Rajagopal. Marketing Dynamics: Theory and Practice
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Marketing Dynamics: Theory and Practice
U.S. has “only” 2,826 Wal-Mart discount or combined grocery and general merchandise Super centres,
plus 525 Sam’s Club warehouse stores. While these are some awesome numbers, Wal-Mart has plenty
of room for expansion. Current plans see an additional 245 domestic outlets by January, 2004 at least
200 of which will be Super centres. That should still leave a potential for 2,000 more stores in the U.S.
by 2011, figures Mark Miller, an analyst at William Blair & Co. Miller thinks Wal-Mart can hit $660
billion in sales by then, an expectation that’s evident in Wal-Mart’s stock price: It has dropped over the
past 12 months, but by only about 12%, to around $54.
Wal-Mart can still expand largely because it has come up with successful variations on its
discount model. When its core business began to mature in the 1990s, Wal-Mart started to build
combined grocery and general-merchandise superstores-180,000-square-foot behemoths that now
account for 54% of revenues from Wal-Mart-branded locations in the U.S., according to Emme
Kozloff, an analyst at Bernstein Research. As the growth of superstores slows over the next several
years, Wal-Mart will look to its much smaller Neighbourhood Markets for the next wave of expansion.
It now has 50 such stores, which represent very little of total revenues. Miller expects to see a
further 1,350 by 2011, when he believes they should account for 5% of revenues. The major pricing
strategies of Wal-Mart are delineated as below:
Every Day Low Price (EDLP)
Because you work hard for every dollar, you deserve the lowest price we can offer every
time you make a purchase. You deserve our Every Day Low Price. It’s not a sale; it’s a great
price you can count on every day to make your dollar go further at Wal-Mart.
Rollback
This is our ongoing commitment to pass even more savings on to you by lowering our
Every Day Low Prices whenever we can. When our costs get rolled back, it allows us to
lower our prices for you. Just look for the Rollback smiley face throughout the store.
You’ll smile too.
Special Buy
When you see items with the Special Buy logo, you’ll know you’re getting an exceptional
value. It may be an item we carry every day that includes an additional amount of the same
product or another product for a limited time. Or, it could be an item we carry while supplies
last, at a very special price. The Wal-Mart’s success secret can be resumed in ten key
factors made by Sam Walton known as “Sam’s Rules for Building a Business.” He says:
Rule 1
Commit to your business. Believe in it more than anybody else. I think, I overcame every single
one of my personal shortcomings by the sheer passion I brought to my work. I don’t know if you’re
born with this kind of passion, or if you can learn it. But I do know you need it. If you love your work,
you’ll be out there every day trying to do it the best you possibly can, and pretty soon everybody
around will catch the passion from you - like a fever.
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Rule 2
Share your profits with all your Associates, and treat them as partners. In turn, they will treat you
as a partner, and together you will all perform beyond your wildest expectations. Remain a corporation
and retain control if you like, but behave as a servant leader in a partnership. Encourage your
Associates to hold a stake in the company. Offer discounted stock, and grant them stock for their
retirement. It’s the single best thing we ever did.
Rule 3
Motivate your partners. Money and ownership alone aren’t enough. Constantly, day-by-day,
think of new and more interesting ways to motivate and challenge your partners. Set high goals,
encourage competition, and then keep score. Make bets with outrageous payoffs. If things get stale,
cross-pollinate; have managers switch jobs with one another to stay challenged. Keep everybody
guessing as to what your next trick is going to be. Don’t become too predictable.
Rule 4
Communicate everything you possibly can to your partners. The more they know, the more
they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no
stopping them. If you don’t trust your Associates to know what’s going on, they’ll know you don’t
really consider them partners. Information is power, and the gain you get from empowering your
associates more than offsets the risk of informing your competitors.
Rule 5
Appreciate everything your Associates do for the business. A paycheck and a stock option will
buy one kind of loyalty. But all of us like to be told how much somebody appreciates what we do for
them. We like to hear it often, and especially when we have done something we’re really proud of.
Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise. They’re
absolutely free - and worth a fortune.
Rule 6
Celebrate your successes. Find some humor in your failures. Don’t take yourself so seriously.
Loosen up, and everybody around you will loosen up. Have fun. Show enthusiasm - always. When
all else fails, put on a costum0e and sing a silly song. Then make everybody else sing with you. Don’t
do a hula on Wall Street. It’s been done. Think up your own stunt. All of this is more important, and
more fun, than you think, and it really fools the competition. “Why should we take those cornballs at
Wal-Mart seriously?”
Rule 7
Listen to everyone in your company. And figure out ways to get them talking. The folks on the
front lines - the ones who actually talk to the customer - are the only ones who really know what’s
going on out there. You’d better find out what they know. This really is what total quality is all about.
To push responsibility down in your organization, and to force good ideas to bubble up within it, you
must listen to what your Associates are trying to tell you.
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Rule 8
Exceed your customers’ expectations. If you do, they’ll come back over and over. Give them
what they want - and a little more. Let them know you appreciate them. Make good on all your
mistakes, and don’t make excuses - apologize. Stand behind everything you do. The two most important
words I ever wrote were on that first Wal-Mart sign, “Satisfaction Guaranteed.” They’re still up
there, and they have made all the difference.
Rule 9
Control your expenses better than your competition. This is where you can always find the
competitive advantage. For 25 years running - long before Wal-Mart was known as the nation’s
largest retailer - we ranked No. 1 in our industry for the lowest ratio of expenses to sales. You can
make a lot of different mistakes and still recover if you run an efficient operation. Or you can be
brilliant and still go out of business, if you’re too inefficient.
Rule 10
Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody else is doing it
one way, there’s a good chance you can find your niche by going in exactly the opposite direction.
But be prepared for a lot of folks to wave you down and tell you you’re headed the wrong way. I
guess in all my years, what I heard more often than anything was: “a town of less than 50,000
populations cannot support a discount store for very long.”
Retail Divisions of Wal-Mart
Wal-Mart Stores
Wal-Mart stores are the flagship retail division of Wal-Mart Stores, Inc. They are a national
discount retailer offering a wide variety of general merchandise. Wal-Mart stores offer pleasant and
convenient shopping in 36 departments including family apparel, health & beauty aids, household
needs, electronics, toys, fabrics & crafts, lawn & garden, jewelry and shoes. In addition, some Wal-
Mart stores offer a Pharmacy Department, Tire & Lube Express, Garden Centre, Snack Bar or
Restaurant, Vision Centre and One-Hour Photo Processing for customer convenience. Wal-Mart
stores operate on an “Every Day Low Price” philosophy and are able to maintain their low price
structure through conscientious expense control. While other major competitors typically run 50 to
100 advertised circulars per year, Wal-Mart produces only 12-13 major annual circulars. The cost
savings associated with fewer circulars are passed on to the customer through lower shelf prices
every day. Wal-Mart Associates strive to provide exceptional customer service, a characteristic
unique to their chain. They do everything possible to make shopping at Wal-Mart a friendly experience.
Super-centers
Wal-Mart Super centre provides one-stop family shopping convenience. The store combines a full-
line of groceries and a general merchandise department under one roof. The growing demand for one-
stop shopping led to Wal-Mart’s decision to build full-line grocery department into many of its new
stores. Referred to as Super centers, Wal-Mart stores with grocery departments offer the ultimate in
convenience - grocery shopping and 36 departments of discount general merchandise under one roof.
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Super centre feature 36 general merchandise departments including a complete apparel department
with accessories, an extensive fine jewelry department, a lawn & garden centre, a large health & beauty
aids department, a full line of electronics and a pharmacy department. In addition, grocery areas generally
feature a bakery, delicatessen, frozen food section, meat & dairy and fresh produce departments. Super
centers also often include, Wal-Mart Specialty Shops such as our Vision Centre, Tire & Lube Express and
One-Hour Photo Processing. The Super center is designed to provide a pleasant and hassle-free shopping
experience, Wal-Mart Super centers are enhanced with wide aisles, helpful signing throughout the store,
departmental directories and 24-hour service. Super centers are also equipped with a customer service
desk and scanning registers for fast, efficient checkout service. Super centers average between 100,000
and 210,000 square feet of retail space. Depending on size and customer needs, they employ between 200
and 550 Associates, each dedicated to exceptional customer service. As in all Wal-Mart stores, checks,
Master Card, Visa, Discover and American Express cards are accepted. “…As Wal-Mart Associates,
we know it is not good enough to simply be grateful to our customers for shopping at our stores - we want
to demonstrate our gratitude in every way we can! We believe that doing so is what keeps our customers
coming back to Wal-Mart again and again...” - Sam Walton
SAM’S Club
SAM’S Club is the nation’s leading members-only warehouse club with locations across the
country. SAM’S Club depends on high volume to compensate for very narrow profit margins on
merchandise, resulting in extremely low prices for member-customers. To meet the needs of its
business members, SAM’S Club limits its merchandise mix to 3,500 items local businesses use most.
This includes a complete line of food products & frozen foods; janitorial products; tires, batteries, and
auto supplies; small building equipment & hardware; candy & snack items; and office supplies,
computers & equipment. Merchandise typically is in larger institutional sizes or multi-packs of like or
assorted items. SAM’S Club also offers televisions, VCRs & camcorders, large & small appliances,
home furnishings, designer clothing, watches & jewelry and sheets & towels.
Neighborhood Market
Neighborhood Markets offer a convenient shopping experience for customers who need groceries,
pharmaceuticals and general merchandise. The neighborhood markets offer a convenient shopping
experience for customers who need groceries, pharmaceuticals and general merchandise. Generally,
they are located in markets with Wal-Mart Super centers, supplementing a strong food distribution
network and providing added convenience while maintaining Wal-Mart’s Every Day Low Prices.
First opened in 1998, Neighborhood Markets range from 42,000 to 55,000 square feet and feature a
wide variety of products, including fresh produce, processed foods, fresh meat and dairy items,
health and beauty aids, one-hour photo and traditional photo developing services, drive-through
pharmacies, stationery and paper goods, pet supplies, and household chemicals. Neighborhood Markets
employ 80-100 associates and offer about 28,000 items
WAL-MART.COM
Wal-mart.com is a mostly like Wal-Mart store. It features a great selection, high-quality
merchandise, friendly service and, of course, Every Day Low Prices. Their goal is striving to bring
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to the customers the best shopping experience on the Internet Their office is located near California’s
Silicon Valley, their heart and spirit are still in Bentonville, Ark., the corporate home of Wal-Mart
Stores, Inc., and the town where Sam Walton opened Walton’s Five and Dime in 1950. From humble
beginnings in north-western Arkansas, Wal-Mart has grown to become a familiar name in households
all over the world. At the heart of Wal-Mart’s growth is the unique culture that “Mr. Sam” has built.
His business philosophy was based on the simple idea of making the customer No. 1. He believed
that by serving the customer’s needs first, his business would also serve its associates, shareholders,
communities and other stakeholders. The goal of Wal-mart.com is to bring Mr. Sam’s culture and
philosophy from Wal-Mart stores to the Internet.
External and Internal Threats
Giant retailer has been criticized for everything from labour practices to contributing to urban
sprawl. It has been the target of some 40 lawsuits by employees who claim they were forced to work
overtime for no extra pay. The stores and product line-ups of the company are so standardized, that
if it stops clicking with customers, the effects could ripple quickly through the entire chain. Perhaps
more likely is the possibility that a variety of backlashes against Wal-Mart’s marketplace muscle
could slow down the momentum. Some competitors have tried to make the case that Wal-Mart’s
sharply lower pricing caused them to lose profits over a substantial period of time.
But Wal-Mart’s biggest problem is its lack of “human capital”, says Coleman Peterson, head of
personnel. The group has been at pains to replace expatriates with locals, and a non-American now
leads every overseas country team except China’s. It is expanding faster than it can train people
internally, and has lost high-quality local managers to rivals. This leads to another problem: that the
international division still lacks scale. To exploit savings from sourcing globally, Wal-Mart needs to
make more acquisitions. Buying Carrefour would be the boldest move. However, Wal-Mart is more
likely to buy the hypermarket businesses of Germany’s Metro, worth $4 billion. The two sides talked
last year, and insiders say that Metro, controlled by three families, is ready to sell. Buying even part
of Metro, which controls a third of Germany’s retail space, would bring Wal-Mart huge clout with
European suppliers, and also some more experienced European managers.
But Wal-Mart has another problem: its image. In America, its giant stores are symbols of “big
retail”, blamed for the destruction of entire community. To avoid future growth being constrained by
political barriers, Wal-Mart may have to raise its head from Bentonville and worry more about how
it is perceived. Unpopularity is hard for Wal-Mart executives to understand. After all, everyday low
prices have been good for consumers. And a recent study by McKinsey, a consultancy, credited
efficiencies in retailing (mainly Wal-Mart’s) to more of America’s recent productivity spurt than
technology investment. Ultimately, few doubt that Wal-Mart has both the patience and the resources
to stay on top. “Never underestimate them,” advises Richard Hyman of Verdict, a consultancy.
“They foster an image as country hicks. It makes the kill more of a surprise.” Certainly, Wal-Mart
has made mistakes, but it has also got more things right than its rivals, who mistake its small-town
simplicity for naivety at their peril. “…Just because we are simple, doesn’t mean we are unintelligent…”
as Mr Scott puts it
Most of Wal-Mart’s overseas problems were avoidable. In the 1990s it made the mistake of
taking out its organizational culture across the countries, rather than adapting to local markets. When
Understanding Competitors and Competition
63
it moved into Indonesia, it shipped in an entire warehouse on a barge. In Germany, its biggest headache,
Wal-Mart was ready neither for the entrenched position of such discounters as Aldi, nor for the
inflexibility of suppliers and the strength of trade unions. It had little feel for German shoppers, who
care more about price than having their bags packed, or German staff, who hid in the toilets to
escape the morning Wal-Mart cheer.
The strategy could be difficult to pull off, since the stronger, lower-price retailers are expanding
in a long-term effort to take a bigger share of the retail pie. Having less inventory can certainly help
profits, but it’s no sure bet. While too much can hurt gross margins, due to added markdowns, too
little can limit selection and hurt overall sales. Because expenses are being spread over less revenue,
retailers risk hurting operating margins. Of course, the discount retailers that are expanding aggressively
could easily overplay their hand. But retailing is much like a zero-sum game, with one player taking
share at the expense of another. With consumers running out of steam, they’re more likely to choose
lower-price formats, to save money. That could translate into a sluggish second half for all but a few
retailers.
Issue for Discussion
1. How are the consumer values defined at Wal-Mart and how is client support built in their
retail management strategy?
2. How does Wal-Mart integrate its supply chain activities with purchase network of the
company?
3. How can Wal-Mart utilize the growing human resources in the company as this largest
retail chain store has automated its all important functions of retailing?
4. What will be the long terms impact on the consumer behaviour and competitive environment
on the ‘every day low price’ strategy of the Wal-Mart and in your view which way price
discounting as an organizational policy would lead the marketing organization?
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REFERENCES
Bliss Christopher : A Theory of Retail Pricing, Journal of Industrial Economics, 36 (4), 1988, 375-
391
Business Week Online
Internet Site : www.walmartmexico.com.mx , www.walmart.com
John Campbell : Time to Shop : The Geography of Retailing, Regional Review, Summer, 1996, 6-13
Leonard L Berry : The Old Pillars of New Retailing, Harvard Business Review, April 2001, 5-11
Lester Kwong : Coupons and ‘Every Low Prices’ : Price Competition with Multiple Instruments,
Canadian Journal of Economics, 36 (2), 2003, 443-462
Luciano Catini et.al : Global Retailing : Trends and Management perspectives, The McKinsey
Quarterly, No. 3, 2002, 1-7
Scott Munroe : Retail Structural Dynamics and the Forces Behind Big-Box Retailing, The Annals of
Regional Science, 35 (3), 2001, 357-373
Tucker K A. : Economics of Scale in Retailing : A Note, Journal of Industrial Economics, 20 (3),
July 1972, 291-294
2
Chapter
PRODUCT STRATEGY
A
product is a good, a service, or an idea consisting of a bundle of tangible and intangible attributes
that satisfies consumers and is received in exchange for money or some other unit of value.
Each product includes a bundle of attributes capable of exchange and use. Product Planning refers
to the systematic decision making related to all aspects of the development and management of the
products of a company including branding and packaging. One of the important requirements for
marketing efficiency is a proper product planning. It is essential for a firm to sell the products, which
is the choice of potential consumers, who decide the marketing range or production range of the
product. In fact, it is an ambiguous state of affairs. In a practical sense, the scope of production and
marketing of products are decided by the marketer, based on its profitability and consumer recognition.
However, the consumers influence the products that stay in the range of marketing. The decision of
products on a marketing range of a company is complex, difficult and always risk averse. It is
observed that introducing such products that customers do not buy soon and those products that the
customers buy only in small amounts incur financial losses. Therefore, it is essential to plan for
products in the market in a way to optimise the profit of the firm and the efficiency too.
Companies in United States engaged in manufacturing household cleaning products are
developing new generation products. As US consumers are working longer hours and leading
increasingly busy lives, with less time to devote to cleaning, especially unpleasant tasks
such as toilet and floor cleaning, the new generation products aim to make cleaning effortless
CHAPTER FOCUS
• To understand the concepts of managing the product
• To learn the management issues associated with new product development
• To know the product strategies in the contemporary situations and
• To discuss the product planning theories and their application in
strategic marketing.
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Marketing Dynamics: Theory and Practice
and eco-friendly. The introduction of “bucket less” mopping systems, designed to replace
the mop-and-bucket approach to floor cleaning, has been a key development in the household
care market. Consumers, who despised the spill-prone heavy bucket and the less-than sanitary
mop head, have happily traded up to these new systems. In consequence, more traditional
floor cleaning products experienced a 6.8 percent decline in sales between 2003 and 2004. In
late 2003, Prestige Brands introduced the Comet Clean & Flush Flushable Toilet Cleaning
System – a wand with a disposable head, which comes pre-loaded with toilet cleaner and can
be thrown away after use. Following the success of this product, other companies, including
SC Johnson, 3M Home Care and Clorox Co, quickly followed suit with similar products. As a
result, toilet cleaning systems experienced a remarkable 5,880 percent increase in value sales
between 2003 and 2004, which helped boost the overall toilet cleaning sector by 16 percent.
1
With the aim of reducing the unpleasantness of cleaning, manufacturers are expected to
continue innovating in the bathroom-cleaning category. Despite a dismal outlook for the
overall surface care market in the US, emerging forecasts reveal that the one bright spot will
be the bathroom cleaners sector, which is expected to grow by 12% between 2004 and 2009.
Process of product planning in the international context consists of finding an appropriate match
of host country objectives with the corporate objectives to determine conducting a business in the
host country. The product objectives of a company should flow from the definition of its business.
The firm sets the product objectives accordingly and decides on the type of products to be offered in
the host country. The product offering should provide satisfaction to the customer, which will be
reflected in the realization of the goals of both the corporation and the host country. The marketing-
mix factors comprising product, price, place, promotion, packaging, pace (market dynamics), people
(sales force), performance and psycho-dynamics (buying appeals) are developed inter-linking each
factor. Product objectives emerge from host country and corporate objectives ultimately gives the
business definition to a foreign firm. The common goals of the foreign firms, seeking business in the
host country are oriented towards stability, growth, profits, and returns on investment.
LEVELS OF PRODUCT
A product is closely associated with the need and level of satisfaction of the customers. It may be
defined as an article introduced in the market, that seeks attention, desire for acquisition and image for
use to get satisfaction of a want or need of a customer. Obviously, the hierarchy of products is based on
their utility and intensity of customer satisfaction. In developing a useful product, a planner has to look
upon its levels. They are core products, tangible products or augmented products. A core product or
service that meets the basic need or service may be defined as the product that provides a core benefit
to a customer. Such a product may be cloth, a food item or a drinking subsistence, irrespective of its taste,
colour, attraction, beauty consciousness etc. A core product is just a substance that satisfies the basic need
of a user and does not allow him any comparison. Thus, a product planner has to make the core product
tangible to introduce it in the competitive market allowing the customer to exercise his franchise rationally,
considering comparative advantages. Table 2.1 exhibits the nature and levels of the product.
1 Euromonitor: New Products Make Household Cleaning Easier, Euromonitor Archive, January 05, 2006
Product Strategy
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Table 2.1 Product Levels and Associated Attributes
Levels of Marketing Orientation
product variables
Core product Basic need Customer
Basic service
Core benefits
Tangible product Quality Market &
features style, Customer
Design Brand
Packaging
Augmented Delivery & service Company &
product Incentives, Customer
Warranty,
Post-sales,
relationship
Product augmentation is a set of approaches followed by a company in promoting its product
through effective delivery and service, incentives to customers and dealers, warranty to seek customers’
confidence on product and maintain a product-oriented relationship of customers with the company.
This level of products largely draws “company-customer” oriented relationship in the market. The
product levels also determine the selling process to a large extent. The core products play an important
role in product planning while the tangible products initiate the sales management process. The
augmented products drive the concept of extended sales mechanism for marketing expansion and
product diversification.
PRODUCT HIERARCHY
Product hierarchy is the intra-level characteristics of the three broad levels of products-core, tangible
and augmented. In order to recognise the core product marketers must first define what core benefits
the product will provide to the customer. The actual product must be built around the core product.
Product has as many as four characteristics as below:
• Quality level
• Features
• Brand name
• Packaging
All these attributes combined together carefully deliver the core benefit(s) of the product. The
augmented product offers additional consumer benefits and service such as warranty and customer
training. Marketers must first identify the core consumer needs (develop core product), then design
the actual product and find ways to augment it in order to create the bundle of benefits that will best