Summary
Whether Walmart is using strong arm tactics to convince consumer product goods companies to use their alternative media to advertise isn't clear, but what is clear, the retail juggernaut is seeking to further crush its remaining competition. Here more.
Analysis
This makes sense if you believe, as Walmart does, that all roads should lead to Bentonville. Walmart is not offering access to its consumer traffic just to gain additional revenue to offset their advertising cost, though this would be a welcome side effect. Walmart's strategy is much more Machiavellian in that it seeks to change shoppers buying behavior at the expense of the marketing independence of consumer product goods manufactures. That may not be important if branded goods companies just want to sell as much as they can, anywhere they can. But, we all know branded goods’ marketing is more complex than that.
As far as advertising effectiveness and cost efficiency are concerned, I would think brands that already sell Walmart are at a point of diminishing returns when it comes to incremental in-store advertising investment. That’s certainly true for companies that pay a premium for more productive shelf space or product placement in the store. New brands that want to sell Walmart will have to choose among the laundry list of must do’s and could do’s to find a profitable formula which might include Walmart’s alternative media options.
The suggestion that brands that don’t sell Walmart could benefit from advertising to their customer base is an intriguing idea on face value. However, the real life implications for both manufacturer and retailer are direr. For instance, most retailers selling that brand would look for another one if they found it advertised on Walmart’s website or through the company’s in store electronic media. Why, the reason is simple. The only way to compete against Walmart is differentiation in product and service. That’s why the product would be in the store in the first place. Another is price. Usually, Walmart competitors can’t survive at their margin rates, so the perceived value of competitor’s brands has to be higher to sustain a higher price. Something, any association with Walmart, however vague, would impair.
There’s another reason why product brand companies that don’t currently sell Walmart should refrain from using Walmart’s media to reach consumers. That reason, it provides Walmart with a competitive advantage that could cost both the manufacture and their customers sales. For example, Walmart could use click through data, to determine if there is sufficient demand to warrant investing in a competing brand. That kind of free data, could minimize Walmart’s new product introduction risk as well as be an incentive for other brands to lower Walmart’s product costs. In short, it would be all good for Walmart and all bad for brand manufacturers and competing retailers alike.
Lastly, the real value of Walmart’s ownership of its customer is probably a lot less than many analysts thing. Gone are the days when tens of millions of consumers bought blindly at Walmart without shopping the competition. As low as Walmart’s prices are on many items, it’s equal to or higher than the competition on many others. It all depends on the day of the week consumers shop. Clearly, Walmart is no longer an everyday low price leader, which negates much of the theory that it has a binding ownership of the consumer and the way they buy. In other words, shifting advertising investment to Walmart's in company media could actually cost consumer goods companies awareness in market place and decrease sales too.
Nicholas White consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
