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Running Head: PRICING STRATEGY 1

PRICING STRATEGY 5

Analysis of Walmart Pricing Strategy

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Introduction

Wal-Mart Stores Inc adopted a price comparison strategy in several retail outlets while squeezing the suppliers of packaged goods. This move aimed at closing the pricing gap between rivals such as Aldi, the German-based discount grocery chain and Kroger Co, based in the United States. The strategy launched across the Midwest and Southeastern states including Iowa, Florida, and Illinois focused on price competition within the grocery business that accounts to more than half of the company’s revenue (Bose, 2017). A report by Reuters on the price of grocery items sold by retail competitors revealed that Wal-Marts bid to lower rates took the retail store industry by storm. By offering relatively more moderate prices than both Aldi and Kroger Co, the company has been able to improve sales, prices and customer flow. This paper seeks to analyze Wal-Mart’s pricing strategy including its objectives, relation to the current stage in PLC, price range and elasticity of demand. Furthermore, the analysis involves determining what drives prices, buyer’s assessment of value, level of price competition and response to the fluctuations. The final section examines the strength and weaknesses of the pricing strategy and recommendations for improving it.

Analysis

Wal-Mart’s pricing strategy is considered the stuff of the legend since it can provide consumers with lowered prices daily. This price manipulation technique results from a set of core principles and procedures that have made the retail chain store both an economic and political force in the global market. The primary objective of the strategy is to ensure that prices of commodities remain as low as possible for shoppers to carry home a full cart. Wal-Mart’s business model hinges on the advantage of scale/volume which ensures that the company sells higher volumes despite slimmer margins as compared to the competition. Furthermore, the retail giant will be able to reap from high amounts that permit economies of scale and a level of bargaining power that would enable Wal-Mart to restructure the supply and retail sector to suits its schemes (Hayde, 2017).

The product life cycle (PLC) of retail stores such as Wal-Mart depends on several factors including the type of product, seasonality, sales volume, change in buyers, opportunities for replenishments and the switch of focus for the category. The pricing strategy relates to the current stage of Wal-Mart’s PLC which focuses on specific products including groceries, increasing sales volumes and seasonality regarding price manipulation. The price range between products sold by Wal-Mart and other retailers is quite significant with the retail giant facing criticism for setting higher prices for essential commodities. During a recent presentation to vendors, the company indicated its interest to lower rates on approximately 80% percent of its products (Cixiu, (2014). The price markup focuses on shaving 15% percent off the original price of products thus create a noticeable price rage when compared with direct rivals such as Costco. The elasticity of demand refers to how sensitive the market for a given product is to the changes in economic variables such as prices and consumer income. In the case of Wal-Mart, the pricing strategy tapped on the ability of consumers to increase their purchasing ability due to lowered rates regardless of income levels.

The retail industry is quite extensive and essential to the overall wellbeing of the economy. The drivers of prices in this sector include suppliers’ cost, costs of manufacturing, marketing and distribution expenses, competitor pricing strategies and consumer demand. Wal-Mart’s strategy to lower its prices was driven by the capped price limits invoked by rivals who sold their products at similar rates. On the other hand, customers assess the value of products using various factors that are quite common in the retail business (Hayde, 2017). These factors include efficiency in inventory management, employee- customer relationship, the reliability and dependence of the retail store as well as pricing flexibility through value-added pricing advantages. In response to price fluctuations, most retail chains including Wal-Mart focus on altering their prices to match or go lower than those of their competitors to attract consumers while also improving sales volumes that translate into higher profit margins in the long run.

Strengths, Weaknesses, and Recommendations

Wal-Mart’s pricing strategy involves an everyday low pricing move that offers discounts to customers across the board. This approach is usually applied by chain retailers to expand aggressively by attracting large numbers of customers who are primarily interested in competitive prices. The strengths in offering low pricing include an improvement in marketing strategies. This factor is founded on idea that low pricing marketing strategy uses a clear and direct message such that customers understand the store intends on offering items for a lower price. Also, the pricing strategy tends to lower the fixed costs since it enables the chain store to develop the necessary infrastructure and supply chain efficiencies. Furthermore, it is less expensive to advertise under this strategy since the retailer is not required to promote each product on sale. However, the pricing strategy has many weak links that include significantly lower sales revenues in the short term. Also, consumers prone to oversimplification and categorization tend to dismiss stores that offer everyday flat pricing based on the assumption that they may provide low-quality items (Gartenstein, (2017).

To ensure efficiency of the pricing strategy, Wal-Mart should consider adopting policies such as making the low prices seasonal, especially during the festive seasons thus maintain the trust of potential customers concerning quality. Price anchoring is also a useful tool that involves presenting an expensive option first to the consumer then offering the lower options as more reasonable and affordable. Customized prices and monthly discounts to loyal customers or members boost the company’s conversion rate regarding revenue. However, this technique requires that member prices are hidden to prevent resentment from other customers.

References

1. Hayde, R., (2017) “How Walmart Model Wins With "Everyday Low Prices". Retrieved fromhttps://www.investopedia.com/articles/personal-finance/011815/how-walmart-model-wins-everyday-low-prices.asp

2. Cixiu, G., (2014) “Pricing, competition, and welfare in the supermarket retail industry”. Retrieved from https://rucore.libraries.rutgers.edu/rutgers-lib/45694/

3. Bose, N., (2017) “Walmart is testing a new pricing strategy to keep up with Aldi and Kroger”. Retrieved from http://www.businessinsider.com/r-exclusive-wal-mart-launches-new-front-in-us-price-war-targets-aldi-in-grocery-aisle-2017-2?IR=T

4. Gartenstein, D., (2017) “The Strengths &Weaknesses of the Everyday Low Pricing Approach”. Retrieved from https://yourbusiness.azcentral.com/strengths-weaknesses-everyday-low-pricing-approach-6741.html