Tag Archives: prices

How Walmart describes itself

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Most companies and organizations have an idea of who they are and what they do. With a recent branding effort, Walmart described themselves this way:

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Walmart is excited to announce a comprehensive brand refresh that reflects its evolution as a people-led, tech-powered omnichannel retailer. From its humble beginnings in Bentonville, Arkansas, in 1951, Walmart has grown into a global leader dedicated to helping people save money and live better.

This is the opening paragraph of a press release that has more details. But this first section has a lot of ideas. Walmart is:

  1. people-led
  2. tech-powered
  3. omnichannel
  4. from humble beginnings
  5. global leader
  6. helps people save money
  7. helps people live better

There is a lot here. Probably too much for a slogan or advertising campaign. And how many line up with how the public sees Walmart?

When I think of Walmart throughout most of my life, I think of #6 above. It has pitched as the place for low prices. When they first arrived in the Chicago suburbs, I found that their CDs were much cheaper than the music stores in the area. Compared to other big box stores or grocery stores selling the same or similar items, Walmart often has lower prices.

What does it mean to be “people-led”? As opposed to AI led or driven by numbers? Is “global leader” referring to revenues or practices or name recognition?

The last one might be most interesting. Is the American good life partly dependent on Walmart? If Walmart was not around, would American lives be better or worse? Would this alternate universe just remove Walmart locations or all Walmart is connected to (supply chains, approach to retail, the growth of Bentonville, etc.)? If lots of Americans think Walmart does help them save money and given the role of money and wealth in American life, many might answer “yes” to this.

Food deserts and unenforced federal policies regarding suppliers and deals

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I am familiar with the concept of food deserts but I do not recall reading anything about their emergence over time. Could they be the result of not enforcing existing federal regulations regarding suppliers?

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Food deserts are not an inevitable consequence of poverty or low population density, and they didn’t materialize around the country for no reason. Something happened. That something was a specific federal policy change in the 1980s. It was supposed to reward the biggest retail chains for their efficiency. Instead, it devastated poor and rural communities by pushing out grocery stores and inflating the cost of food. Food deserts will not go away until that mistake is reversed…

Congress responded in 1936 by passing the Robinson-Patman Act. The law essentially bans price discrimination, making it illegal for suppliers to offer preferential deals and for retailers to demand them. It does, however, allow businesses to pass along legitimate savings. If it truly costs less to sell a product by the truckload rather than by the case, for example, then suppliers can adjust their prices accordingly—just so long as every retailer who buys by the truckload gets the same discount…

Then it was abandoned. In the 1980s, convinced that tough antitrust enforcement was holding back American business, the Reagan administration set about dismantling it. The Robinson-Patman Act remained on the books, but the new regime saw it as an economically illiterate handout to inefficient small businesses. And so the government simply stopped enforcing it.

That move tipped the retail market in favor of the largest chains, who could once again wield their leverage over suppliers, just as A&P had done in the 1930s. Walmart was the first to fully grasp the implications of the new legal terrain. It soon became notorious for aggressively strong-arming suppliers, a strategy that fueled its rapid expansion. By 2001, it had become the nation’s largest grocery retailer. Kroger, Safeway, and other supermarket chains followed suit. They began with a program of “self-consolidation”—centralizing their purchasing, which had previously been handled by regional divisions, to fully exploit their power as major national buyers. Then, in the 1990s, they embarked on a merger spree. In just two years, Safeway acquired Vons and Dominick’s, while Fred Meyer absorbed Ralphs, Smith’s, and Quality Food Centers, before being swallowed by Kroger. The suspension of the Robinson-Patman Act had created an imperative to scale up.

In this explanation, Walmart came to be such a big player in groceries because their size meant they could get better prices from suppliers. Smaller grocery stores could not keep up. The big chains set up locations in certain places offered lower prices.

If the Act was enforced again, would grocery stores quickly emerge in food deserts and other areas? Would consumers get more options soon or would it take some time to rebalance the grocery landscape? How would the big players – Walmart, Albertsons, Safeway, etc. – adjust? Would food options change in wealthier communities as well?

The article also cites a statistic that suggests independent stores had prices only 1% higher in 1965. Would that be a big enough difference in groceries today for shoppers to stay with places that offer low prices all the time (particularly considering recent concerns about inflation in food prices)?

An American right to a good deal?

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Amid inflation and high prices, the Chicago Tribune editorial board ended an editorial on prices at Starbucks this way:

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It’s no sin to offer good value. Americans are practical people. We’re betting most of those who duck into a Starbucks would be pleased to see some special deals on the menu.

What American does not like a good deal? At the same time, Americans tend to say that the market sets prices. So what happens if prices seem unfair or unreasonable?

Two recent phenomena highlight this tension:

  1. Higher levels of inflation coupled with higher set prices. Is this fair? Sure, Americans keep buying during this time but they are spending more money on goods that used to be cheaper.
  2. High housing costs. Americans want to benefit as homeowners from rising property values but do not like paying high housing prices.

At what point do Americans deserve a good deal? Or when should non-market forces jump in to change conditions? This could depend on the particular context, leaders and influential actors, and what the public wants. Regarding the second example above, Americans have worked over decades to back up mortgages so that more people could pursue homeownership while not providing much public housing.

Even as Americans do not have a right to good deals, they tend to have at least some companies willing to offer goods or services at prices lower than others. This does not always occur and there are situations – such as with monopolies – where the government will step in. Without intervention, individual consumers are left trying to find a bargain or going without in a country devoted to consumerism.

Why many products are always “on sale” – and why buyers fall for it

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My wife and I had a running joke going for a while with the Kohl’s circular that would come in the Sunday newspaper: every week was “the biggest sale of the year!” This is a common strategy for many retailers and consumers continue to fall for it:

“People don’t have a gut sense of absolute value. It’s just that they’re sensitive to contrast. So if you say I’m getting 40 percent off, I’m interested, no matter what the actual cost is.”

“The whole concept of a sale or a discount has become really perverted,” said Shell, a co-director of Boston University’s Center for Science & Medical Journalism and a contributing editor to Atlantic Monthly. “So what is the price? We think of price as a number, something that’s coolly objective, but it’s not. It’s a highly emotional construct. Price is manipulated to attract the consumer.

“If people see a sweater on a table for $50, they don’t buy it. If they see the same sweater was once $100, they will. We’re highly swayed by reference price. … There are some things that are almost perennially on sale, like mattresses and jewelry. We buy almost all our clothing on sale.”

“Retailers are now outfoxing consumers,” said Kit Yarrow, chair of the psychology department at Golden Gate University, where she is a jointly appointed professor of both psychology and marketing. “They’ve figured out how to offer a bargain in a way that the consumer doesn’t even know what they’re buying anymore.”

So how could consumers fight back? Some common strategies:

1. In certain areas, like credit card offers and statements or the calories in restaurant meals, having sellers display more information so that the consumer can theoretically make more rational decisions based on more information. Do all consumers use this information? Does the extra information “wear off” over time, particularly in light of enticing promotions or marketing? You can hear the same argument about health care from some people – if everyone knew, doctors and patients, how much every test or treatment was going to cost, different choices would be made.

2. Use an envelope system (or a debit card) for spending money so that one has a better idea of the total spending limit. This may help overspending but does it help eliminate all “impulse buys” or the deals one purchases?

3. Aren’t consumer education classes in high schools supposed to help talk about finances and such? And do they help much? Do such classes typically talk about how marketing works and different ways to think about deals?

4. There are companies that claim to not offer deals and have “no-haggle prices” or something like that. Think of CarMax or Saturn. Since most other retailers do offer deals, some companies can take an opposite tack.

The conclusion: prices are a social construction and taps into basic human impulses to avoid losses (paying the higher price)

A call for a sociological study of (digital) piracy

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John C. Dvorak suggests that we need more (sociological) research on the causes of digital piracy:

Understanding why piracy exists as a phenomenon needs to be better understood, but it should be up to academics, not me and other pundits, to determine the causes. Where is the great sociological study of piracy and the mentality behind it?

Dvorak briefly discusses what he thinks are the three roots of piracy: price, distribution, and marketing. At the end of the piece, he again calls for more research:

The real problem with piracy, again, is sociological. If an entire generation becomes acculturated to the free exchange of content and code, then the industry is doomed or it will have to cut back on its First Class Travel and rethink its models. Moaning and groaning about piracy will not stop it…

I’m not sure what can be done about all this, but it does need careful study, not more columns.

Sounds like it could be an interesting project. One angle would be to see how piracy has developed as a deviant (or not-so-deviant) behavior.

Some thoughts by Joel: Actually, there have been some really good academic studies of digital piracy published recently.  I wrote up some thoughts about the SSRC‘s 400+ page report titled Media Piracy in Emerging Economies in early March, and a few weeks later there was the (much shorter at 18 pages) London School of Economics paper entitled Creative Destruction and Copyright Protection:  Regulatory Responses to File-sharing.  Both are well worth reading (for sociologists, especially the former).

Early signs: higher gas prices lead to less driving

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With gas prices moving upward, there are some signs that this is already changing driving behavior among Americans:

Drivers bought about 2.4 million fewer gallons for the week of April 1, a 3.6 percent drop from last year, according to MasterCard SpendingPulse, which tracks the volume of gas sold at 140,000 service stations nationwide…

Before the decline, demand was increasing for two months. Some analysts had expected the trend to continue because the economic recovery was picking up, adding 216,000 jobs in March…

Instead, about 70 percent of the nation’s major gas-station chains say sales have fallen, according to a March survey by the Oil Price Information Service. More than half reported a drop of 3 percent or more — the sharpest since the summer of 2008, when gas soared past $4 a gallon. Now it’s creeping toward $4 again…

The decline is somewhat puzzling because Americans typically curb their driving only as a last resort, after sacrificing other forms of discretionary spending, like shopping for new clothes, or going to movies, concerts and restaurants.

Economists and others have been talking about this for a while: what exactly is the price point of a gallon of gasoline where Americans might drastically change their transportation patterns? In this earlier post, I briefly discussed the claim that the Obama administration actually wants higher gas prices as this would lead to greener transportation choices such as mass transit or bicycling or car pooling (or other options).

But if gasoline prices stayed relatively high (so they don’t really go down like they have after some of the temporary spikes in recent years – see the weekly average in the US going back to 1990 here or a graph showing prices going back to the mid 1970s here), it might lead to all sorts of changes. This could include everything from buying smaller cars (as the story above suggests is happening) to more Amtrak riders to longer semi trailers to rethinking patterns of sprawl.

How Wal-Mart plans to regain its edge

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Here is an interesting summary of Wal-Mart’s corporate plans for the near future. The headline of the article says it all: “Wal-Mart, humbled king of retail, plots comeback.”

Three years ago, Wal-Mart ruled for convenience, selection and price. But today it is losing customers and revenue, and smarting from decisions that backfired.

Wal-Mart is not in danger of ceding its place atop the retail world. But competitors have begun to chip away at its dominance.

Over the last year, revenue at Wal-Mart stores open at least a year has fallen by an average 0.75 percent each quarter, according to the International Council of Shopping Centers. Revenue rose by an average of nearly 1.7 percent at Target, 8 percent at Costco and 5.9 percent at Family Dollar.

To fight back, Wal-Mart is again emphasizing low prices and adding back thousands of products it had culled in an overzealous bid to clean up stores. It’s also plotting an expansion into cities, even neighborhoods where others dare not go.

Even as the article talks about stagnant or slightly declining sales at existing stores plus some questionable decisions (like reducing the number of products on the shelves), the main issue seems to be perceptions. On the business side, Wal-Mart has been challenged, particularly on the lower end by dollar stores. But business has not tanked and Wal-Mart still thinks it has new markets to tap in the United States, particularly in urban areas. What do investors and shareholders think – is it just about stronger growth right now? On the public image side, stores like Target have offered an enticing alternative. And yet Wal-Mart has changed the layout and design of its stores to look more like Target and this seems to have helped. Ultimately, the article says Target’s revenues are still one-sixth of that of Wal-Mart.

It sounds like Wal-Mart thinks they need to make some changes. There is no guarantee that any business, even a behemoth like Wal-Mart, will continue to expand or even be profitable. And just by virtue of its size, Wal-Mart’s actions will continue to be scrutinized.