Wal-Mart Prices

From Bill Quinn's book How Wal-Mart Is Destroying America (and the World):

Wal-Mart got by with the slogan "Always the Lowest Price. Always" for years, until the National Advertising Review Board, which is funded by the Better Business Bureau, investigated the claim that Wal-Mart always has the low(est) price. The Board found that this just was not and is not true, and promptly ordered our pals in Bentonville to stop saying it. 

Wal-Mart then had to change its motto to something that barely skipped around the law-like "Always Low Prices. Always"-so near the original slogan that the public in general still perceived that Wal-Mart had the lowest prices.

How much of the myth of "Wal-Mart prices" based upon reality?  From an article titled How Do You Deal with the Entry of a New Wal-Mart Supercenter into Your Town? by Kenneth Stone in the March 2005 issue of PM Magazine:

Anyone who has missed the point of the bouncing yellow smiley face in Wal-Mart's TV advertising, promising "Everyday low prices-Always," must be living on another planet. Wal-Mart has aimed to create an unfailing image of low prices for consumers every day, and while this is not strictly true for all items on all days, it comes close enough so that few customers dispute this carefully constructed image.

By continually emphasizing the concept of everyday low prices and never featuring "sales," Wal-Mart has reduced its advertising costs. Most Wal-Mart stores send out 13 circulars per year, compared with 53 or more for their competitors. Wal-Mart's main advertising medium is television. By advertising on one TV station, the company can cover the trade areas of many of its stores.

Consequently, ad revenues for many local newspapers and radio stations are reduced, as Wal-Mart causes some competing businesses to fail, with a subsequent loss of advertising for local media. Wal-Mart's expenditures on advertising have been around 0.4 percent of sales in the past, compared with 2 to 4 percent of sales for most local businesses.

How does the number-one retailer maintain an image of low prices? First, by actually making sure its prices are lower than its competitors, at least on key items. These items are called "price-sensitive" items in the industry, and it is commonly believed that the average consumer knows the "going price" of fewer than 100 items. These tend to be commodities that are purchased frequently.

A mid-size Wal-Mart supercenter may offer for sale 100,000 separate items, or stock-keeping units (skus). Wal-Mart and other major retailers believe that the general public knows the going price of only 1 to 2 percent of these items. Therefore, each Wal-Mart store shops for the prices of only about 1,500 items in their competitors' stores. If it is ever found that a competitor has a lower price on one of these items than Wal-Mart, the store manager will immediately lower his or her price to be the lowest in the area. 

Price-sensitive merchandise is displayed in prominent places such as the kiosk at the entrance to the store, as well as on end caps, in dump bins, and in gondolas down the main aisles. Consequently, when Wal-Mart customers see the items of which they know the price, the ones always priced lower in Wal-Mart, they start assuming that everything else is also priced lower than at competing stores. This assumption is simply not true.

My barber has offered me a simple example. He sells a nonbreakable pocket comb for 25 cents that he procures from his vendor for eight cents. Wal-Mart sells a lower-quality comb for 98 cents, and one would assume that Wal-Mart pays less for it than the barber does. People keep buying Wal-Mart combs, however, because the average person does not know the going price of a pocket comb, and it is automatically assumed that the Wal-Mart price is the lowest.

From the PBS program Frontline, an interview titled Is Wal-Mart Good For America? with former Wal-Mart store manager Jon Lehman:

... What is the opening price point? Why is it so key to Wal-Mart's strategy?

OK, it's lawn-and-garden time. Your grass is getting high. Your lawn mower is broken from last year, or you need a new lawn mower. You're going to go to Wal-Mart. So you go to Wal-Mart, and you're looking for a lawn mower, and to your delight, you walk in, and you see this $99 lawn mower. You may not want a cheap, basic lawn mower, but you see that price point on an end cap or a big display stack base, and you say, "Wow, what a great price." And it draws you in. It lures you into the department, and you form the perception immediately that "Hey, Wal-Mart's got the lowest prices in town. Look at this item right here. How could they sell it for $99?" ...

But as you walk into the department and look for that $269 power-drive lawn mower that you really are after, they're not losing money on that item. And it may not be the lowest price in town. Wal-Mart used to advertise "Always the low price." They don't do that anymore.


They got in trouble. Some of the other competitors sued them, tried to go after them and say, "You can't say 'Always the low price,' because you're not always the low price." They did a study -- a very critical study, very thorough study -- and found that Wal-Mart was not always the low price. And Target and Kmart got a little miffed, and some other competitors that [said], "How can Wal-Mart advertise this and it's not true?"

So what you're saying is Wal-Mart, when it says, "Always low prices," it's not always the lowest price on every lawn mower or every microwave oven or every vacuum cleaner or every TV set.

Absolutely not.

So what does the opening price point mean?

The opening price point is ... to get you in. You look at that, and you think, "Wow, what a great price." ...  And usually, more times than not, those items are imports. They're not domestically made; they're from other countries.


Well, the price of labor is so cheap. In China, Malaysia, Bangladesh, you can make stuff for a fraction of the cost that you can domestically, so that price is the rock-bottom price.

So are you saying that the opening price is the lowest price and actually will beat the competition, but maybe other items in the same category aren't necessarily the lowest price?

Oh, absolutely not. It's just like fishing: You want to entice that fish to that lure. ... Once you walk past that opening price point, they've got you, because you've already formed the perception that everything in that department is the lowest price in town.

And maybe it's not.

No, it's not. No, I can tell you it's not. I can tell you from experience it's not. ...

... How central is [the opening price point] to Wal-Mart's marketing strategy?

It's the heart of Wal-Mart's pricing strategy. Wal-Mart puts [a] tremendous amount of planning, organization and thinking into what their opening price points are going to be, based on last year's sales, based on customer requests, what's in demand this year, what's the newest, hottest item on the market. 

From Cincinnati, Ohio, here is a transcript from television station WCPO on Wal-Mart Prices (March 2, 2005):

Leslie Parrett thought all Wal-Marts charged the same prices... until the day she and her daughter hit two different Wal-Mart stores.  "My daughter and I went to two Wal-Marts on the same night to buy the same CD for Christmas presents.  The CD: The latest by teen sensation Lindsay Lohan.  But when Leslie compared receipts, she discovered...  "She paid $8.85 because they were on sale, but I paid $12.88."  "You paid 4 dollars more? Right. For the same CD? Right."

A fluke? I decided to go shopping.  I shopped two Wal-Marts the same afternoon... A third the very next morning.  On my map: Leslie's Alexandria Kentucky Wal-Mart, in Campbell County.....Then the Fields Ertel Wal-Mart, in Warren County, Ohio ....and finally the Ridge and Highland Wal-Mart, also in Ohio, off I-71 in Hamilton County.

In addition to identical boxes of Tide with Bleach, at each store I bought Colgate whitening toothpaste, Bounty paper towels, a Kodak disposable camera, Tylenol, Swiffer Dusters, and Head and Shoulders shampoo.  But each receipt totaled up diffrerently.  "This store was $30. That's 2 dollars less than the other store!"  To be fair, each county's tax rate was different.  But even before tax, several items were priced differently.  "The tide was $7.07 at this store...It was $7.44 at the first store."  Tide was almost 40 cents more in Alexandria than either Ohio store!  But the cheapest store, in our small sampling, was the Ridge store, where both tide and towels cost less.  "Bounty fun towels, $1.83 at this store...Bounty fun towels, $1.47."

A mistake? Nope: Wal-Mart calls it "competitive pricing."  A Wal-Mart spokeswoman in Bentonville, Arkansas told us:  --"We set suggested prices for each item. But store managers are allowed to lower them further to remain competitive with nearby stores."  That may mean a Wal-Mart close to a Target store may have better deals than a stand-alone Wal-Mart.  And if it's close to Target, Meijer, and Biggs, you may have hit the jackpot.

For loyal Wal-Mart shopper Lesley Parrett, it was all "a big surprise, a huge surprise!"

My advice? If you have a choice, look for discount stores that are clustered together: For instance a Wal-Mart, Kmart, and Target all within a block or two.  With so much competition, you may get lower prices, so you don't waste your money.

From Mexico, in the article Like the US, Mexico feels Wal-Mart era by Ken Bensinger in Christian Science Monitor (March 15, 2005), the point about competitive pressure is reproduced (see my article too):

... many people are already convinced that Wal-Mart's famous "Everyday Low Prices" are unbeatable.

"I shop at Wal-Mart because it's cheaper. Across the board, everything costs less here," says Maria Eugenia Zubiria, holding aloft a box of Special K cereal that actually costs nearly 5 pesos less at the Comercial Mexicana three blocks away. The perception that Wal-Mart is unbeatable on price is the store's best ally here. But in reality, thanks to a year-old buying alliance between Comercial Mexicana, Soriana, and the chain Gigante, prices for common groceries are essentially identical at Wal-Mart's competitors.

From the other side of the world in Japan, in the AFP article Mega stores mega-flops in tough Japanese market by Kyoko Hasegawa in The Standard (March 14, 2005), the Wal-Mart philosophy runs into trouble with cultural habits and attitudes:

Wal-Mart, has seen its "everyday low price'' philosophy flop with Japanese shoppers who demand a wider range of higher quality goods.  Wal-Mart holds a 37.8 percent stake in the medium-sized supermarket chain Seiyu, which has posted net losses in the past two years of Wal-Mart style merchandising in Japan.

Easing deflation and an increase in jobs in Japan would seem to bode well for consumer spending, but retailers operating general merchandise or mega stores have been struggling to achieve stable profits.

Seiyu has resumed its strategy of limited-time offers on select goods at some of its outlets following the failure of the Wal-Mart sales approach.  "Wal-Mart's system in itself is a remarkable architecture and I think what Seiyu is doing is basically right,'' Yasuyuki Sasaki, retail-sector analyst at Credit Suisse First Boston Securities, said.  "But the thing is, Japanese consumers don't like 'cheap' merchandise, even though they love low prices.''

None of what Wal-Mart does is 'wrong.'  Everybody else does differential pricing based upon the presence of competition, so why shouldn't they?  In fact, they must.  The Wal-Mart advertising is not technically deceptive ('low' does not mean 'lowest').  The details about the implementation (e.g. the opening price point) are fascinating in its cynicism and contempt about consumers.  But as for unfair labor practices at Wal-Mart, that is a different and very long story for another occasion.