pricing strategy

Much Ado About "Showrooming" in Retail

Price transparency, "showrooming"...what's a retailer to do? Carol Spieckerman weighs in on the effect that online comparisons are having on Target, Best Buy and others, in the Twin Cities Pioneer Press.

Article by: Tom Web,TwinCities Pioneer Press, 03/31/12

Read "Minnesota Retailers Fight Back Against Online 'Showrooming'

© 2012 Media News Group. All rights reserved.

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Carol Spieckerman's Brain On...Promotions vs. EDLP

In Carol Spieckerman's latest contribution as a Retail Wire Brain Trust panelist, she comments on a recent study from the Stanford Graduate School of Business that makes a compelling argument against everyday low pricing (EDLP) for retailers attempting to compete with big boxes.

Here's what she had to say..."Interesting findings considering that this year, Walmart, J.C. Penney and Lowe's all made various vows to end promotional shenanigans and either return to (Walmart) or initiate (the others) EDLP-ish models. With the big guys zigging to price consistency, smaller-scale competitors would seem to have a mighty zag in moving toward promotional pricing."

Read the full discussion

Additional thoughts from Carol...

I agree with the study conclusions that pricing strategies aren't to be taken lightly since variances will tarnish consumer trust and the process of re-educating consumers about new strategies can be long and costly. Although the study focused on grocery, I see this applying to all categories and retail tiers.

Walmart learned that when last year's "atomic rollbacks" backfired. Far from being grateful, Walmart's loyalist customers questioned whether they had been getting the best deal all along and in the meantime, dollar stores' massive scale and convenience factor tugged away at Walmart's base. It's journey back to price leadership has been fraught with foibles but a recent quote from Walmart's Chief Merchandising Officer, Duncan Mac Naughton, hints at the real reasons why more retailers are abandoning promotional high-low games in favor of uniformity.

In his fourth quarter presentation in Bentonville, Mac Naughton stated that Walmart is committed to delivering price leadership "community by community, store by store, category by category." Why so specific?  Because as difficult as it has always been to manage promotional strategies across a few thousand stores carrying the same brands and products, it is nearly impossible to do so as retailers localize the brand and product profiles of individual stores, explode online offerings, and ramp up site-to-store capabilities, all under the watchful eye of smartphone-wielding consumers who can exercise their right to tap out a price comparison and/or make an online purchase on a whim...and do so while visiting an alternative retailer's physical or virtual space.

Among the most promotionally-driven retailers in the country J.C. Penney announced in November that it will move toward an everyday low price strategy beginning in spring 2012. Not coincidentally, Penney simultanously announced its plans for a significant relaunch of its e-commerce site which will include adding to its online-unique assortments and enhanced mobile interactivity.

One of my 2011 Earth-shattering Events that Escaped (Almost) Everyone is retailers' mania for online marketplaces which promises to further complicate the pricing and promotion picture. Lowe's is portraying its announcement today that it will acquire online retailer, ATG Stores as an example of its committment to provide an "endless aisle" of products. I'll say. ATG's virtual portfolio contains over 500 websites featuring 18 category divisions. Over 3.5 million products from more than 3,300 manufacturers are featured on ATG websites.

Let the limber and land-based have a go at promo. 

For the scale-busting behemonths? EDLP, please!

 

Walmart Resonates Part III: Brands in Command

Last week, I shared my first and second takes on Duncan Mac Naughton’s presentation as part of the Bentonville Bella Vista Chamber’s WalStreet speaker series. Today, I wrap it up with Part III.

Read Part I: Productivity and Plentitude

Read Part II: All Hail Scale!

Separation Anxiety

Back in May, Michael Moore talked about Walmart’s reintroduction of entire categories, rather than just products. Mac Naughton called these “heritage” categories (we call them “the three Fs,” meaning firearms, fishing, and fabric) and he added a somewhat surprising twist to the story. As important as EDLP and OPP (opening price points) are to Walmart, widening the price separation between good, better, and best punctuates their value on the price continuum.

Context is everything, so as Walmart completes its last-phase replenishment of many good-tier OPP items that were cut during Project Impact, it is simultaneously layering on a higher ceiling of best offerings, particularly in its heritage categories. The chorus of Walmart naysayers might call this a risky scheme, but a quick reality check proves otherwise. Strapped consumers don’t always favor a steady stream of cheap, throw-away items and in fact they often prefer to make select investments in high-quality, durable goods that will withstand some wear and tear.

Walmart is currently driving double digit comps in the hunting category by offering items such as $900 shotguns and, in fishing, by raising the fishing rod price threshold from $45 to $100. The company is really just participating in the high-low dynamic that is currently driving all of retail: with dollar stores gaining wider acceptance among higher-income shoppers, retail’s bottom has been lowered, making the entry-level market more saturated and competitive. At the same time, the luxury market continues to buck economic trends as the “haves” keep having. It’s for this reason that retailers such as J.C. Penney who are fighting their deeper descent into the murky middle are bringing in higher-priced items (such as $80 Liz Claiborne handbags). One person’s handbag is another’s hunting rifle; “luxury” is in the eye of the shopper.

Private What?

Walmart’s 2009 revamp of its mega-private brand, Great Value, ranks right up there with Project Impact in terms of industry buzz, and many have taken it as a sign that Walmart was going to embark on a private brand-a-palooza across multiple categories. While those dire predictions never really came to bear, the one-two punch of Great Value’s power proliferation in consumables and Project Impact’s curtailment of national brands created a palpable perception imbalance, if nothing else.

Mac Naughton didn’t hedge one bit on the branding front – national brands are what drives the authority that girds each category and, in apparel, Walmart now sees national brands such as Levi’s Signature as critical to quality perception as well. Walmart’s recent announcement that it will return to the basics that it arguably never abandoned and shutter its New York apparel office had many speculating about the brand implications (establishment of the office in 2009 was another move that had many predicting a private brand takeover). My head obviously wasn’t the only one that snapped around when Mac Naughton went all “national brand” on the audience, as a clarifying question regarding the role of private brands in Walmart’s overall strategy was raised during the Q&A. He didn’t hesitate to put a finer point on the situation, calling Walmart a “house of brands for less,” and stated that private brands would be deployed only when a price that customers need is not available. Suppliers, start your branded, OPP engines!

Mac Naughton also provided additional color by saying that, when Walmart stopped building stores, 9,000 dollar stores “showed up.” The horse they rode in on was “a bunch of entry level price point products” that Walmart couldn’t meet with their brand portfolio at the time. Walmart’s first choice is now a national brand, but if a suitable one can’t be had, they’ll push a private brand forward. In Mac Naughton’s words, “it’s all about price.”

Although Walmart’s appetite for licensed products is well-known in the licensing community, one doesn’t often hear Walmart execs call out licensing as a focus area. Mac Naughton did when he referred to a successful OPP backpack program that featured a licensed Hello Kitty version. I took that to mean that licensed brand providers will find new opportunities in the future, if they can bring on the value.

Scattergories

Mac Naughton blazed through Walmart’s point of view on additional categories. In home, the focus will be on sheets, towels, candles, floor care, and outdoor living. What’s left, you ask? The tchotchkes and pieces that once took up room but didn’t have a point of view. They’re outta there.

The focus in Walmart’s back-of-store entertainment area will be on “value and immediacy,” since the innovation hasn’t really been there lately. 3D didn’t deliver as expected, so Walmart is determined to win in OPP here just as they are in other categories. Walmart rakes in $300 million a year, with its $5 movie bin and its $5 CD business up 13 percent. Mac Naughton threw in a bit of imagery to make the point, saying that Walmart’s core customers are doing “head dives” into those bins (ouch!). Walmart’s overall share of new movie releases is an impressive 40 percent and they had a 45 percent share of the Transformers 3 release. The trick is to drive a bit of aisle crossing when that peak-time traffic hits the store.

If the shelf hogs aren’t flying off the shelves, doubling up on the high-turn, high-profit items that attach to them makes a lot of sense, particularly on the heels of Toys 'R' Us' announcement of its expanded and re-designed CE departments which will feature tablets, headphones, media players and Apple accessories. Walmart is focusing on all manner of iPad, iPod, television, and printer add-ons and increasingly relying on Walmart.com and its in-store delivery mechanisms to execute bulkier pieces, particularly in smaller stores that can’t dedicate the space.

It’s Beginning to Look a Lot Like…

Walmart began working on holiday 2011 at noon on December 25th, 2010, according to Mac Naughton. A cross-functional team has been chiseling away since then on defining Walmart’s holiday point of view and plotting its product flow, daily sales, and service plans. Layaway kicked off in mid-October (earlier for associates) and Walmart’s Christmas price guarantee will ensure that they aren’t beat on price, even after the sale. Walmart’s previous announcement of its ad match program doesn’t run counter to the EDLP philosophy according to Mac Naughton. It just takes care of the anomalies.

Walmart has also taken a stand on which items will drive its holiday must-haves. Mac Naughton shared the top five, which are Elmo Rocks, Leap Pad, Fidget, Call of Duty, and the IPad II.

Mac Naughton closed his presentation by saying that he is as “serious as a heart attack” about growing the business. With Walmart  just reporting positive comps for third quarter and its first revenue gain in two years after nine quarters of negative same-store sales, hopefully he will be able to breathe easy come 2012.