Wal-Mart’s return to “Every Day Low pricing policy” will not increase the company’s sales volumes and profits. This thesis shall assess the return of Wal-Mart to its low pricing policy thus draw the conclusion that this pricing policy is the best thing that ever happened to the company though its planned implementation is ill-timed. Wal-Mart is the largest retail company in the world. Testimony to this is the fact that the company is the largest employer in the world with an employee base of 2million and serves approximately 100million customers per week in the US retail industry alone. Despite the robustness of the firm, its sales volumes and thus consequently its profits and return on investment (ROI) have been on the decline for the past three consecutive. This is attributed to the change in the company’s pricing policy in the year 2006. It must be mentioned Wal-Mart’s success have been pegged on its pricing policy. Therefore the thesis shall asses the possible gains the company stands to reap by reverting to its old pricing policy.
Wal-Mart’s Pricing Policy
It must be mentioned that since inception of retail firm in the year 1962, the company’s business model has been based on its pricing policy. The company’s slogan, “Saving people money so they can have a better life,” alludes to the fact the Wal-Mart was started for the sole purpose of meeting people’s needs at an affordable cost. However, this might be affected by emerging spending habits because Wal-Mart’s policies were popular with the boomers of the 80’s and 90’s who bringing up families. A new pattern has emerged where younger and younger shoppers are flocking towards more established online stores like amazon and drugstore.com. It implies that Wal-Mart can easily acquire its previous market share though this will be challenging due to the following reasons. First and foremost unlike other retail companies that have loyal customer base and loyalty programs, Wal-Mart does not have such measures in place. Secondly, currently, the company’s success is pegged on middle and high income earners and thus it will be challenging for the company to formulate strategies targeting all the three segments of the American population. Lastly, Wal-Mart’s market share has been consequently taken up by dollar-stores during the five year period that the company veered off low-pricing policy.
This implies that the Wal-Mart needs to consider other aspects of formulating an effective pricing policy. Specifically, the company needs to focus on its target market, the operating costs of this pricing policy, its distribution outlets and the level of competition in the retail industry. As far as the market is concerned the Wal-Mart needs to understand the fact the market demographics have changed significantly. For instance, currently the X and Y generation have more purchasing power compared to the baby boomers. Clearly, the low-pricing policy was targeted at the baby boomers especially those with young families. This implies that the range of products preferred by the three generation differs significantly.
In addition to this, Wal-Mart’s current clientele bases is to large extent composed of middle and high income earners and thus return to the low pricing policy that targets the low income earners will be a conflict of interest.
This implies that the return to low pricing policy will pose more financial and logistical problems compared to solutions. In addition unlike five years ago where the Wal-Mart faced minimal competition as far as its low pricing policy is concerned, today there are numerous dollar-stores in almost all American cities that use this same pricing strategy. The situation is worsened by the fact that fight for the middle and high income consumers has always been flooded by other retail companies which include Kmart, Target, ShopKo and Meijer in the US alone. Finally, currently the retail industry in America is internet based. Therefore, for Wal-Mart to stay relevant, the company needs to diversify its business portfolio to integrate both internet based and chain store business models. Based on this analysis return to the low pricing policy is not one of the smartest business strategies. Plus, the low pricing policy will only make sense if the company sells a variety of products which will eventually culminate to high production costs.
Based on the above analysis it is thus clear that the Wal-Mart’s return to the low pricing policy would not have much impact on the company’s sales volumes and profits. This is because of the stiff competition the company faces from dollar-stores and other retail companies as well as the consumer dynamics in the US market.
Advertising Age. (2011, March 20). Walmart Moves Back To Core Pricing Message, But Some Consumers May Be Finding Needs Better Met Elsewhere. Advertising Age.
Bustillo, M. (2011). With Sales Flabby, Wal-Mart Turns to Its Core. Wall Street Journal (Online edition) New York, N.Y.: Mar 20, 2011.
Bustillo, M., & Martin, T. W. (2010, Apri 9 ). Wal-Mart Bets on Reduction in Prices. Retrieved June 8, 2012, from Wallstreet Journal; Business: http://online.wsj.com/article/SB10001424052702304198004575172271682347064.html