Strategic Pricing for Wal-Mart, Target, and Amazon - Term Paper Example

 Strategic Pricing for Wal-Mart, Target, and Amazon Abstract There are several important factors in the retail business that determine the success or failure of any business. pricing is an imperative factor in marketing and has colossal impacts on sale of goods and services. Introduction Even if a company adopts the other marketing strategies efficiently, ineffective pricing can have detrimental effects on the financial status of a company. Firms such as Wal-Mart, Amazon, and Target have already come to terms with the importance of adopting proper pricing strategies and have therefore seen tremendous success in moving wares. Wal-Mart Strategic Pricing Wal-Mart introduced a concept that is known as Each Day Low Pricing (EDLP) meant to let workers pay less each day they make purchase from the store. Amazon.com Price reductions from the Amazon website is what characterizes the online retail giant’s pricing. strategy. The strategy will build on the company’s controlling positions in the market and in turn put them in a great position that will enable them improve profits over time. Target The company uses “penny higher” pricing strategy. It focuses on improving the experience of the customer while shopping through innovation in the store Conclusion Ensuring that the pricing strategy of the product had been developed and implemented proficiently is key to bringing in profits to the firm through increased generation of revenue. Abstract There are several important factors in the retail business that determine the success or failure of any business. Among them is advertising, product, distribution, pricing, and so on. Even so, pricing remains salient of these factors since it is the only one that generates revenue for the business. Most managers focused on product marketing considered all the other marketing aspects but gave pricing afterthought throughout the strategizing process. Currently, a lot of firms have adopted the guide throughout their pricing process and have seen incredible optimization of the whole marketing process bringing in profits and maintaining a competitive advantage. Wal-Mart, Target, and Amazon are some of the most successful firms in the world. Actually, all top in their specific line of business. Amazon retails goods throughout the world through the internet while Wal-Mart chain is the most successful retailer in the world. Both are household names. The three firms have taken advantage of pricing as a strategy to increase sales and boost their revenue. As will be discussed later in the paper, pricing is an imperative factor in marketing and has colossal impacts on sale of goods and services. Introduction Even if a company adopts the other marketing strategies (advertising, product, and distribution) efficiently, ineffective pricing can have detrimental effects on the financial status of a company. While most firms know that this is the case, research shows that pricing as a strategy is continually being poorly adopted. Researchers and economists such as Thomas T. Nagle have, as a result, sought to create a universal guide where business men and company executives can borrow ideas from if they want to execute proper pricing strategies for the success of their business. The strategy and tactics of pricing is supposed to show readers how they should manage marketing strategically instead of just calculating pricing on the basis of product and profit which they suppose will help strengthen their competitive advantage and increase their profitability. Firms such as Wal-Mart, Amazon, and Target have already come to terms with the importance of adopting proper pricing strategies and have therefore seen tremendous success in moving wares. This paper will be looking at the three companies’ pricing strategies and how that has affected their market share. Nagle (2006) states that strategic pricing needs to be proactive, value and profit-based. He divides his discussion in chapters that discuss price level, value creation, competition, channel of distribution, financial analysis, pricing over the lifecycle of a product, tactical pricing, and ethics and law to give an exhaustive description of pricing as a strategy and how firms should adopt it1. Wal-Mart Strategic Pricing Wal-Mart is among the best known retails stores that offer some of the most competitive prices for goods in the market. To attract more customers to the store, Wal-Mart introduced a concept that is known as Each Day Low Pricing (EDLP) meant to let workers pay less each day they make purchase from the store. At the lowest possible price, the EDLP concept promised customers a plethora of high quality, branded and also unbranded products which subsequently offered better value for money. On advertising EDLP, Wal-Mart stated that "Because you work hard for every dollar, you deserve the lowest price we can offer every time you make a purchase. From the very inception of the EDLP, Wal-Mart made efforts to acquire goods from manufacturers at the least possible price so that it would sell the products at a more discounted rate to the rural retailers. Sometimes selling goods at 20% discounted rates, Wal-Mart was able to attract many loyal price-conscious customers and the increased sales led to making a lot of profits2. On explaining the strategy, Walton stated that it was possible to make good profits from selling goods cheaper than all competitors if you are selling large volumes. To him, it was more profitable than selling goods at a high price. Wal-Mart has adopted a new strategy that will see the company making even more sales and generating more profits for that matter. Recently, Wal-Mart developed a project whereby it checks customers’ receipts to see how much they saved after making purchase from the store. If, for example, the customer was ‘overcharged’, Wal-Mart refunds them the cash and the customer can choose to make another purchase from the refunded cash or wait until the cash accumulates. Although the EDLP is still in operation, Wal-Mart has gone a step further to promote its low pricing and to show its customers how loyal the store is to its word, giving the lowest price every time you shop. Wal-Mart has based its marketing on low cost of its goods. Having consumers identifying a given store due through a certain factor is very important in attracting customers and retaining those who make purchase. The reason Sears has not been able to compete effectively with Wal-Mart, for example, is because the company is medium in almost all aspects meaning that there is not a single thing that makes it special or outstanding. Customers shop from Wal-Mart because they believe that is where they will get the best value for their money. Amazon.Com Amazon has been called the web Wal-Mart for a reason. Other than the company being known for the best customer service, Amazon is among the cheapest places to shop online. Amazon employs a different strategy from that of Wal-Mart to attract customers to the retail shop and make more profits in turn. For Amazon, the best competitive advantage is gained when you lower prices of goods in the store3. Amazon, like Wal-Mart, understands that pricing goods at a record low is what wins more customers to the shop and what results to making large sales. If a company can consistently move a lot of merchandise, even if the profit margin per each product is low, the sale of a lot of goods is what brings about profits to the firm. Price reductions from the Amazon website is what characterizes the online retail giant’s pricing strategy. While there are analysts who criticize Amazon’s strategy stating that the goods are priced at a record low to an extent the company depletes its own value and makes least possible profits, there are those who believe that the strategy will build on the company’s controlling positions in the market and in turn put them in a great position that will enable them improve profits over time. The latter category is right. Amazon strategy of low pricing has been around for quite some time now, like Wal-Mart’s EDLP. For any company to be successful, it has to be consistent and develop long-term strategies. When Amazon entered the DVD market in 1998, it expressed its need to sell DVDs at the lowest price in the online market. DVDs were relatively new at the time but Amazon chose to sell them at a 30% discount. A competitor company, DVD Empire, decided to venture in the market and sell DVDs at that discounted price. On its very first day in business, however, Amazon decided to raise the average discount, from 30% to 50%. DVD Empire could not figure out how Amazon made that possible as they (DVD Empire) would be making losses if they offered the same discount to customers. Unfortunately, it was DVD Empire’s first day in the market and regardless of how difficult the decision was, the company decided to compete with Amazon by offering the same amount of discount. DVD Empire did not consider that Amazon’s low pricing strategy was longterm so after sometime, the situation was too harsh for DVD Empire and it soon went out of business. Target Target’s strategic pricing is based on comparison with its fiercest competitors. According to Target’s CEO, Gregg Steinhafel, the company would not engage in price wars with Wal-Mart but will sell its products a price higher than that of Wal-Mart’s. The company went ahead to adopt the “penny higher” pricing strategy. The idea was to attract as many customers as possible so that the company can create a large customer base and secure itself good profits. Target’s strategy, unlike Wal-Mart’s, is focused on improving the experience of the customer while shopping through innovation in the store. Ideally, Wal-Mart is only focused on reducing the price and nothing such as adding value to the experience of a customer. Target then took on online retailing challenging Amazon, Wal-Mart, eBay, and Best Buy. In the online retailing business, however, Target announced a different strategy from the “penny higher.” The company would match its prices with that of Amazon, Wal-Mart, eBay, and Best Buy. This could be very detrimental considering what happened to DVD Empire but it could also work4. Conclusion Having a great marketing strategy is key to the performance of any business. Unfortunately, most marketers have focused on specific aspects forgetting the others which are also very important. While developing a great product, advertising it well, and promoting its distribution is key to the sale of any given product, it is the pricing that customers first see when they look at the product in a shelf. In this case, ensuring that the pricing strategy of the product had been developed and implemented proficiently is key to bringing in profits to the firm through increased generation of revenue. Most firms have forgotten how critical it is to choose a good pricing strategy yet pricing is the only feature of marketing that is responsible for bringing revenue to the firm. As has been discussed above, there are several pricing strategies that retailers can use to market their goods. However, offering the best value for money is what most consumers go for meaning that they want to buy from retailers whose price of goods is pocket friendly. Wal-Mart, Target, and Amazon have managed to boost their levels of income through selling of large amounts of merchandise at subsidized prices. References Davis, M. (2013, April 15). Target’s Pricing Strategy: One Penny Higher Than Wal-Mart. Retrieved from Sourcing Journal: https://www.sourcingjournalonline.com/targets-pricing-strategy-one-penny-higher-than-wal-mart/ Nagle, T. T., & Hogan, J. E. (2005). The Strategy And Tactics Of Pricing: A Guide To Growing zMore Profitably Author: Thomas T. Nagle, John E. Hog. Stone, K. E. (1995). Competing with the retail giants. NY: John Wiley and Sons. Thietart, R. A. (2008). Success strategies for businesses that perform poorly. Interfaces, 18(3), 32-45. Read More