Analyst: Target and Best Buy Prices Beat Wal-Mart
By George Anderson
Wal-Mart may have gotten an earlier start on advertising what’s in store for the holidays but its competitors will be ready to go when they open for business on Black Friday and, according to at least one analyst, it may be the competition and not Wal-Mart that has the lowest prices on popular toys and consumer electronics.
Bill Dreher, an analyst with Deutsche Bank, told Reuters, “The playing field will be leveled by Black Friday.”
Mr. Dreher said his research indicated that it would be Target and Best Buy, not Wal-Mart, offering the lowest prices on Black Friday. Target’s prices were 3.1 percent lower than Wal-Mart’s on eight key products tracked, he said.
Another analyst, Brian Postol of A.G. Edwards, said his research found Wal-Mart’s prices on tracked consumer electronics were about 0.8 percent below Best Buy’s. The actual dollar difference of about $1.10 per item probably wouldn’t be enough to sway consumers one way or the other, he said.
In separate, perhaps related news, Wal-Mart announced it would match the advertised price of any competitor selling the same product.
John Fleming, Wal-Mart’s chief marketing officer, said in a released statement, “During this crucial period, our customers expect Wal-Mart to offer them the best value in the marketplace. This means that they trust us to have not only the lowest prices, but also the best selection of quality items that are relevant to their needs and the easiest, most convenient shopping experience. With the unbeatable prices and exciting surprises we’re offering customers this week, we know that they won’t be disappointed by the value they can find at Wal-Mart.”
Moderator’s Comment: How important will price be to retail performance this holiday season? Is Wal-Mart unintentionally undermining its positioning as
always having the lowest price with its price match guarantee this holiday season? Will consumers begin to question if Wal-Mart is the best place to go to save money?
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George Anderson – Moderator
Someone having lower prices than Wal-Mart is not new. Many supermarket specials are below Wal-Mart; they just don’t get credit for it. Many underestimate Wal-Mart. Store managers have the authority to meet competition pricing. Price difference or key items will disappear overnight. Further, Best Buy, Target and others will be setting up an unpleasant meeting for these vendors next time they visit Arkansas.
This problem may be exacerbated by the report today (at least in the Atlanta Journal Constitution) that Wal-Mart prices are seriously inaccurate. The Bureau of Standards expects 1-2 errors per 100 rings while Wal-Mart is hitting 6-8 errors.
Wal-Mart has been price matching in our area since they opened a few years ago…I’ve tested the system…you go to the check-out tell the cashier you have an ad with a lower price, she looks it over, puts in her over-ride key, changes the price at the register, hands you back the ad…no problem, no manager on duty to call or anything. The key is here – they don’t advertise!!! The money they save not advertising locally, they can put in markdowns or ad loss.
Matching the unknown can be a dangerous proposition. Is the item exactly what others advertise? Will it be in stock? And can the cashiers handle the price change quickly? I think Wal-Mart knows most people can’t take that chance and only want to convey that they are still the low cost provider. A bad experience on Black Friday is worth 10 bad experiences throughout the year.
In the “real world,” perceptions do not change with the publication of articles in seldom read business sections of media with target readership poorly aligned with the WM customer.
Let’s be serious. The genius of WM is, and has been, the perception of low prices. Everyday low prices. All of us pundits know that, in any given product category, it is quite likely that some items are higher priced at WM than at the competition. They don’t matter as long as those items are not destination purchases, lifestyle “leaders” or other key influencers of the consumer’s overall perception. It’s only the sensationalists amongst us that profess surprise when “evidence” of this horrible crime surfaces. WM never, to the best of my knowledge, claimed to be the lowest price on every item in the store. I don’t even think they claimed to be the lowest in an average market basket, although that might be a reasonable claim. And again, it’s “EVERYDAY LOW PRICES” that form the foundation of the chain’s image. Not promotional event pricing.
Having said all that, Black Friday has become an event which absolutely has an impact on the consumer’s perceptions. It is vitally important for WM to be perceived as competitively priced across the entire store for this “event.” The “match any price” guarantee works well toward that goal.
There’s not enough space here, but the growth of price comparative web sites (see Froogle), blogs, and “outing” sites for promotional offerings brings a possibly real trend into pricing and promotional strategy decisions.
The internet has long been trumpeted as a fast and efficient method of disseminating information – information such as price, product features, and quality. The “ease” of using this tool for that purpose has not been very good….at least in the past. Further, the integration of internet use into regular household activity has not been up to the claims made….at least in the past. Perhaps we really are entering into a new age where the WM customer demographic really DOES use the internet as a source of information. And perhaps price comparative sources will bring on changes in consumer perceptions.
The price question seems to have come around every holiday season for the past several years. The question of who will have the lowest prices is debated endlessly. By looking back at every holiday season for at least five years, one can see that “we have the lowest prices” has become the rallying cry for nearly every national retail chain. As retailers plan for the holidays they look for and buy merchandise that is not only attractive to consumers but provides a pricing advantage for the retailer. While there will always be a few items on which retailers will battle to offer the lowest price, smart retailers buy and offer merchandise to customers that provides the retailer with the margins they need to achieve in their business. More and more of the “lowest price” merchandise is available only in that specific retailer’s stores.
Once again, this year the cry will be “we have the lowest prices” and consumers will flock to stores believing that Wal-Mart, Target, Best Buy, or Macy’s has the lowest prices. Best of all, this approach will drive consumers into stores. Retailers, and those of us who serve the needs of retailers, will be delighted!
Am I the only one aware of the Black Friday websites that “out” the major retailers’ post-Thanksgiving ads in early November? (Apparently not, because millions of us are accessing them.) WM and others have been jockeying to no avail (or Noah Vail) to recover from this year’s outing, and the only viable strategy is exactly what WM is doing – “We’ll match or beat any competitor’s price.”
Also, be aware that WM is beginning to use the word, “value.” Forewarned is forearmed. We all know that when a retailer retreats to “value,” they are no longer confident of delivering the lowest price.
Wow, what a discovery! Out of thousands of key items sold, someone found 8 that were cheaper at Target. Doubt that will have much of an impact on consumers. Just give Wal-Mart about 15 minutes to solve that issue. With the police already directing traffic in front of Wal-Mart, I don’t think this will be much of a problem for them this year.
The price matching promise strikes me as a way of ensuring that customers think Wal-Mart is cheapest. Having said that, it seems to me that it is also the perception that all prices are lowest in a particular store that will get people through the door. Price is almost certainly going to be a key indicator; I don’t think loyalty will enter into the discussion and problem not quality or even customer service. It’s all about money this year.
If I remember correctly, Wal-Mart took a hit on Black Friday sales last year by not having popular blockbuster low price items. Consumers who are out there early in the morning standing in line when the stores open have read the ads and planned out where to go to get the items they want for the best price. If Wal-Mart advertises the best blockbuster sales, they’ll get the business. If Wal-Mart has the best selection of products consumers want and they are willing to bring flyers to demonstrate lower prices elsewhere, then Wal-Mart will get the business. If neither of those are true, Wal-Mart will have a bleak Black Friday.
Editor’s note: A story in BusinessWeek online notes that the report was commissioned by the UFCW and that Wal-Mart said it had not seen the studies and could not say if the research methods were valid.
Wal-Mart’s reputation is so shaky that I don’t believe it will take much for shoppers to choose to shop elsewhere. The question of inaccurate pricing is not just in Atlanta. CT announced today that it was investigating Wal-Mart for inaccurate pricing at the register, citing the number of reports.
The price matching announcement will help them this season, although long-term, I believe it undermines their promise of always offering the best. Besides, if I have to go into the other stores to find out what they’re charging and Wal-Mart will only match the price, why go to two stores?
It’s easy for any non-catalog retailer to change any prices immediately. If Wal-Mart or Target or anyone else finds themselves seriously embarrassed on some items, they can easily reduce the prices without delay. For many categories, merchants for chain stores can make deals with suppliers to get “slightly unique” models of popular items. This practice reduces the ability to make exact match price comparisons. For example, certain electronics items can be sold in unique colors or with slightly different features. Another example: a department store selling Donna Karan or Ralph Lauren may get popular styles in unique colors and fabric patterns. Any store’s staff can easily check the competition’s pricing on any items daily, since retail stores and web sites are public places. Offering to match a competitor’s price doesn’t mean the retailer has to change the price for everyone. It just means that a single customer may get a discount, since most people don’t bother to comparison shop and and collect proof of the pricing encountered.
The buzz was already out there on the street that the other retailers mentioned might be beating Wal-Mart on price. So I see it as a defensive tactic that Wal-Mart decided was necessary. There is definitely the possibility that it is undermining its position with some shoppers, who may now look beyond Wal-Mart instead of just assuming that it has the low-price position. So it’s a gamble. I assume Wal-Mart has done its research, as usual.
Both Target and Best Buy may find themselves sorry for the “lower prices” publicity generated online. First, they may have already lost some sales for customers may be waiting for their turn at the register. Second, they may have to deal with more customers who want “credit back” or returns for prior purchases. Third, if the customers who line up to take advantage of the lower prices are getting turned away for “sold out,” “limited supplies” and “limited hours,” both retailers stand to lose more customers of their own who identified with the retailer for reasons other than prices to begin with.
As a small retailer, I look at the Wal-Mart pricing in the same product categories as mine. You can bet they have low prices on items promoted (advertised) by the manufacturers. Their price is not so great on other items. They make their money in their buying. I really envy the margin they undoubtedly have on many of their products. If amount of markup is what counted and consumers were aware of it, I’m sure Wal-Mart would not be as successful.
Perception is important. If consumers want low prices, their perception is that they will find them at Wal-Mart. If consumers want customer service and hard to find items in our category, many of those consumers know Wal-Mart is not their best destination.
The fact is, Wal-Mart is worried. Worried they cannot keep growing at the same pace every year – continuing to ensure shareholder “value” and maintain their market position as the lowest cost retailer.
For years, Wal-Mart has been pounding the margins out their suppliers all over the world – while growing their own. It’s reached the point now where there are no lower cost suppliers for their products – so the revenue and shareholder growth must come from somewhere. Raising prices may be their only answer. In fact one recent headline read, “Wal-Mart going after more affluent customer.” What that means is Wal-Mart is preparing (fooling) the public into believing that all is well on the Wal-Mart front – all the while they will be inching their retail prices higher.
The fact that they will “match” the prices of other retailers proves the point and gives them their safety net. By making this statement, they are really saying – “If you happen to catch us raising our prices, we’ll meet the price of that item for you personally at the register”…but will the chain wide price of that item be lowered? Very unlikely. Besides, what’s the percentage of shoppers that will actually bring the ad from another store just to get the same price? A safe bet on their part.
Happy Holidays!
As I compare prices at many Targets and Wal-Marts here in Florida, I notice that the price differences have decreased to the point that they are comparable on almost any identical item you can find. In many scenarios, the prices at Target are lower, not intentionally, but rather because Wal-Mart shifts its prices around so often that the weekly comp shop that each Target does can’t keep up with Wal-Mart’s constant ups and downs.
Target also prices extremely competitively in SuperTarget grocery. Combined with great selection, top notch product rotations, and competitive prices, I expect SuperTarget sales SSS to increase more quickly than those of general merch. Targets.