Issue: A small supplier decision comes back to bite Wal-Mart
Commentary by: David Vinjamuri

[Image from NALIP.org]

In Accidental Branding, I write “Do Sweat the Details”. By this I mean that very small actions that do not at first seem to be related to our brands often have very big consequences for the brand. What I meant when I wrote this is that consumers often cue off of small details that are of no interest to brand marketers, like how the package opens, how customer service handles complaints or how business partners speak about our business.

This week, Wal-Mart has provided an excellent example of how decisions seemingly unrelated to marketing can affect our brands. It’s a big enough deal that I would call this Wal-Mart crisis a textbook example of “Brand Karma” – meaning that what you put out into the world eventually comes back to you. Wal-Mart has never had a great reputation among its suppliers. For years it has been accused of sourcing goods locally in new markets only as a competitive tactic to drive out other retail customers and then ending the relationship in order to bankrupt the local supplier.

This general attitude towards suppliers bit back recently as The Wall Street Journal reports. The company which Wal-Mart used to capture video of sales conferences and other internal meetings for thirty years, Flagler Productions Inc. was dismissed two years ago. It does not take much reading between the lines to suspect that this termination of a longtime relationship was not handled well. INstead of maintaining a fondness for Wal-Mart and seeking to regain the Wal-Mart business, Flagler has gone into the business of selling these candid and embarrassing videos of Wal-Mart events to the general public. It appears that in spite of Wal-Marts general legal rectitude, they never secured exclusive rights to this video.

It’s a brand disaster. The videos, as Gary McWilliams reports, contain:

A former executive vice president and board member challenges store managers in 2004 to continue his work opposing unionization. Male managers in drag lead thousands of co-workers in the company’s corporate cheer. In another meeting, managers mock foolish or dangerous use of a product sold in its stores.

I have written a lot about Wal-Mart in the past several years, and I don’t think it’s an evil company. Their basic goal of trying to reduce prices for average working families is a good one. They have made some good steps forward (along with Target) on trying to bring prescription drug prices down. They’ve also tried, mostly unsuccessfully, to bring down the horrible, predatory purveyors of pay-day loans with fair competition.

Where Wal-Mart seems to falter is that they have no corporate instinct for the integrity of their brand. A corporate obsessed with costs is bound to bruise a lot of “little guys” in the process. (See Wendy Bounds nice blog post for more on this.) And not shockingly, one with the ability to really hurt Wal-Mart has finally bitten back.

The lesson? Everything affects your brand. If the way you treat your employees, suppliers or customers is not consistent with your brand, they will become a cancer in your system. Brands may not practice Buddhism, but they should believe in Karma. It all does eventually catch up with you.

If anyone has links to the Wal-Mart videos, please feel free to post them in comments.

Issue: As Wal-Mart’s Investigation Practices Hit the NY Times, Wal-Mart Pays a PR Price for Authoritarian Policies
Commentary by: David Vinjamuri

Last Summer, an epic struggle for control of the board of Hewlett-Packard exploded when it was revealed that HP Board Chair Patricia Dunn had authorized pre-texting to investigate its own outside directors. The news cast a cloud over the comeback story of Hewlett-Packard, and the scandal was far worse in PR terms than the leaks the investigation was intended to uncover. As this advertising blog commented at the time, the real lesson of the scandal was that any corporation should understand that treatment of (and trust in) its own emloyees is directly connected to the equity of the brand with its consumers. By that we meant that if a company does not trust its own employees, it should not expect consumers to trust them. Some employees will always misbehave and either break the law or the company’s code of ethics. But when the company fosters an atmosphere of mistrust, it ensures that this mistrust will be transferred down to consumers, either through employees or the media.

Today, a scandal brewing for the past four months hit the front page of the New York Times, virtually ensuring a publicity nightmare for Wal-Mart. The source? In January of 2006, Wal-Mart hired marketing star away from Chrysler Julie Roehm to lead the push for a new agency and new image for the Bentonville giant. On December 7th, Wal-Mart publicly fired her, stating that she had violated company policy by having a relationship with a subordinate, accepting unethical favors from agencies vying for agency-of-record status (most famously a ride in Draft FCB chairman Howard Draft’s Aston Martin) and broke expense rules.

It is unusual for the departure of a senior executive to be positioned as a ‘firing’ (even former HP CEO Carly Fiorina had to insist that her termination be made public as such) and much more unusual for the corporation to reveal the reasons behind the dismissal. To do so courts negative publicity and a lawsuit. In this case Wal-Mart got both – Roehm sued and the story was picked up by the business press.

Wal-Mart has one of the best publicity teams in the World, (run by Edelman PR) but it’s difficult to understand what they thought they might accomplish by treating the termination of Roehm as a war. Certainly any financial loss to Roehm in a lawsuit (or any gain in a counter-suit) will be dwarfed by the negative publicity surrounding the case. Wal-Mart does not carry the presumption of innocence in the public mind, so this kind of story weighs even heavier on them than it might on other brands.

The very public battle over Roehm’s termination created an even bigger risk for Wal-Mart: that it would reveal a pattern of behavior on the part of the retailer that could make for more interesting and more mainstream story for the press. That happened today with the New York times expose piece on Wal-Mart’s surveillance practices.

Whatever the truth of this story, the damage has now been done. And it is clear that what invited this story was Wal-Mart’s aggressive approach to ending its employment relationship with Julie Roehm. Whether or not Ms. Roehm merited this treatment, whether or not Wal-Mart was ‘right’ in factual terms, it has certainly hurt the brand. When senior Wal-Mart employees consider their everyday actions in light of whether they are ‘adding value’ they should consider the health of the Wal-Mart brand and not just the shelf cost of the products.  And, as with the Hewlett-Packard incident, the suspicion of employees – even when justified – hurts the brand far worse than their misdeeds.

Brand: Miramonte Records (Red Truck Entertainment)
Execution: TV, Movie Theatres, MySpace
Target: Wal-Mart
Rating: ***
Reviewer: David

Description:
A country music video by singer Danny Griego touts the appeal of ‘Wal-Mart Girls.’ The video is produced by Miramonte Records, Mr. Griego’s recording label which purchased television airtime to air a :30 second version of the video during the Independence Bowl last week (a major U.S. college football match).

The spot was intended to boost the career of Danny Griego but also explicitly to influence Wal-Mart to carry and promote the album and the rest of Miramonte’s artists. AdAge reports:

But the blitz also aims to grab the attention of another audience: Wal-Mart’s buyers. Miramonte is looking to gain distribution in the chain, said Jim Lecrone, manager of Miramonte, a division of Red Truck Entertainment based in Scottsdale, Ariz. “They are one of the biggest music retailers in the world,” he said.

In addition to the limited television advertising, the spot will be aired in movie theaters in the American Southwest.

What Works:
This ad signals a new development in the most interesting marketing story of the past year – consumer-generated media. That trend has turned into a craze, causing stalwarts like Time Magazine to abandon editorial discretion and declare ‘you’ (meaning everyone) the Person of the Year. Time is reflecting the increasingly two-way nature of the interchange between brands and consumers and particularly the dramatic powershift caused by YouTube, MySpace and other social media sites online. A strong current within this trend has been the use of social media sites by brands to deliver a message to consumers – with the labor of the consumers themselves. Smirnoff did an excellent job of this with Tea Partay (our review here) which they posted on an obscure website and allowed consumers to discover and bring to YouTube. The video was viewed over two million times with no distribution cost to Smirnoff and considerable media attention.

This combination of clever-PR with consumer-generated buzz through different streams of media has helped a few very clever brands leverage their advertising budgets beyond all expectations while it has frustrated many more. Miramonte Records puts a distinctly different spin on this by targeting its guerilla campaign at a distributor (Wal-Mart). Distribution is certainly the name of the game for these small labels and an underground campaign that gets Wal-Marts attention could be hugely profitable to Miramonte as well as Dannny Grieco.

The video itself makes a good case for Wal-Mart girls – if one moves past the stripper-esque images of the girls themselves and listens to the lyrics (a painful task for this advertising blog which is not naturally a fan of country music). Danny Grieco is touting Wal-Mart girls because they have the right values – the same values that the chain appears to hold dear. On the surface at least, that alignment of brand values would make Grieco and Miramonte a good fit for Wal-Mart.

What Doesn’t:
In spite of the cleverness, we don’t think this pitch will work on Wal-Mart for two reasons. First is the Bentonville chain’s inherent conservatism (not selling Playboy or some other less provocative men’s magazines, censoring book covers) which this music video openly flouts. We think this is a mistake by Wal-Mart – although it certainly should remain family-oriented, Wal-Mart’s approach has been heavy-handed and has caused more problems than it has solved.

More importantly, Miramonte Manager Jim Lecrone violated the #1 rule of clever PR by explaining his strategy to the media. Doing something unusual and subversive to attract Wal-Mart’s attention is one thing. Talking about it to the press is quite another and again directly contradicts Wal-Mart culture. If the ‘Girls of Wal-Mart’ video is wildly successful, it may not matter. But Miramonte might have lost the opportunity to slide into Wal-Mart by stealth and charm by blowing its cover.

Branding Bottom Line:
Miramonte kisses and tells. What will Wal-Mart do?

Issue: The brand impact of corporate reputation
Commentary by: David

Stories about Wal-Mart increasingly reflect one common element: municipalities, cities and regulators teaming up to thwart the Bentonville giant on different fronts while Target and other competitors slide through unchallenged. Two recent cases of this concern Wal-Mart’s attempts to get a retail banking certification in Utah and its ongoing difficulties in opening new stores in urban areas. In the first case, Wal-Mart is seeking to gain a charter that Target already owns, in the second we see story after story of Wal-Mart expansion being blocked while rivals traipse through unchallenged.

We are stating the obvious when we say that Wal-Mart’s bad reputation is keeping the company from pursuing its strategic goals and hurting the stock price, but we think the problem is deeper. Wal-Mart has failed to understand the core brand promise and in doing so has systematically undermined the equity of its brand by repeatedly violating the trust of its consumers. Now consumers around the nation and their agents are punishing Wal-Mart and this punishment hurts consumers as well as Wal-Mart.

What is this ‘brand promise’ and how does it affect corporate reputation? The brand promise is simple, but it has significant implications. A brand offers a value proposition. It promises the consumer that it will maintain this value proposition over time, and that the brand will enhance the consumer’s experience and reward the trust during the lifetime of the consumer relationship.

Wal-Mart executed extremely well against part of this promise. It did a great job of eliminating the ‘rural premium’ – the extra price for goods that people in less-populated regions of the U.S. used to pay.

But the brand promise has a second part and Wal-Mart missed it entirely. The brand promise is also about trust – gaining and keeping the trust of the consumer. It is impossible for a brand to maintain consumer trust when it is working against the interest of its consumers. This is where corporate reputation comes in.

This advertising blog cannot judge the reality of stories that Wal-Mart employed ruthless business tactics to put local suppliers out of business (initially working with a local florist, for example, then becoming the largest customer and driving out the other business then finally sourcing elsewhere to elimate the supplier and Wal-Mart’s local competition), or the claims that Wal-Mart has treated employees poorly. It is clear that Wal-Mart is no Starbucks when it comes to employees (recently announcing that it will increase part-timers as a percentage of its workforce), as it tries to get more out of its labor force and reduce health care costs.

So while Wal-Mart’s brand offers excellent selection and low prices it also seems to hurt the community and harm the social infrastructure of the communities it serves. At best this is terrible PR management, at worst it is bad business and bad branding. But clearly this situation emerges from Wal-Mart’s lack of understanding of the brand promise. Wal-Mart CEO H. Lee Scott has tried to speak directly to consumers with what he calls the ‘unfiltered truth’ at WalMartFacts.com. But Scott is not thinking like a brand manager and the actions he is taking show little sensitivity for the brand relationship that Wal-Mart should be building with consumers.

Which is a shame, because the retail banking license could be a major boon for consumers in the long-run. While community banks could suffer if Wal-Mart tries to create a middle-class megabank, the lower-income Wal-Mart customer is dramatically underbanked. Many of these people do not have checking accounts and pay dramatic fees to cash checks (more on this here). Wal-Mart could and should serve these people better than the predatory lenders who take their money now.

Beyond this, Wal-Mart is making other moves which may benefit consumers and the environment. Their packaging reduction initiative promises to initiate a green revolution among retailers and suppliers. And by cutting prescription drug prices (albeit for a limited number of drugs at the moment) and opening cheap, efficient health clinics in stores they may do more for the state of health care in America than Washington has in the past decade.

But Wal-Mart efforts may founder because in their single-minded focus on lowering prices, they have forgotten to take care of their corporate reputation and uphold the brand promise to their consumers. Which is bad brand karma for everyone.

Issue: Wal-Mart Expands Financial Services to Low-Income Consumers
Commentary by: David

The Wall Street Journal‘s Robin Sidel and Ann Zimmerman report today that Wal-Mart is aggressively expanding services for low-income consumers including check cashing, bill payment, money orders and remittances.

To some this may sound like a turn in the wrong direction – and conflicts with Wal-Mart’s prettified, glamour turn under ex-Target employee, Chief Marketing Officer John Fleming. It’s not. It is the first sign of a shrewd marketing strategy from the Bentonville giant in months. And it comes from the operations department (the project falls under Jane Thompson, President of Wal-Mart’s financial services operations).

Why are we so bullish on this race to serve the bottom of the market by Wal-Mart? First a bit of background.

The Dreadful State of Financial Services for Low Income Consumers
Offering financial services to low income earners is an unhip business. On the one side we have check cashing operations who typically charge low income earners without traditional bank accounts 2.5% to 3.0% of face value to cash a check. Yes, you did read that correctly. It doesn’t matter if it is a personal check or a business check, these folks have to pay $25 to $30 to cash a $1000 paycheck. That’s not the worst side of these establishments, either. The real game here is loans. These operations will lend against a future ‘payday’ to consumers who have little income and almost no credit. But thanks to current banking laws they charge enormous fees to do so. From the website of Payday Today – part of ACE Cash Express, Inc. the largest check-cashing store concern:

Payday loan fees are very expensive, particularly if a loan is extended over time. The fee charged for a payday loan is equivalent to a 250-650% Annual Percentage Rate (APR), which is by far one of the most expensive loan options on the market.

That may sound like usury to normal income earners, but it is legal in this industry. It is no surprise, then that banking industry reps are opposed to the move. The Wall Street Journal quotes Bruce Spitzer, spokesman for the Massachusetts Bankers Association saying “We don’t think this is a good service for consumers.” Apparently providing loans with a 650% APR is a good service, however.

The other side of the business is remittances. This is the practice of sending money to foreign countries which is usually done by legal or illegal immigrants who are supporting families for their home country. This is a much more competitive and respectable business which started with foreign operations such as the Dominican financial services company Quisqueyana. But the services offered by these organizations are limited as they do not have bank charters.

Why ‘Always Low Prices’ Positioning Helps Low Income Consumers Cashing Checks
What Wal-Mart does is to put a lot of money back into the hands of these low-income consumers. For instance, Wal-Mart charges 46 cents for a money order versus as much as $1.30 at the U.S. Post Office. Instead of paying up to $30 to cash a $1000 check, Wal-Mart charges a maximum of $3.

The beef against Wal-Mart from Bruce Spitzer and his ilk is that it’s just trying to get people to make impulse purchases when they have money in their hands. Mr. Spitzer obviously doesn’t understand Wal-Mart’s relationship to the low-income consumer, however. These people come to buy necessities in bulk at low prices. They are in no sense less responsible than more affluent consumers. In fact, Wal-Mart confirms that only 14% of check cashers make a purchase in the same visit.

Why this is good strategy for Wal-Mart:
Wal-Mart’s average consumer earns $38,000 which is below the U.S. Median Family income of $42,000. Target, on the other hand caters to a tonier consumer, earning an average of $58,000. This advertising blog has long argued that trying to compete with Target for these affluent consumers is a fools errand for Wal-Mart. Target has tapped into a vein of unserved desires with its ‘Design for All’ mission and Wal-Mart is confusing its ‘Always Low Prices’ image when it advertises in Vogue or makes a big show of offering organic food or upscale merchandies in the stores.

Wal-Mart grew into the most valuable company in the world by offering a better deal to the average Joe and Jane – those lower and middle income wage earners in rural areas who were paying high margins to small retailers a generation ago.

The best opportunity for Wal-Mart is not to expand its target to upper-income consumers but to find more ways to better serve its core consumer. There will be no shortage of low income consumers in years to come even if the ranks of the mass affluent continue to grow.

Wal-Mart which so often seems to find itself as the source of social evils finally has a significant chance to do some good. By demolishing the abusive and demeaning check cashing industry, Wal-Mart can offer low-income consumers some of the same basic economic rights that affluent earners enjoy. By innovating and perhaps even joining forces with other companies like G.E. who are making a push into this sector, they can provide a jump-start for the lower end of the U.S. economy.

Issue: Wal-Mart Adds Second Stories
Commentary By: David

The Wall Street Journal reported yesterday that Wal-Mart has added a second or third level in at least 20 of its stores in markets where expensive or tight retail space has constrained the overall store footprint.

Is this a big story? In the larger sense, no. Wal-Mart operates 3,900 stores in the United States alone. The Wal-Street Journal bases its coverage on the fact that it shows a shift in Wal-Mart’s strategy, a willingness to veer from the ‘cookie-cutter’ strategy that has fueled its growth over the past two decades.

This advertising blog sees something deeper in this decision, a small but important signal for a larger shift in the retailer’s relationship to the world. (We have not called this a metaphor because we think it is more than a metaphor. See commentary here on the American Press Institute Morph blog on when a metaphor is not just a metaphor.)

What these baby steps onto the second floor tell us about Wal-Mart is simple: Wal-Mart is becoming a Department Store. It is not the second floors that did this. It is many other things, which culminated in this slight but revealing move by Wal-Mart. But we sniff blood in the air and are willing to risk ridicule by suggesting that Wal-Mart has seen its greatest days.

Could we possibly be arguing that the greatest retailer and largest (and second most valuable after Toyota) company in the world is headed the way of the dinosaur, eight-track tape and lava lamps?

Well, not exactly. Department Stores are not exactly dead as our friends at Bloomingdales, Macy’s, Nieman Marcus and others will undoubtely tell us in the next few hours. But they are also not relevant for the majority of consumers and have more or less retreated to a niche. Even part of that niche – as anchors of the suburban shopping mall – has retreated as big box retailers like Home Depot are being chosen to anchor new malls.

In fact, news was broken in the New York/NJ region this week when it was announced that an old mall would reopen with a Home Depot and – yes, you guessed it – a Wal-Mart would be the new anchors.

So what exactly is happening to Wal-Mart? We had an interesting conversation with Paul Nunes at Accenture (who is the author of Mass Affluence: 7 New Rules of Marketing to Today’s Consumers) on this issue. He suggested that Wal-Mart very successfully ‘rolled-up’ a lot of independent stores who catered to an important niche of middle class consumers. Now that Wal-Mart dominates that niche it is confounded in its growth by a demographic shift which has significantly expanded the number of households with incomes over $70,000. And Wal-Mart is not positioned to serve these households because both their needs and their shopping paradigm are very different from the one that exists at Wal-Mart.

Even worse, Wal-Mart’s chief rival Target has spent a decade carefully positioning themselves to serve this expanding demographic segment – and more importantly the greatly expanding psychographic population who carry the same attitudes as this new luxury-seekers. “Design for all” is the touchstone of Target’s movement on this front (see our commentary on this trend here.)

So why is the second story news significant? Because it shows that Wal-Mart has literally reached the physical boundaries of its market segment. Which should be fine, except that Wal-Mart is a publicly traded company. Public companies cannot exist fruitfully without revenue growth. Were it private, Wal-Mart could cease domestic expansion efforts and shift all of its focus on serving the emerging needs of its core audience. Instead, it is moving more and more places, and confusing its core consumers in the process.

There was a strong signal of this trend in November on Black Friday, when Wal-Mart used ‘door busters’ and strong promotional pricing to attempt to boost sales (see our commentary here). Wal-Mart had lost volume in 2004 by attempting to hold prices through the promotional holiday period. The problem is that Wal-Mart is an ‘everyday low price’ (EDLP) retailer. And Wal-Mart has huge brand equity invested in the concept that it always has the lowest prices. So predictably, the move caused confusion, failed to generate significant sales and resulted in bad publicity when consumers were trampled (see our post-Black Friday commentary here.)

Wal-Mart’s appearance as an anchor store in shopping malls is telling, too. This is higher-priced real estate and will ultimately affect Wal-Mart’s ability to compete on price.

The last and possibly the worst sign for the Arkansas giant was when they promoted John Fleming to the post of Chief Marketing Officer. Fleming is a 19-year veteran of – guess where? – Target. And, not surprisingly, once put in the drivers seat after a stint running the marginal online property Wal-Mart.com, Fleming sought to put an old stamp on his new business (read an interview where he discusses this here). Under Fleming, Wal-Mart suddenly decided to advertise in Vogue (read our commentary here) and engage in all other manner of Target-like positioning and maneuvers. You can’t really blame Fleming – marketers are a lot like commercial artists and if they’ve been working in one style for nearly two decades there is a pretty good chance that they are wedded to it.

All of this has been a disaster for Wal-Mart. It muddies the formerly crystal-clear brand positioning and confuses the core consumer. Al Ries or Jack Trout would undoubtedly accuse Wal-Mart of trying to broaden its appeal while in the process undercutting its claim to expertise, which is the foundation of the brand positioning. If Wal-Mart does not stand for low prices, it stands for nothing.

So in the world of real-estate, a few second stories for Wal-Mart is a small story. But in the brand world, it is one more sign that a great American icon is lost. And the prospects for regaining its path are dim.

Commentary By: David
Issue: Wal-Mart’s Black Friday Pricing Choices

A quick update on our commentary posted Wednesday on Wal-Mart’s Holiday 2005 pricing strategy for ‘Black Friday.’ As we noted, Wal-Mart moved aggressively to drive store traffic in the critical holiday period. Measures used this week included destination advertising (Garth Brooks new album), competitive price match guarantees and ‘door busters’ (deep discounts on a few select products available in limited quantities.)

The measures were indeed successful at driving traffic, but as we suggested in our commentary, the traffic came at a price. It wasn’t the price we named – erosion of the brand equity in Wal-Mart associated with ‘Always Low Prices’ (we suggested that by offering price-match guarantees, Wal-Mart was validating competitors as being legitimate sources for low prices). It is too soon to judge the long-term effect of this pricing behavior on consumers’ brand perception of Wal-Mart. The immediate, obvious price Wal-Mart payed was in more bad PR – something the chain can ill-afford. Several people around the country were trampled by crowds at Wal-Mart stores as they opened for the morning. In addition, CNN covered the angry reaction of consumers realizing that the deep discounts offered for Wal-Mart specials were available on a very limited supply of items. So even before the long-term consequences are assessed, Wal-Mart has paid a price for top-line results.

Commentary By: David
Issue: Everyday Low Pricing and the Wal-Mart Dilemma

Today the Wall Street Journal reported that Wal-Mart will be offering a low price guarantee on Friday, November 25th – the day after the U.S. Thanksgiving holiday and the largest shopping day of the year in the United States.

This offer is Wal-Mart’s attempt to rebound from a disappointing holiday season last year when Wal-Mart held pricing firm and lost significant business to other mass merchandisers, speciality stores and big box retailers who discounted aggressively in the post-Thanksgiving period.

All of which raises a very significant question for Wal-Mart and others who would like to pursue an “EDLP” (everyday low price) strategy – What is the effect of running big seasonal sales on the brand positioning of EDLP brands?

This is a more pointed issue than usual this year because instead of just discounting prices, Wal-Mart will be promoting the fact that it will match lower prices. Which means that Wal-Mart will be admitting that it does not have the lowest prices. This may come as news to some of its brand faithful. Admittedly, anyone who has shopped at a Costco, BJs or Sam’s Club (or a dollar store) knows that Wal-Mart is not always at the bottom of the pricing ladder. But as this Advertising Blog has argued before, Wal-Mart has staked its brand positioning on everyday price leadership.

The Christmas season is a classic Prisoner’s Dilemma game for retailers. Last year, Wal-Mart tried to signal cooperation by holding prices and hoping that the entire industry would follow and garner higher profits. Instead (as usually happens in this game theory scenario), the competitors defected, receiving a quick jolt of sales on ‘black Friday’ (as the Friday after Thanksgiving is known in the U.S.) but suffering when Wal-Mart was forced to join in and retail industry pricing followed a rush to the bottom.

This year, Wal-Mart is opting for the third best alternative in the Prisoner’s Dilemma (where both sides gain some revenue but lose profitability) to avoid the worst alternative (where Wal-Mart loses both sales and revenue and competitors gain both). But is this the only price Wal-Mart will pay for discounting heavily on prices that are already supposedly ‘the lowest’? The issue here is whether consumers will begin to distrust Wal-Mart’s basic brand proposition as an EDLP retailer.

To give them fair credit, American consumers are more sophisticated than they might at first appear. In particular, American consumers expect that they will be seduced by socalled ‘Door Buster’ deals during the holidays (and that everything will be even cheaper immediately following New Year’s day as stores clear out remaining inventory). So Wal-Mart can argue that EDLP really does mean something different to consumers in late November than it does in March or September.

But this is a fine-edged sword and this Ad Blog believes Wal-Mart may be sliced by the keen blade this time around. Why? Offering seasonally lower prices in EDLP is one thing. Offering to match competitors even-lower prices is another. We believe this is closer to a heroin strategy for Wal-Mart. It will work this time, probably very well. But each repitition will erode consumers confidence in Wal-Mart’s everyday low prices to the point where Wal-Mart may cease to be identifiably distinct from other retailers in consumers minds. Yes this must sound absurd to a stock analyst looking at Wal-Mart’s performance over the past twenty years. But brands which are built over time can be destroyed in the same manner.

Here’s the problem: consumers recognize holiday promotion tactics at most retailers for what they are – a bait & switch game. Most retailers mark down a small percentage of items to an absurd level and discount the rest much, much less. Enterprising consumers will cherry-pick the best of all of these deals but most of the rest of use get lured in by the bold offer and buy other things at better margins for the retailer.

Wal-Mart, when it lowers prices seasonally, competes well against this model. While consumers don’t save as much on any one item, they feel that they are doing just as well or better on the entire shopping cart. That maintains consumer loyalty to the EDLP system in spite of the fact that Wal-Mart has been subverting it with lower seasonal pricing.

When Wal-Mart begins hugely promoting ‘door-buster’ prices of its own and offers matching discounts on other store’s merchandise, however, it implicitly validates those competitors. Just like naming a competitor in your advertising, explicitly acknowledging that other stores have lower prices carries coming from Wal-Mart, the king of low pricing. This is true even if consumers already know that there are better deals to be found on specific items.

So while we agree that Wal-Mart made a mistake last year, we believe this season could be more painful for the Bentonville gang in the long run. Instead of competing on door busters, Wal-Mart should really be more creative with service, loyalty or other bundling options to balance the value equation during the busy season.

Brand: Wal-Mart
Execution: Print
Link: Click Here [Note: Print ads debut Fall 2005 - link is to announcement of Wal-Mart advertising in Vogue]
Target: Hip Value Shoppers
Rating: *
Reviewer: David
Description:
Today, the Wall Street Journal and other papers reported that Wal-Mart will be advertising in Vogue magazine, signing an agreement that purchases 112 advertising pages over a two-year period. This move to a fashion-centric, product-centric focus for the Bentonville, Arkansas-based retailer is part of a new marketing strategy implemented by Wal-Mart Chief Marketing Officer John Fleming. Fleming was recruited to Wal-Mart three months ago from Target, where he had spent the previous nineteen years of his career. The Vogue advertising comes on the heels of a significant back to school campaign which featured humor and lacked store shots or Wal-Mart employees – first for the retailer.

What Works:
Wal-Mart is clearly acknowledging that Target has tapped into a hitherto undiscovered need in the American middle market for design where none before existed. With its unparalleled size and significant cost advantages, Wal-Mart is not unreasonably thinking that it can ‘do design better’ or at least make it cheaper for many customers. At the very least, the thought might be to blunt Target’s advantage in design by showing Wal-Mart also has great fashions and design products and confusing consumers about which retailer is the design leader, thereby returning the focus to price.

What Doesn’t:
Wal-Mart undoubtedly hired Mr. Fleming to bring some Target sensibilities to the chain, so it is hardly surprising that he has done so. But it is a bad move and one which may hurt Wal-Mart more than botched international expansions have in the past.

Why can’t Wal-Mart ‘do’ fashion and stand for design? The answer goes back to brand positioning fundamentals – Wal-Mart has clearly, cleverly, keenly staked out a very simple brand positioning with consumers: Alway Low Prices. Always. This is a simple and relevant brand positioning for a mass merchandiser and Wal-Mart’s industry-leading size and efficiency give it the cost advantage necessary to keep this promise.

Target’s brand positioning is considerably different. It is something like “Design for Everyone”. The value proposition includes price, but the focus is balanced between price and design. This in spite of the fact that both chains derive a significant portion of their revenue from identical brands like Tide, Dove and Colgate. But Target is where you would go to find something like Method (the beautifully packaged home cleaning products that are safe for the environment), a Michael Graves teapot or Mission-style furniture on the cheap.

Target owns this positioning. Anyone who doubts this should consider K-Mart’s failure to wrestle this spot from Target in spite of a groundbreaking partnership with Martha Stewart and her innovative line of products.

So why is Wal-Mart trying to move into Target’s territory? We call this the “Volvo Error.”

Volvo stands for ‘safety.’ Among all the brand in the world, it is possible that no other brand owns a single word as well as Volvo owns ‘safety.’ Yet it is possible to watch Volvo commercials today (and at various other points in the automaker’s history) where Volvo is trying to sell the beauty of the vehicle, performance or even price.

These attempts alway hurt that brand. Always. But they stem from the same bad marketing thinking displayed here by Wal-Mart. One can imagine the boardroom meeting where someone says, “Well, we own safety. We’ve got all those people who care about safety. If we want to increase our market share we need to get some of the people who just like beautiful cars. They’ll still be happy that they got a safe car, but that’s not why they are buying.”

The problem is that when Volvo tries to get these beautiful car buyers by advertising the beauty of its cars, it confuses everyone. And they start to forget why they liked Volvos in the first place.

When Wal-Mart advertises its design sense, it makes the same mistake. It may be true that virtually every household in the country has a Wal-Mart shopper. But those people are going to Wal-Mart to save money. If they wanted to go somewhere to get cool designs on a budget, they’d go to Target. Instead of convincing these people that Wal-Mart can serve their design needs as well, Wal-Mart is just going to confuse them. And then they won’t know why they went to Wal-Mart in the first place.

Branding Bottom Line:
Wal-Mart tries on Target’s suit and looks frumpy.