Thursday, April 14, 2005

Wal-Mart: Always the Low Road

Whoever said you can't put a high enough price on a good reputation obviously wasn't talking about Wal-Mart, whose never-ending battle against public outcry took yet another leap into the abyss this week with a whole new public relations spin. This time, it appears that Wal-Mart is sticking a crowbar into its wallet and coughing up some $35 million bucks, that according to AdAge, "is a partnership with the National Fish and Wildlife Foundation and will preserve 88,000 acres and an additional 100,000 acres over the next five years."

Um, okay. So Wal-Mart is buying cheap land? In an effort to say what, exactly?

Keep in mind that the $35 million Wal-Mart plans to spend is barely a drop in the bucket compared to their annual advertising, merchandising and promotional campaigns. But that's really beside the main point, which is this charade's incredible transparency.

In the first place, Wal-Mart - yet another store with no brand strategy - has been a media victim for years now. The (no pun intended) target of social environmentalists everywhere, Wal-Mart has allowed itself to become the focus of urban myths, the most egregious of which portrays the store as a monolithic predator that moves into small communities, sucks the enterprise out of them and leaves nothing but its skeletal remains once it has finished feeding.

Of course, the proof of that particular urban myth has never been documented, to my knowledge. And the lack of that proof has never been given the same media attention as the myth itself. In fact, it may be that myth is 100% untrue, but then again, who cares? It's the myth that generates television ratings. Scarier still, the myth has gained so much momentum as to actually mobilize typically apathetic urban communities to launch civic movements preventing Wal-Marts from invading their spaces.

Now Wal-Mart is fighting a battle on a second front. It's "Acres for America" is possibly the most pathetic effort to flim-flam the American public since Gerald Ford sought a national anthem to "Whip Inflation Now" (no kidding, if you're not old enough to remember it, the president of the United States actually thought that if he could get enough Americans to sing about whipping inflation, the economy would recover). Apparently, Wal-Mart believes that if enough people watch their TV spot, everyone will suddenly drop their objections to whatever it is that Wal-Mart is accused of doing. This media practice is not without precedent. I believe it was Joseph Goebbels who called it "the big lie." Slap up enough posters with enough lies on enough walls, he maintained, and people will really start to believe it.

The problem is that Americans are as not stupid as Wal-Mart would like to think. Unfortunately, we can't say the same thing for Wal-Mart's management. And to think, both of these fiascoes could have been avoided if only Wal-Mart had a brand strategy.

"Hey," I can hear you saying, "Wal-Mart does have a brand strategy. It's 'Always the Low Price.'" To which I reply, "Nope. What you have there is a tag line and a bad one at that. But it ain't a brand strategy." Here's why:

1. Price strategy is no strategy. For a brand to really work, you have to provide a host of reasons why people should pay MORE for your goods, not less. The minute you hang your hat on price, you're dead meat, because anyone, at any time, can undercut your price. That's what loss leaders are all about. The more reasons you give someone to choose your brand as the only solution, the less important price becomes as a decision factor.

2. When you put your brand out there to compete with low bidders, price is all anyone looks at. Nobody stays loyal because of a low price. It works to the exact opposite purpose: if they know you're only about price, you're actually encouraging them to shop around until they find that lower price. You're literally asking them to go someplace else.

3. If you don't have a brand strategy, you leave yourself open to interpretation of your brand, which is really, really bad. Since Wal-Mart has no brand strategy - they don't stand for anything - they have no track record against which they can rebut the silly stories that make it into the media. In my book, I discuss one of my favorite brands: Sears Craftsman tools. With Craftsman, the quality is guaranteed for life. Which means if your grandchildren have a problem with a wrench, they can take it back for a new one. That's a brand strategy. That's Sears standing behind their word. So you can bet that people think twice before lobbing media grenades at Sears; Sears has a great track record with that brand. Sears gets the benefit of the public's doubt, while Wal-Mart gets petitions to keep them out of the neighborhood.

Same store sales at Wal-Mart are dropping like flies. Wal-Mart responds with stock footage of endangered eagles flying through the sky and a program to snap up a few acres here and there. See, these guys just aren't thinking. What they should have done is import wool hoods from China and sell them at a special low price, and then pray that everyone would pull them over their eyes.

7 Comments:

Blogger Omnedon said...

What Walmart should be doing is pretty simple...Measure the average household income in a town before and after they open up a new store.

The simple fact is that retail stores send money out of the town through paying for the retail goods and payroll taxes. The less you spend at retail stores on food and basic clothing, the more you have left to spend at the non-retail businesses.

You still need about the same number of employees at the checkout, and they will still make about the same amount of money, whether it be at Walmart or the local store.

But if the goods cost less, you send less money out of your hometown, leaving more for you to spend with your neighbor's business. And no, your neighborhood grocery store won't be able to charge higher prices anymore and they may go out of business. Or they can do what every other business does when their situation changes, namely they can adapt. By selling things Walmart doesn't, they can go from being an expensive drain on the local economy to being a way for people to improve their quality of life.

Keep in mind that Walmart is making a profit by being more efficient, paying less for goods and passing the savings on to the consumers.

We don't have to reward that kind of behavior. We can keep protect inefficient and outdated businesses.

And you can drive your buggy to town on Sunday after you milk your cows and gather the eggs. But we decided we didn't want to do that anymore.

We don't have to shop at Walmart. But everyone will be better off if we do.

5:57 PM  
Anonymous Anonymous said...

Fifteen years ago Wal-Mart came to our small town. Within two years Ames, Roses, and Hecks had closed their local stores. Ten years later Wal-Mart expanded their store into a "super" store with groceries. It wasn't long till three grocery chains closed their local stores. Bottom line - the local consumers have less choices, and Wal-Mart can raise prices because there is less competition.

However, I am a firm believer in the free market economy. So part of the above was due to poor business practices of Wal-Mart's competitors. But it is a fact that their prices were lower when they had local competition than they are now. And there are times when I either have to buy at Wal-Mart or drive 40 to 60 miles to a larger town.

I don't believe government intervention or regulation is the solution, even on the local level, beyond making sure that Wal-Mart abides by the law in it's business, labor, and advertising practices. The big discount stores have replaced the big department stores that used to be the place to shop. I am very interested in seeing what new development in retailing and marketing will take Wal-Mart off of the top of the heap.

7:07 PM  
Blogger Rob Frankel said...

I buy into both of the above comments, and especially appreciate the way that the "Wal-Mart driving small businesses out" is discussed. I NEVER see a responsible post without the phrase "those smaller businesses had bad business practices" (or something like that.

Being a branding guy, I wholeheartedly agree. If price is ALL you have to offer, that's what people look at to make their buying decision. But if you have a brand, you give them more reasons -- beyond price -- to choose your brand as the only solution to their problem.

I often tell clients, "Price strategy is no strategy." Someone can always undercut you -- that's what loss leaders are all about.

Thank you both for your posts.

12:19 PM  
Anonymous Markham said...

Thoughts on Wal-Mart:

-I think that the folks at Wal-Mart are so disconnected from their customers and how their brand is perceived that it's not even funny.

This past Christmas they tried to sell higher-end goods in an effort to reach affluent customers, an initiative that failed miserably.

Currently, they're trying to "match wits" with Best Buy by selling super cheap electronics and Wal-Mart brand alleged high-end electronics.

As if the Wal-Mart brand attached to a no-name electronic device is going to sway the high-end electronics consumer away from a store and Brand he/she is willing to pay a significant premium for.

Obviously, the folks at Wal-Mart don't know how the more affluent people view their brand and aren't thinking about the finances of their current customers, the same customers who drove most of Wal-Mart's recent revenue and profit growth via buying services like check cashing.

You can't place your stores in lower income areas and sell based on low price as opposed to quality, cachet or brand name and expect that affluent folks will come running towards your brand.

Not to mention the fact that Costco with their well heeled customers beats Sam's Club handily, if the latter tries to compete in the same market as a Costco.

To me, Wal-Mart's problems whether it's their current campaign to improve their reputation or attempting to sell goods to more affluent customers speak to the fact that their Sr. Execs haven't a clue as to how the public perceives their brand.

Let's not forget how their Christmas sales were hurt by having fewer discounted items, they actually thought they could walk away from their strength: "Cheap Stuff" and still see an increase in sales.

How Fatuous.

-As for Wal-Mart's negative reputation, some of it is well deserved when you look at labor practices and the fact that when Wal-Mart comes to an area, you will have fewer local stores, fewer competition and lower wages for many people.

Some of it is isn't, when you realize they are simply outexecuting the stores they put out of business.

As for the comment that we "all should shop at Wal-Mart" well, aside from my initial Northeastern Yuppie revulsion at the idea, I disagree on a business level as well.

Simply put, Wal-Mart's shoppers are typically lower income people, that's not something in dispute - meaning that stores like Wal-Mart free up more disposable income to purchase additional items they couldn't afford previously.

E.g. The increase in disposable income ends up in Wal-Mart's hands.

Cheaper check cashing than the local place, means that the person can spend more on groceries. Cheaper DVD players, means the person can buy more DVDs, etc, etc.

Additionally, Wal-Mart often pays lower wages (and with fewer benefits) than the stores they replace. There have been well documented cases where their competition in a particular area has had to lower their wages to compete, or people who worked at the local Grocery Store chain found themselves working at Wal-Mart for less money after Wal-Mart put their previous employer out of business in that market.

So - shopping at Wal-Mart isn't necessarily the best thing for a particular community as far as keeping money in it.

Finally, as far as knocking Wal-Mart off the map or outexecuting them, that's not secret, other companies are already doing it by selling goods that people will pay a premium for and/or that are marketed to the affluent.

Costco, Target, Whole Foods regularly out execute Wal-Mart (In the cases where Wal-Mart even tries to operate in the same areas as those stores) - and have higher margins and a better reputation to boot.

Wal-Mart's problem is that their customer base is only shopping their for economic reasons and economic reasons only.

In a country where people typically fancy themselves as those who will scale the economic ladder at some point (or who would at least like to) Wal-Mart is always in danger of losing customers to stores that aren't competing with them on price and don't need to.


-Markham

5:14 AM  
Blogger Rob Frankel said...

Wow, what a post! Great thoughts there, Markham. I think you hit on something REALLY BIG there, that being the main customer that is Wal-Mart's bread and butter.

I agree that the more affluent folks are out of the picture, but I believe Wal-Mart's main customers are NOT in it for low price alone. I believe that Wal-Mart customers are looking for "quality" at a low price.

I'm not saying that Wal-Mart necessarily delivers on that belief, mind you. The big difference is that affluent people generally can recognize higher quality goods because they are exposed to a greater number of competing goods than less affluent shoppers. The reasoning here is that if a Wal-Mart shopper KNOWS he can't afford to buy in higher-end stores, he simply doesn't frequent them. That would mean he expects quality along with low prices.

In any event, everything you bring up certainly goes to the point of Wal-Mart having no brand other than identity. Watch the next blog article. You won't believe how badly another all American brand is screwing up.

7:10 PM  
Anonymous Anonymous said...

I disagree about saying price strategy is no strategy. There are 3 basic areas to compete in: 1) Price, 2) Quality 3) Differentiation.

Wal-mart is doing great in competing in price. Obviously. You can't say that price is not a stragegy when they are doing very well with that strategy. If it isn't a strategy, how do you explain their success?

The mom and pop shops are closing because they can't or won't compete with price or any other way. They raise a big fuss and whine about it instead of trying to compete.

Wal-mart is starting to expand and compete with quality. They know the 3 strategies and are using them.

Mom and pop shops can still compete with Wal-mart by differentiation and quality. Sell products and stuff Wal-mart doesn't carry. Offer better service. Do SOMETHING!

Or they can use the fourth strategy, which is basically to not have a strategy and have a nice going out of business sale.

10:52 AM  
Blogger Omnedon said...

Markham,

It doesn't matter where the additional items are purchased with the money they save, the bottom line is that the standard of living for the people in town is raised when they can afford to purchase more things.

Sure, there are stories in the media about people getting lower wage jobs at Walmart after their past employer went under. It's not much of a story to show the people that are now making MORE money working at Walmart. It's a "better" story to show the poor, sad people at the mercy of the giant corporation.

A friend of mine said it best, "Liberals always start their story in the middle." They always talk about the small business shutting down when Walmart comes to town. They ignore the months and years that go by while the business makes no changes as the new Walmart is announced, built, staffed, and opened. They are like the guy who stands in the middle of the road, watches the car approach, makes no effort to move, and complains that he gets hit.

Lead, follow, or shut down. It's been that way for hundreds of years, and it will be that way long after Walmart is gone.

2:50 PM  

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