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Wal-Mart and the Loss Leader Concepts' Impact on Distribution
Wal-Mart's use of loss-leader pricing strategies in their toy retailing operations is detrimental to the long-term viability of the toy industry and ironically, to Wal-Mart itself. This loss-leader approach to pricing toys below their cost to drive up traffic in their retail stores is flattening the elasticity curve of newly-introduced toys and causing manufacturers to second-source and often move their manufacturing off-shore, where quality and safety standards are not nearly as rigorous as in the United States. Loss-leading pricing strategies are meant to drive up retail foot traffic. Wal-Mart's purchasing economies of scale and focus on supply chain efficiencies, which are briefly described in this paper, all contribute to their ability to price toys below to wholesale price to other retailers. The flattening of pricing elasticities of new toy products greatly impacts the profitability of toy manufacturers themselves. Taking a loss-leader pricing approach to selling toys also forces other retailers either out of business altogether, or into significantly minimized operations. The intent of this paper is to show how Wal-Mart's use of loss-leader pricing on their toys significantly impacts the ability of manufacturers to produce high-quality, safe, and innovative toys for the...
Further, this loss-leader approach also starts to force an entire industry into premature consolidation as on the supply chain side, toy manufacturers push for lower prices on their raw materials and at times sacrifice quality. On the distribution and selling side, this also forces much consolidation of retail outlets.
Wal-Mart has a very analytically-oriented corporate culture, meaning they have key performance indicators for many of their advertising, marketing, sales and support activities. As a very analytics-driven culture, the company has created a steady stream of data from its stores to corporate headquarters in Bentonville, Arkansas. The integration of daily store operations including hourly sales data during the holiday season uploaded via satellite at the close of every day, and the quickness with which Wal-Mart's pricing managers can analyze the impact of pricing on volume is one of Wal-marts' major competitive advantages. In addition a department of pricing analysts and managers study the massive amounts of data and look for those product lines most successful in drawing people into the store, in addition to looking for products that have the highest level of pricing elasticity in them, in addition to support of up-sell and cross-sell strategies. During the 1990s Wal-Mart began to test the pricing elasticity curves of
Wal-Mart is America's largest retailer and an epitome of business success. The corporation was founded in the 1960s by Samuel Walton, with a vision of quality products at affordable prices. For most of its existence, the company has been a specialized retailer, centralizing products of virtually any category into a single stop store format. In recent years however, the company has commenced to create its own products and sell them to
79 in 2003 to 7.27% in 2009. In addition, Revenue Per Employee increased from $176,089 in 2003 to $192,618 in 2009. Wal-Mart has defined a series of internal strategies that allow them to capitalize on asset efficiencies and coordinate them to increase profits over the long-term. An example of this type of strategy is the reliance on continual supplier relationship management significantly improving the company's asset turnover from 10.38 in
Corporate Mission As the largest mass merchandiser in the world, Wal-Mart's work in supply chain execution, research, and policies defines best practices for the broader high volume retailing industry worldwide. Wal-Mart is comprised of three operating segments including the Wal-Mart stores, Sam's Club and the International Stores. The typical Wal-Mart discount store as 50 departments or more and a few are offering groceries in addition to apparel, fabrics, stationery and books,
The combined sales from Wal-Mart and Toys 'R Us account for a smaller percentage than these other distribution channels. Another alternative may be to establish their own category killer store to replace Toys 'R Us. However, this is a risky move and is capital intensive. They would have to make certain that the market would be willing to accept this alternative. This alternative would require a heavy capital outlay and
The Price-Sensitive Affluents, Wal-Mart has learned (Wal-Mart Annual Reports) is more interested in finding an exceptionally good deal and not necessarily concerned about the shopping experience. This is particularly true as one of the strongest factors influencing the execution of their strategy, the emerging global recession during this timeframe, takes hold. Again as with the Price Value Shopper and the paradoxical purchasing patterns of the Brand Aspirational segment show,
That would have ended up costing the company customers and their reputation over time as well. It is better that they waited to have catalog online, their logistics and shipping functions defined, and also designed and launched their in-store pick-up program as well. The defining and executing of logistics strategies is critical for the success of any e-commerce enterprise (Siau, 2003). WalMart chose the best possible strategy by concentrating