Saturday, September 08, 2007

With Wal Mart What You See Isn't What You Get

I just came across something that surprised even me.

H/t to Mosquito Blog for leading me to this diary on Daily Kos. According to JR Monsterfodder, Wal-Mart’s prices are actually higher than those of other retailers most of the time and by significant amounts.

In fact, Wal Mart charges more money for its goods 80% of the time. Eighty percent to 85% of Wal-Mart’s prices are higher than other store and only 15% to 20% of their prices are lower.

Ironically, the mainstream business media furthers the myth that Wal Mart has the lowest prices and has achieved them by squeezing out efficiencies in stocking, maintaining a vast database and clever inventory stratagems. And Wal Mart is often lauded for using their size and clout to push their suppliers’ prices lower and passing along the saving to consumers.

In addition, Wal Mart is famous for keeping store overhead and expenses low by offering the cheapest wages and poorest benefit packages in the retail industry. They have consistently fought off unionization efforts, hired illegal immigrants, and encouraged their workers to go on Medicaid rather than providing them with health insurance. And, it goes without saying that the suppliers who must keep their prices low are also not paying their own workers good wages or providing other benefits, so Wal Mart creates a chain reaction of poverty, a true race to the bottom for workers. The cost of those cheap prices is that Wal Mart is also the only place that those workers could afford to shop. And actually, their own workers can’t even afford their prices, which is why Wal Mart supported raising the minimum wage. They reasoned that if the minimum wage was higher, it would force their competition to raise wages so Wal Mart could still undercut the salaries Target and Kmart paid their employees.

But the real irony, it turns out, is that Wal Mart isn’t even passing genuine savings on to consumers to justify all the misery they cause their workforce. And their lack of genuine savings means, they can’t even justify the shoddy goods they sell.

So, how did Wal Mart get their reputation for having the lowest prices around? According to a study by Zenith Management Consulting, it’s because Wal Mart uses very clever advertising and marketing strategies.

Their real strategy is to use marketing tactics that create the perception of cheap prices by putting a few high volume items out front, displayed prominently, with very low prices. Here’s what Zenith had to say about Wal Mart’s marketing technique to create the illusion of price savings:

We did nearly half a million-price checks in 300 Wal-Mart, Target, Kmart, and national chain grocery and drug stores to find out who really has lower prices.
  • 85% of Wal-Mart's prices are higher than its competitors as a group;
    Wal-Mart's main success-driver is that consumers perceive its prices are lower, which they are not;
  • Consumers perceive that Wal-Mart's prices are lower because of a complex set of perception-altering mechanisms;
  • Wal-Mart's core competence is not logistics or low prices; it is perception-alteration: public relations;
  • Real-world tests show that consumers can be brought back to the other retailers only by addressing the alteration of perceptions;
    Real-world tests successfully brought consumers back to other retailers, and they stayed after 12 months.
But one thing that isn’t an illusion is that their products often are of lower quality. In fact, even some major companies, like Goodyear, produce a special line just for Wal Mart, with lower quality goods.

The other trick Wal Mart is famous for is going into rural areas and starting out with genuinely low prices that produce big savings for consumers. They run out the other competition, usually just the small scale mom and pop shops. But once that competition is gone, Wal Mart’s prices climb. As Wal Mart grew and expanded into more populous suburban and urban areas, that strategy began to fail them. It’s not as easy to drive a Target, Sears, or Kohls out of business as it is a mom and pop shop or a smaller scale supermarket in a less populated rural area or small town.

Wal Mart began to modify their business plan to appeal to a more upscale market. Where they once targeted consumers earning $25,000 a year, they began trying to cut into Target’s and Kohls’ market share, which is consumers in the $40,000 and up salary range. But it hasn’t worked as well as they’d hoped. Wal Mart’s sales have been flat and their investors are unhappy with their recent returns.

And studies like this may educate more buyers that with Wal Mart there is less than meets the eye when it comes to saving money. In fact, the only ones benefiting from Wal Mart’s business strategy are the company’s executives and owners, Sam Walton’s kids.


Anonymous said...

This was all explained here:

Genevieve said...

"According to JR Monsterfodder, Wal-Mart’s prices are actually higher than those of other retailers most of the time and by significant amounts."

Yup. Wal*Mart doesn't really claim to have the "lowest" prices, though. They claim an "everyday low price," which is nice and vague. They're referring to the prices within their store, which are "everyday low" because Wal*Mart doesn't do sales. They don't have the *lowest* prices, and they never will. Dollar General beats 'em out every time. ;)

I did a lot of study on Wal*mart when I was in the marketing program at GMU. It's really fascinating to look at how the store operates, how they market to the consumers and how different the store is now from when Sam Walton was running it. (Sam Walton was an amazing human being. His kids are bags of scum.)

But don't despair, AIAW! Wal*Mart is actually in some trouble right now regarding their image among consumers. Seems a lot of people find the stores to be kind of dirty, the product image to be shoddy, the help unhelpful and Target to be a better dealio for them. :) I sold the case I had on Wal*mart, but I remember reading about how some of their numbers were going down and a lot of the internal issues they were having.

AnonymousIsAWoman said...

You're absolutely right, Genevieve. There's a Wal Mart and a Target right near me. I sometimes walk through the Wal Mart after I get a manicure so that I can let my nails dry before rummaging in my handbag for my car keys.

Anyway, the store always looks dingy and dark and their merchandise just is schlocky.

Target is brighter lit, has more helpful staff, and their stuff really has better quality. And we also have a Kohls nearby. They have really good buys on casual clothes.

I also know Wal Mart is in trouble with investors because of their poor returns and stagnant profits.

And thanks for your analysis.

i.m.small said...


Remember those old codgers George and Sam--that´s Bush and Walton--
Each patting of the other´s back as if there were no salt in
The vasty earth except for those who both knew how to profit--
Yet what have they bequeathed us, please? That perch, you must come off it.

So both colluded in a way to take jobs that paid better
And send abroad--to China--hands that knit and purl that sweater,
Not that (you understand) I harbor feelings as begrudge
My good Chinese friends--pungyomen--who mostly toil and trudge:

But I resent the profiteers that toy with persons´ lives,
As make employees bondsmen that are trapped within the hives
Of labor without any true compassion to console ´em,
Fulfilling tasks tout de suite in modulated rank and column.

No, George and Sam in their flim-flam may slap each other´s backs,
Despite which mien of friendliness we see between the cracks:
It was all talk how all of it was good for all of us,
But distribution´s mean unkindly treated many thus.

Again so tell me what has each of these men left behind?
A fortune for their children to distribute to the wind;
Disasters, turmoil, trouble as ensue, without some charm
To compensate depletion having pilfered all the farm--

So the majority will starve for bread, save Ali Baba
Come open up the store--Bush had Ambassador Al-Sabah
Hands overhead clasped to congratulate his war Kuwaiti,
While Walton saw communities reach poverty like Haiti.

Nor either George nor Sam nor neither Sam nor George (you notice?)
More than hot air has left us having flapped his epiglottis,
For plastic goods and oil muck as pollute land, sea and air,
Are but the legacy with us these rich men had to share.

So should we then admire them having made their buck, held power?
The vagrancies of profit do not last beyond an hour--
While it is only by the good a man has left behind
Eternal valuation we esteem so as we find.

(Nor don´t supply me with a further cause for umbrage, unction--
The children left behind is but a biological function,
So one may swagger snidely with a codpiece for compunction,
The heavens do commend neither the juncture nor the junction.)

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