Organizations can apply various pricing strategies when offering their products or services to the targeted customers. Ellickson, Misra, and Nair (753) supports that, a firm can set a price that aims at either maximizing profitability for every item sold or from the whole market. Price can be used by established companies to lower the threat of new entrants in the industry. Organizations also use pricing strategy to increase their market share or when they are aiming at entering a new market. Wal-Mart applies an economy pricing strategy that aims at attracting the customers that are price conscious to make buying decisions. The company works toward minimizing the costs that are linked production and marketing processes to benefit from the economy pricing strategy while aiming at maintaining low prices for its products. The results are that the targeted group of customers would buy the products needed without frills.
The ability of a company to apply a good pricing strategy contributes to determining the price levels at which it can generate optimal profits when selling its products and services to its customers. Ellickson et al. (755) argue that the pricing strategy of a business can increase or lower its competitiveness in the market. It will, therefore, determine the capacity of the business to compete in an efficient manner with its competitors in the industry of operation. Organizations are supposed to consider various factors when setting prices to ensure that they do not lose customers or harm their operations by incurring losses. For instance, when formulating a good pricing strategy, companies are supposed to consider distribution and production costs incurred by the business. Considering the factors will enable the organization to allocate the appropriate markup that will allow it to recover the incurred costs. Marburger (27) supports that organizations should analyze the market and considers the prices offered by their competitors to its targeted customers. It will hence be able to offer a competitive price than its rivals. The company will, therefore, win over its competitors for both the market share and the customer base. Considering the target customers is also an essential factor to consider when choosing a pricing strategy. Wal-Mart targets a large group of consumers that is price conscious. The demand is hence likely to decrease with increase in prices. As a result, it has implemented an everyday low price as its pricing strategy that promises low prices to its customers.
Wal-Mart is widely known because of selling its products at lower prices in the market than its competitors. The company slogan has been an everyday low price that has effective in improving various decisions made by the company in regards to marketing, technology application, and distribution channels. Its mission since inception has been to offer the lowest price in the market, and its products have been priced at the minimum prices. The strategy aims acting as an incentive to the customers to drive them to buy from Wal-Mart. According to Ellickson et al. (757), a large number of buyers of the company’s products contributes to increasing the volume sales despite the level of the margin applied. Marburger (32) supports that by lowering the prices of commodities, organizations can earn far more by offering products at a lower retail price. The company can hence lower its markup and generate high sales that are caused by the increased volumes.
Wal-Mart has continued to offer very low prices to its customers over the years. The strategy has been successful as a result of various factors that support the economy pricing approach. For instance, the company makes the huge volume of sales for a given period. The company achieves massive sales as a result of having a broad customer base and spreading its operation widely. The company applies a supply management control system that aims at reducing outlays and maximizing efficiencies. Ellickson et al. (761) argue that a company that applies high levels of efficiency lowers wastes and by-products levels during the production processes and hence lower the production costs that are reflected in the prices of products sold. Wal-Mart also works towards minimizing its operational costs and overheads. Additional the company uses its influence of bargaining power to request its vendors to lower the prices of inputs.
Sales Volume, Economies of Scope and Wide Customer Base
Wal-Mart has succeeded in capturing a huge share of the market in the industry by selling different products to its customers and increasing its geographical presence to be close to its customers. The company has endeavored to aim at meeting the prevailing demand in the market for the various segments of customers. The company also creates many buying opportunities to its customers through selling various products in a single location. The company has extended its market reach by using a multiple-store arrangement that has facilitated in enabling it to sell its goods to customers in four types of stores that offer different prices. For instance, the company uses Wal-Mat Supercenter, neighborhood markets, discount stores and Sam’s Club warehouses that sell products in bulk. Its marketing strategy has ensured that the stores are nearness to the customers to increase the probability of buying its products that are offered at the lowest prices in the market. The individual margin for the Wal-Mart could be minimal compared to its competitors, but large volumes of sales offset the minimum markup and help the business make substantial profits Ellickson et al. (755).
Supply chain management
Efficient management of the warehouse that is based on the application of high technology has helped the company achieve its goals of low price everyday strategy. The efficiencies observed in supply chain management of the company help it monitor all the costs incurred and lower them to avoid increasing the production costs. The inventory management system applied contributes in helping the company place orders to that will contribute to meeting the needs of the customers, Supply chain management also helps in reducing inventory costs like damages of the stalk held, deterioration costs and holding costs. Controlling and monitoring costs by applying efficient supply management has helped the company lower its costs as compared to its competitors hence lowering the price of its products to attract and satisfy its customers (Marburger 34).
According to Marburger (41) ability of the company to directly with its vendors helps in lowering the costs of production that is transferred to customers by offering commodities at a low price. Suppliers could at times become responsible for managing inventory of a company in its warehouses. Wal-Mart has maximized on establishing a proper relationship with the manufacturers to assist the company by creating a smooth flow of its inventory. The strategy has helped in the pricing of the commodities since customers can get fresh products when they place an order at a low price. Wal-Mart has therefore laid a good business relationship with its suppliers that contribute to applying a cost-effective supply chain. The savings made by the company are translated into low prices products that are sold by the company.
Minimization of Overhead and Operational Costs
Ellickson et al. (769) support that, for a company to achieve the goals of offering low-priced commodities, it has to minimize operation costs and other expenses and reflects the savings on the prices of the products. Wal-Mart has endeavored to maintain all its overhead low than its competitors in the industry. Employees of the company are trained on ways to keep and maintain operational costs and overheads low, for instance, in cooling and heating the building as well as avoiding damages. Low costs of production will enable the company to charge its customers low prices for the goods ordered and maintain its competitive advantages in the market. Wal-Mart also uses its high bargaining power to make its suppliers to cut down prices of the raw materials used by the company to enable the business to adhere to its strategy of maintaining low prices. The company keeps on pushing its suppliers to lower their prices to enable it to incur minimum production costs. The everyday low price strategy that is applied by the Wal-Mart has created a perception in the minds of its customers. The strategy has hence helped the company to win large customer base. People like buying the products that will help them increase their savings and buy an extra item from the money they had saved (Marburger 43).
Ellickson, Paul B., Sanjog Misra, and Harikesh S. Nair. “Repositioning dynamics and pricing strategy.” Journal of Marketing Research 49.6 (2012): 750-772.
Marburger, Daniel R. Innovative Pricing Strategies to Increase Profits, Second Edition. vol. Second edition, Business Expert Press, 2015.