Price Isn’t Everything

Discussion
Mar 15, 2005
George Anderson

By George Anderson

In the December 2004 Harvard Business Review, Darrell Rigby and Dan Haas of Bain & Company’s Global Retail practice discuss how some retailers are Outsmarting Wal-Mart.

According to the authors, HEB, Publix, Target, Walgreens, Best Buy and PETsMART have all found a way to “co-exist and even thrive” with Wal-Mart by excelling in areas the world’s
largest retailer doesn’t.

Retailers up against Wal-Mart need to segment the market by convenience, price, quality, selection and service. In most instances, Wal-Mart comes out the winner in price and
it occasionally stacks up in the area of selection, write Messrs. Rigby and Haas, but “nowhere else.”

“Price isn’t everything,” write the authors. “Two-thirds of shoppers find Wal-Mart’s assortments, middling product quality and limited services not worth the savings. That means,
regardless of Wal-Mart’s proximity, there are plenty of customers looking for alternatives.”

Bain & Company’s research has found companies that do well with a Wal-Mart presence in their market have done four things.

  1. Built market share by grabbing it from retailers that have not adapted to Wal-Mart’s tactics. For example, Target was able to capture customers of other discounters that have
    gone out of business trying to do essentially the same thing Wal-Mart does.
  2. Identified important customer segments and bent over backwards to cater to their needs.
  3. Sharpened pricing policies and trained local managers to identify and react to opportunities and threats as they arise.
  4. Reduce extraneous costs wherever possible.

Moderator’s Comment: What is your list of dos and don’ts for “outsmarting Wal-Mart”?
George Anderson – Moderator

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16 Comments on "Price Isn’t Everything"


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David Livingston
Guest
15 years 11 months ago
One of the most effective methods is to forget about Wal-Mart as a competitor and use Wal-Mart as muscle to help drive out the competition. Instead, focus on the best stores of the weakest competitors. Taking business from Wal-Mart is like trying to mug Vin Diesel who left his wallet at home. You are better off mugging someone who is weaker but has a lot of money in their pockets. Smart retailers are best to focus target marketing efforts near successful stores (typically the higher sales per sq. ft. stores) of the weakest retailers. Pirate their best employees to leave them more defenseless. Find out why these stores are doing well and take advantage of their weaknesses. Publix, HEB, Roundy’s, etc have done very well with this blitz style approach, going after larger publicly held retailers who have been crippled by Wal-Mart and now lay hurt in open view. Large retailers often cannot make fast decisions in changing markets. Decisions that some companies can make in hours could take a year or more after being… Read more »
Mark Burr
Guest
15 years 11 months ago
Don’t worry about Wal-Mart – period. Don’t forget they are there, but don’t worry about them. They will do their thing, and while you are worrying about it, you won’t be doing the best you can at doing yours. This is really is one of the first times that I have seen someone else actually write about what I think is missed. That is, regardless of Wal-Mart’s fame, fortunes, and prowess in retailing, they have never been able to penetrate a certain percentage of market share. That leaves an even larger percentage available for everyone else, and if you’re really good, that percentage could even be bigger. So why does it seem like both customers and retailers aren’t making it? I think the answer lies in the fact that they are too little focused on their own market and their own customers, and giving Wal-Mart way more attention than they deserve. Customers are looking for alternatives; they make alternative choices all the time. However, when price becomes the best alternative, they’ll choose it…that is to… Read more »
Al McClain
Guest
Al McClain
15 years 11 months ago

It’s the little things that count. Everyone knows what they’ll get in a Wal-Mart, good and bad. At PETsMART, you can take your dog with you, and the dog gets a biscuit on the way out. It can be anything from a free (good) cup of coffee, to sampling, to a nice place to sit and wait for someone, to convenient parking, to a kind word and a smile, to a no-hassle return, to opening another checkout when the lines are long. It’s showing shoppers you CARE they are there, and want their business.

Ben Ball
Guest
15 years 11 months ago

No, not everyone is Wal-Mart shopper….but almost everyone is a Wal-Mart shopper sometimes. The trick for competitors is to keep them from becoming a Wal-Mart shopper ALL the time.

At least part of the equation is to identify those purchase occasions for which some consumers hold “value” to be something other than lowest price on OK merchandise. The Best Buy for CE and PETsMART for doggie luxuries examples are great ones.

With regards to pricing, the equation is quite simple. DO price to match your consumer’s perception of the value you bring. DO NOT price to match Wal-Mart. (HINT: Your customers will let you know if they agree with your perception of your value. If they don’t agree, you have to price to BEAT Wal-Mart…not just match them. In that case, it’s been nice knowing you. Is your lease for sale?)

Bernice Hurst
Guest
15 years 11 months ago

The best advice seems to be what everyone is agreeing – ignore them. Do what you do do best. Better quality, better service, better selection. Prices should represent value in terms of a fair amount being asked for what is being sold. No point at all trying to be as cheap or cheaper. Remember that cheap isn’t a reflection of price tag only – focus on getting that message across. I heard a small farmer interviewed last night about why he grows only vintage vegetables on his land. Simple, he replied. I looked to see what the supermarkets don’t want and that’s why I decided to grow. Nothing that lasts a long time, nothing that travels well. Only vegetables that can be sold to customers who live and work nearby. Guess what? He’s making a very comfortable living, thanks very much, enjoying what he does and giving pleasure as well as good food to his customers. Truly, these things can be done.

George Whalin
Guest
George Whalin
15 years 11 months ago
Yes, Wal-Mart is the world’s largest retailer. The problem is, far too many retailers spend too much time thinking and worrying about what Wal-Mart is doing. Who cares? While many so-called studies report that most American’s shop at Wal-Mart, it is simply not true. All across the country, there are millions of consumers who either never shop at Wal-Mart or very rarely shop at Wal-Mart. In most Wal-Mart stores, the shopping experience is miserable and customer service is non-existent. While Wal-Mart continues to run ads showing the friendly senior-citizen-greeter, the fact is many of their greeters are quite un-friendly…standing in the front area of the store facing away from the front door looking for shoplifters. Yes, they have low prices, but many of those low prices are on low quality merchandise. If a retailer continues to beat up on their suppliers for lower and lower prices, ultimately quality must suffer. If the customer wants to find a deeper selection of a specific category of merchandise, Wal-Mart is not the place to shop. If the customer… Read more »
W. Frank Dell II
Guest
15 years 11 months ago

First, pricing below Wal-Mart is a waste of time, even on promotion. Even pricing is fine. Second, segment the market and know your customer. Quit trying to serve everyone: focus products, promotions, merchandising and price for what your target market wants. Third, simply do a better job in perishables and perishables service. It is a big market and not everyone is a Wal-Mart shopper.

suzette rodriguez
Guest
suzette rodriguez
15 years 11 months ago
As a consumer, I have to say that price really isn’t everything. There are so many vendors out there, especially with internet shopping, that a small savings is no longer the sway factor. My experience with a merchant must be positive, meaning a good value for my money, a pleasant interaction with the merchant’s personnel, and a simple exchange or return policy. Good value means just that–good & value, because no matter how inexpensive something is, if it is garbage it isn’t worth any price. If the personnel are indifferent, arrogant, or antagonistic (hard to believe but true–see below), that vendor has lost my business for good. If I buy something in good faith and it turns out to be unsatisfactory or defective, then I expect the merchant to take back the item and return my money without an array of clauses and circumstances that would baffle a judge. It’s that simple. Forget tailoring yourself to consumers; consumers are people and thereby mutable. Just offer us a good value, a pleasant experience, and a no… Read more »
rod taylor
Guest
rod taylor
15 years 11 months ago
Wal-Mart will fail; bet on it! Thirty-three years ago, when I started selling in the grocery business, A&P was the number one food retailer. They became so captivated with how smart they were, and how big they were, that they started forgetting about what the consumer wanted. As a result, they’re no longer one of today’s top twenty grocery accounts. Schulte-United, J. J. Newberry, Woolworth’s in the past; Kmart and Toys R Us today; are examples of former retailing monsters that are gone or failing. The one thing Wal-Mart doesn’t do particularly well is meat and produce. No one wants a ten pound bag of salad or twenty pounds of ground round. Grocers and specialty found retailers that specialize in top quality fresh foods at no more than a mid-teen price differential over Wal-Mart will do well. No one goes into Whole Foods, Wild Oats or Trader Joe’s and complains that Wal-Mart is cheaper. It’s a totally different shopping experience. Likewise, no one compares Starbucks coffee to McDonald’s.
Stephan Kouzomis
Guest
Stephan Kouzomis
15 years 11 months ago

Each of the successful companies (compared to Wal-Mart) mentioned in the article, have exploited a service and/or products that their shoppers want, but that Wal-Mart wouldn’t consider.

PETsMART brings one-stop grooming and care of dogs that makes it a convenience for the shopper. Retailers, like Harp’s, brought the butcher to its supermarkets to give shoppers the right trim and meat cut.

Publix and HEB continue to find new products and means to cater to the neighborhood shoppers, and consumers with special needs. And service to these shoppers ties the knot!!!

Price isn’t the main ingredient with these retailers.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
15 years 11 months ago

Two vultures were sitting on a tree branch. One turned to the other and said, “To heck with waiting for something to die. Let’s go kill something.”

That’s the first lesson I give my clients during my “How To Fight Wal-Mart” training. Rather than waiting for WM to erect a store down the street, I encourage them to start scrapping for major market share increases today — even if that means putting someone else out of business. Then, when WM shows up, they’ll have more of a sales “cushion” with which to compete.

But, the issue is not outsmarting WM. Instead, it’s not outsmarting yourself. Good retailers should use the time they have to identify customers who are not typical WM shoppers, and cater to them. All of their customers will probably try WM when it opens, but those who don’t care for the WM experience will come back to their stores.

So there’s the main message: Don’t wait, start now.

Franklin Benson
Guest
Franklin Benson
15 years 11 months ago

Although I don’t advocate it, it is perfectly possible to compete with Wal-Mart on price and win. Just look at Big Lots, Dollar General, Dollar Tree, Aldi, 99 Cents, on and on… That sub-Wal-Mart segment is pretty crowded, but anyone who wants to enter it would have better things to worry about than Wal-Mart itself.

That said, I think it must be pretty easy to compete against Wal-Mart, as long as you’re not trying to be “another Wal-Mart.” Name a successful retailer; I’ll show you a company that has differentiated itself from Wal-Mart.

Don’t “Be Wal-Mart,” and you’ll do fine against Wal-Mart. Try to “out-Wal-Mart” Wal-Mart, and you’ll be in the unemployment line.

Mark Quigley
Guest
Mark Quigley
15 years 11 months ago

It is hard to beat Wal-Mart at pricing and supply chain activities. However, by innovating your service, you can keep your customers coming back. Shopping and buying still remain two separate activities.

Tony Orlando
Guest
15 years 11 months ago
This is perhaps the greatest discussion of all time. How do we hold our own against the great Wal-Mart? I’ve been studying Wal-Mart supercenters for over 4 years, and now I have a new expanded supercenter coming into our town in just 3 weeks. Am I concerned? Absolutely. Will I lose my business? Absolutely not!! Wal-Mart has done us a great favor with their lowest common denominator of cheap prices, because in perishables, a small retailer can kick butt. I will exploit in my print advertising about Wal-Mart’s water & salt enhanced meats, along with quality and their “no butcher” in the store philosophy. We carry U.S. Choice and Angus Choice beef, along with all natural pork and chickens, custom cut by real butchers, and priced overall lower than Wal-Mart’s meats. I will stay aggressive in promoting our scratch made foods in the deli-bakery, and as always keep our store very clean, and actually still carry out our customers’ groceries. Even though our store is in a poor area, people still want deluxe trimmed quality… Read more »
DANA MAY
Guest
DANA MAY
15 years 10 months ago

Shopping Wal-Mart is not what it used to be. I used to be an avid Wal-Mart shopper, but these days I prefer to shop elsewhere. It has become increasingly inconvenient to shop, starting with the long lines at the checkout with only a handful of isles open. I can’t tell you the last time I went to Wal-Mart and left with a positive experience. Why do they insist on blocking the isles with stock? I remember last Thanksgiving I went to buy a turkey and they were completely blocked by boxes on all sides. As a retailer myself, you can imagine my frustration. I believe that other retailers will eventually win higher market shares as people become increasingly discouraged with Wal-Mart’s lack of customer service.

Dusti Chuang
Guest
Dusti Chuang
15 years 7 months ago

From a consumer point of view, retailers like Publix offer service far above Wal-Mart, such as grocery carry-out, that some (like my family) are willing to pay a little extra for sometimes.

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