WalMart: A commodity maker?

I posted a comment on the Fast Company blog a few days ago, but thought it would be useful to repost it here -- and no, not because I'm too lazy to write a new post; this was buried in the archives and I think it's an interesting topic. It was in response to a post by John Moore (VP Mkting at Whole Foods) about the recent cover story on WalMart:

As director of national marketing for a grocer, I read with great interest the Fast Company December cover story - "The Wal-Mart You Don't Know." As you know, Wal-Mart is single-handedly responsible for the drive to commoditization that is happening in the retail business. I love what Seth Godin said in his book Purple Cow that a low price strategy is the last resort of a marketer that is out of great ideas. Commoditization is all about exploiting the low price strategy.

The impact commoditization is having on the game of business is tremendous and Wal-Mart seems to be killing nearly everyone with their quest to deliver the lowest price possible.

I have a bit different view of commoditization. A company or brand is in commodity status when it is not offering enough value for customers to pay the asking price. Commodity companies must continually decrease their prices in order to maintain a revenue stream... in other words, they're not 'exploiting the low cost strategy'; they're the self-made victims of lack of value. I have worked with several telecom providers who are trapped in price wars because customers don't perceive any value difference between the various providers.

Conversely, there are many non-commodity companies who are pursuing a low-price strategy, and it's not due to a lack of ideas. Take Dell, for example. They can charge a lower price than IBM because they've innovated their operations. Southwest Airlines and Trader Joe's are also great examples. The common denominator is not that they're less expensive, it's that they've innovated in a way that customers value. They 'could' actually charge more and people would pay it because they're providing a quality product or service; but it would run counter to their established brand.

So WalMart is commoditizing brands? I don't think so. They're simply determining who's willing to be a commodity brand and who isn't. Levi's is prostituting itself to WalMart because it had already lost its brand value. Leaders who know the value of their brands, who know they're delivering value and that their brand has a loyal following, will not succumb to the WalMart commodity-confirming machine.

Comments

[L. Parrish]

I live in N.E. Oklahoma and all of our stores were owned & operated from everyday people in our town then Wal-mart supercenter came in and within a year our food and clothes stores all closed down because they couldn't compete with prices. 2 years into it now Wal-mart has raised there prices higher and the offer few brands other than Wal-mart brand, for use to choose from. I personally hate Wal-mart brand and now must leave the state just to go shopping. It's just not right!

[Ken Fay]

The emperor has no clothes, folks...

Walmart is NOT the low price leader. The fact of the matter is that once they annihilate their competiton they raise their prices to a level higher than their competiton. I have actually done price comparison shopping here in South Dakota and have found that Walmart is $.02-$.03 higher than our local stores, across the board. This may sound like I'm nit-picking,But on the volume of sales that Walmart experiences this price differential is the national debt of a small country. I am comparing prices of small chain (3 store) family owned businesses here in very rural South Dakota (BTW, more than one). We do know that Walmart has variable pricing across the U.S. but what I am seeing is that in a number of Walmart stores the much ballyhooed low price value proposition is in fact a myth and a product of (dare I say it) their marketing department. The old axiom of "If you say it loud and long enough it has to be true" is being used here and the vast majority of consumers believe it and it is supported in the press. Check for yourself... you may or may not be surprised. Hurrah for the flacks at Walmart, they really did put one over on us... .

[Jennifer Rice]

Good point. Or, perhaps we could say that WalMart established a non-commodity brand based on lower prices, which is a key differentiator and value proposition to most of our society today... but a low price strategy without the corresponding experience is bound to fail in the long run. (?)

[johnmoore]

A low price strategy does not necessarily mean that a company is slouching towards commoditization.

You referenced Dell and IBM and that Dell has managed to differentiate itself from IBM by their innovative operations. You did not clarify that Dell transcends commoditization through their innovative operations by masterfully maximizing mass customization opportunities to allow consumers to customize their PC, all the while exploiting their just-in-time inventory process to deliver that customized PC to consumers at commodity-like prices.

Southwest Airlines has transcended commoditization because they deliver a great experience (as evidence by their multiple triple crown awards for best on-time flight performance, best baggage handling, and fewest customer complaints) all the while doing it at commodity-like prices.

Trader Joe’s transcends commoditization by offering consumers exotic and flavorful foods at commodity-like prices.

The only thing special, unique, and remarkable about Wal-Mart is that they deliver consumers low prices, always. For that, I say Wal-Mart delivers an experience that personifies commoditization.

Wal-Mart has no story to tell beyond low prices. Sure, Wal-Mart can make up a story about how they have weaved themselves into the fabric of the communities that they serve. But the perception of Wal-Mart demolishing the local mom and shops and driving local competitors to close up shop persists and tarnishes any story that Wal-Mart makes up about how they are good local citizens. I contend that Wal-Mart is a commodity experience because they have not adequately differentiated themselves as offering consumers value other than the value of low prices.

johnmoore
brand autopsy