy.com agreed to fulfill more than 140 orders for the monitor at the incorrect price, but some who did not receive the monitor have filed suit against the company.

Dispelling the notion that Buy.com's customer service is inferior is the only way for the company to build loyalty among shoppers who are just a click away from the competition, according to Dan Miller, vice president at e-commerce consultancy The Kelsey Group.

"I don't think the challenge is to prove that you can sell products below cost," Miller said. "The challenge is to engage customers and try to anticipate their needs, preferences and wants."