Wal-Mart: The Everyday Low Price Problem

Like every other huge retailer, Walmart, through its executives has begun realizing that having low prices than any other retail shop does not guarantee an improvement in sales. Since its entry into the retail business, Walmart has remained an undisputed retailer of fast selling consumer goods at the lowest prices. However, recently, the company has encountered some challenges surrounding the fact that most of its retail stock are actually not at the lowest prices. As a result, the company has suffered greatly regarding sales and is expected to perform even poorly this year if it does not take immediate action and look towards other selling angles apart from prices. As all other retailers are now proposing, there is a need to invest greatly in e-commerce. This move will ensure Walmart does not drag down its share price along with its sales. This paper explains why the low price is a problem that can only bite deeper into Walmarts steady operations and how investments in business operations such as training and revision of wages can come in handy at eradicating the problem.

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For long, Walmart has maintained its position as the leader in low prices. As a result, the company has been hell-bent on squeezing suppliers, driving costs out of its supply chain as well as its corporate headquarters. It is obvious that the founders of Walmart were well versed with the rule that competing on price can only mean that one would have to offer the lowest price. However, like any other market, no one claims a monopoly in strategies that can be easily implemented by other organizations and turned into profit-making systems. This makes the price problem real because retailers, major and minor, have experienced it.

In the case of Walmart, it was only a matter of time before someone else borrowed their idea and sought an even better path through which to make it to the finish line first with an almost equal competition. To understand the significance of this problem, I shall look at Amazon as a perfect example of a retailer that exposes Walmarts problem. Over the years, Amazon has been able to live off profits gained by borrowing Walmarts idea only that the company mainly operates online. As a result, Amazon has secured a standing as the current low price leader. This problem is sufficient and not that challenging to write about because it is evident that Amazon is the future way, and it is yet to create a bearable business model (Chan, 2015, p 1). Despite such an essential structural requirement, Walmart continues to lose against Amazon because it has ignored the cost to serve which consumers are discovering by themselves and responding to it accordingly. Most retailers do not bear this cost. As a result, it has become easier for them to ignore it over the years and Amazon has discovered the gap and covered it.

One can argue that stores contribute to the cost to serve along with the employees responsible for staffing them. However, these retailers spend a fraction of the said resources selling their stock. The rest of it is spent on transportation and storage of the products. This, therefore, translates into a cost to deliver instead of a cost to serve. Consumers of the retailers products, therefore, bear the majority of the cost to serve for the retailer. This is because the consumers drive to the companys stores, spend time there, choose their products, and take them home. Retailers who have experienced the use of investing in e-commerce have realized that the move spreads the cost and in turn saves their consumers the time to travel to respective stores and back home. This is what we, as the average consumer would prefer to travel hassles. It is what economists refer to as convenience to both the consumer and the retailer (Grewal, et.al 2012, p 2). Walmart lacks regarding convenience hence the reason many people now prefer Amazon to Walmart despite them both having low prices.

To cover their expected flat sales this year, Walmart will have no other alternative but to invest in e-commerce even though it originally adopted the selling model Amazon now uses to make its profits (Becker, Lee & Nobre, 2010, p 294). For example, to redeem its position on reduced leadership costs, Walmart has to invest its strength in its stores because Amazon does not have stores. This will constitute the first step towards differentiating its sales model given that it can combine its stores advantage with digital trends to come up with something new. Having tried product differentiation before, Walmart should surely not try the same in exchange for low-cost leadership because it will only end up spending more on advertising to gain back consumers who have already switched to other retailers. On the other hand, consumer differentiation is practically impossible given the number of people who shop at the retailers stores every week (Boehm, 2014, p 1). The strategy cannot be implemented as quick as imagined. Other retailers such as Best Buy have tried, and as witnessed, the strategy was only abandoned in the process.

Walmart is sure of surviving in the marketplace if they are to take up e-commerce because it has always remained at arms length for many years. Investing in e-commerce will ensure that that the retailers life is extended long enough to serve its trusted consumers and to avoid its loss to a mere strategy.

References

Becker, K., Lee, J. W., & Nobre, H. (2010). The new e-commerce freeloaders: effects on consumer behaviour and decision-making.International Journal of Technology Marketing, 5(4), 291-302.

Boehm, P. (2014). Wal-Mart. How can the low price industry create sustained consumer value?.

Chan, I. (2015). Examining the cost of Amazon. coms success using the triple bottom line (Doctoral dissertation, Humboldt State University).

Grewal, D., Roggeveen, A. L., Compeau, L. D., & Levy, M. (2012). Retail value-based pricing strategies: New times, new technologies, new consumers. Journal of Retailing, 88(1), 1-6.