Studies reveal dual pricing strategies - comparison of Wal-Mart Stores Inc. prices with other discount stores in six U.S. cities - Wal-Mart

Discount Store News, June 7, 1993

Wal-Mart's everyday low price program, abetted by low operational costs and tight control on expenses, has resulted in the discounter earning a nationwide reputation as being the lowest priced retailer in market after market. Pricing surveys conducted by Discount Store News and security analysts, for the most part, support this conventional retailing wisdom. These surveys also show that:

1.) Wal-Mart is especially sharp when it enters a new market as it strives to quickly establish its low price image; 2.) Other discounters are forced to be more price competitive as they seek to retain their market share, even beating Wal-Mart on selected items, and 3.) Wal-Mart has higher prices when it doesn't face other discounters in a highly competitive situation. The surveys detailed in the following charts illustrate these pricing trends. The surveys were conducted in six different markets during the past five months and matched Wal-Mart and the other leading discounters in each area, with Kmart as a factor in five markets, Target in four, Bradlees in two and Caldor and Smitty's in one each.

Wal-Mart's use of low prices to entrench itself in a new market is evident from the Middletown, N.Y., survey conducted by DSN (top). The discounter entered the market a few months ago and it was sharply lower on all 24 comparable items tracked against Caldor and Bradlees, both of which are less than a mile away and have been remodeled. Overall, Wal-Mart's market basket of items was 20.6% lower than Bradlees' total and 19.5% below that of Caldor. The Greater Tampa Bay, Fla., market survey (left) illustrates Wal-Mart's approach in competitive and non-competitive situations. The tracking reveals that the three chains have achieved price parity except in cases where Wal-Mart is side-by-side with a competitor. The four stores in the market are located near Interstate I-75. Wal-Mart's Sun City Center/Ruskin store stands alone in an affluent area made up almost entirely of retirees. It's about 15 miles away from the Seffner Wal-Mart, which is located between and competes directly with Kmart and a new Target within a five mile radius. Seffner is a lower middle class, blue collar neighborhood, with a large farm population on the outskirts. Wal-Mart's Sun City store prices generally were higher than its Seffner unit and Kmart and Target. The 17 comparable items cost the most in Wal-mart's gun City store and overall were 1.7% higher than the discounter's Seffner unit, 5.9% more than Target and 2.2% above that of Kmart. Among the 29 items that are carried by at least two discounters, the two Wal-Marts together had the lowest price on 12, Target on eight and Kmart on seven. Wal-Mart's price advantages were mainly concentrated in the Seffner store, where the manager had clearly attempted to undercut Kmart by a penny or two. The only significant price differences are found in Target, which undercut the competition by much more on the items it was lowest in. Target, the new player in the market, has been a big hit, mainly because of its fashion approach. Also, its stores are newer than the competition.

Wal-Mart, Kmart and Target in Phoenix have basically achieved price parity on the 16 comparable items among the 33 products checked at the trio as well as at Smitty's, the local combo discount/supermarket chain. The difference between Wal-Mart at the low end for the comparable products and Target at the higher end was just $1.57. Smitty's, however, wasn't in the ballpark, with its comparable market basket more than $15 higher than the other three discounters. The Phoenix survey was another example of Wal-Mart staking out the low price position against all competitors. It was lowest on 10 of the comparable items, while Kmart was lowest on six and Target on four. When the four chains are measured in cases where at least two carried the same item, Wal-Mart was lowest on 21, Kmart on 10 and Target on seven. Wal-Mart prices according to the market and this is evident in Phoenix, a higher priced area than others surveyed. Wal-Mart's tags tended to be higher in Phoenix than in areas where it is also well established. In Phoenix, its 16-comparable-item market basket at $63.81 was higher than a 17-comparable-item market basket in Tampa Bay, which cost $45.59 at one Wal-Mart and $44.82 at another Wal-Mart.

Wal-Mart and Kmart are slugging it out pricewise in Las Vegas, with Target an also-ran. Of 22 items price checked among the trio, 14 were found in all three and Wal-Mart was lowest on six, Kmart on seven and Target on just one. But this doesn't reveal the whole story. The overall market basket total for these comparable items was actually lower at Wal-Mart, $83.56, than at Kmart, $89.12, with Target highest at $98.32. In Las Vegas, a relatively new market for Wal-Mart, the discounter isn't just competitive but sharply priced on many items and it shows on its overall lower comparable market basket total. Wal-Mart was also lower on eight items that were carried by at least two of the discounters in the market, while Kmart was lowest on 11 and Target on four. Wal-Mart is picking its products to drive home a low price image in Las Vegas. The city is also a high priced area and Wal-Mart's tags are targeted to the market. Its comparable 14 item market basket cost $83.56, higher than a 16 item comparable market basket in Phoenix, another high cost market, or a 17 product comparable market basket in Tampa Bay, Fla.