BrainTrust Query: Dropping the Floor, Raising the Roof, and Recalibrating the Brand Continuum
Through a special arrangement, presented here for discussion is a summary of a current article from the newmarketbuilders blog. The article first appeared on the Licensing Industry Merchandisers’ Association (LIMA) blog.
In a presentation in Bentonville last month, Walmart’s EVP and chief merchandising officer Duncan MacNaughton reiterated Walmart’s plan to apply a "broad application of price investments" that will amount to a $2 billion everyday low price insurance policy.
Tough markets call for tough measures and everything is a race to the bottom, right? Not so fast. As Walmart takes pains to buttress its low price floor, it is simultaneously raising the roof by adding a tier of higher-priced items that push historic limits in select categories. Mr. MacNaughton noted that cash-strapped consumers don’t always favor a steady stream of cheap, throw-away stuff, and in fact often prefer to make select investments in high-quality, durable goods.
On the heels of its first quarterly comp store sales drop in the U.K. in 20 years, last month Tesco announced its "Big Price Drop" initiative as a component of its strategy to get the retailer "back on the front foot." A contrasting component of Tesco’s seven-part strategy, unveiled in May of this year, is to increase the global retailer’s appeal to aspirational shoppers, even as it makes unprecedented cuts. This is because, according to Tesco chief executive Philip Clarke, "as people develop higher levels of disposable income, they want to treat themselves."
The media have been all over the sometimes baffling bifurcation in retail that has luxury brands such as Burberry and Prada thriving along with deep discounters like Aldi and Lidl, while middle-of-the-road players like J.C. Penney struggle. In response, retailers are building bigger gulfs between "good" and "best" within their widening "good, better, best" continuums in order to capitalize on contrast and skim from both ends of the spectrum. This expansion doesn’t stop at price, however. Retailers are exercising new brand options as well. Private brands are no longer retailers’ default choice at the lower end, and the fate of national and licensed brands is no longer determined by price alone.
Although Walmart manages some of the most recognized private brands in the world, including George and Great Value, Mr. MacNaughton says that Walmart considers itself a "house of brands," and again sees national brands such as Levi’s as critical to establishing authority in key categories. In his presentation, Mr. MacNaughton cited a licensed program with Hello Kitty as an opening price point back-to-school stand-out, proving that private brands aren’t the only value option, even for a mass retailer like Walmart.
As retailers attempt to push the limits of both floor and ceiling, their brand houses are becoming bigger and more diverse than ever before.
Discussion questions: Is the push for low prices (“good”) along with a goal of retaining aspirational price points (“best”) squeezing out the “better” segment in many categories? How should national and licensed brands approach retail’s increasingly bifurcated pricing strategies?