12 June 2010

Can You Price Yourself Too Low?

Out on the retail battleground, the giant's just blinked.

Wal-Mart, a chain of large discount department stores with annual sales of US$408 billion (no, that's not a typo) that has over the years carved a market position as the bastion for "everyday low prices", this week announced 30% discounts on 22 popular, everyday items.

Er ... hang on. Run that by me again.

You mean to say the home of "everyday low prices" hasn't been offering me the lowest possible price? That all these years, I've been hoodwinked into thinking that Wal-Mart was offering the best possible price, and staying viable by playing the volume game?

"Everyday low price" traditionally means that you can expect a terrific price on any item, so much so that it isn't worth the hassle of shopping around or clipping coupons to get something better.

One gets the impression that an "everyday low price" retailer is figuratively skimming the basement floor, with no room to offer further reductions. Now Wal-Mart's announcement has suggested the presence of a whole subterranean chamber ... jostling room for further price reductions by retailers in a desperate slide to the bottom.

Businesses should avoid this like the plague. There is no happy ending in such a scenario. Even the giant that outlasts its rivals will find it impossible to claw back decent margins. Nothing is quicker than a consumer pouncing on a paradigm shift.

Wal-mart isn't crazy, of course. Its price rollback program allows it to surreptitiously raise the prices on another basket of products. It makes for a lot of work; but if managed efficiently, can make a viable program.

I'm just more concerned about the mindspace it has abdicated, the birthright it has given up. By abandoning its mental lock on "everyday low prices", Wal-Mart is left with the residual image of a bloody big store where you can literally get lost trying to find your favourite cereal -- or your precious kids.

Try putting a price on that.

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