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.