Search
or Search by TOPIC
Search Supply Chain Videocasts
 
 
  Sign-Up Free Newsletter
 
News and Views
 

- Mar 27, 2007 -

 

From RetailWire: Wal-Mart Classifies Customers for Growth

 
 

In a move to spur growth, Wal-Mart segments its customers into three primary groups based on purchasing patterns

 
 

 

This content from RetailWire is made possible through a partnership between RetailWire and Supply Chain Digest to share content relevant to each other's readers.

 

 
       
   
     
 

By Tom Ryan, Managing Editor, RetailWire

Wal-Mart recently renewed its commitment to low prices. But now it's moved a step further by segmenting the unique value seekers who shop its stores. The goal is to better understand the motivation behind their shopping habits.

In their first interviews since a management shuffle in late January, John Fleming, the new chief merchandising officer, and Stephen Quinn, the new chief marketing officer, told The New York Times that after a year of intense research, Wal-Mart has partitioned its 200 million customers into three core consumer groups. The three are:

  • Brand Aspirationals - People with low incomes who are fixated on brand names like KitchenAid;
  • Price-Sensitive Affluents - Wealthier shoppers who love deals; and,
  • Value-Price Shoppers - Those with like low prices who can't afford much more.

Armed with its new insights, Wal-Mart said, from now on, all product decisions would be organized around the three groups. Company officials believe these groups represent the majority of Wal-Mart's business.

The most noticeable initial change will be that Wal-Mart plans to beef up its brand assortments. Although the research reinforced the view that Wal-Mart's most powerful traffic driver was low prices, it also found that customers place a high value on brands. With a goal of expanding its branded positions, Wal-Mart is creating teams - each with a marketing executive and merchandising executive - to tackle five "power" categories: Food, Entertainment, Apparel, Home Goods and Pharmacy.

Wal-Mart said having one or two name-brand products in each department is not enough. It must build a reputation for brands in each category to be able to compete with a Best Buy, Macy's or Home Depot.

Discussion Question for the BrainTrust panel: What do you think of Wal-Mart's move to base brand purchasing and merchandising decisions on the behaviors of distinct consumer groups? The company has always been known for limiting assortment to the top one or two items in a category. Will expanding selection positively or negatively affect its business?

 

 

RetailWire Instant Poll Results:

 

RetailWire BrainTrust Comments:

This is a much better strategy for Wal-Mart than the store segmentation strategy path (Hispanic, urban, affluent, etc.) that they were going down before. One, it's "back to the future" because it aligns with their basic brand proposition (EDLP) and basic consumer rather than trying to attract a new consumer by adding high-end fashion and complicated assortments. For the same reason, it aligns better with Wal-Mart's supply chain strength. It's far easier to roll out a national brand in stores nationally than it is to ship different assortments to different stores within a region without disrupting the cost efficient supply chain that is Wal-Mart's core competitive advantage. I'm not sure what took them so long but it looks like Wal-Mart is back to a strategy that is sustainable and executable for them.

- Lisa Bradner, senior analyst, Forrester Research

Foresster's Lisa BradnerSays:
It's far easier to roll out a national brand in stores nationally than it is to ship different assortments to different stores within a region without disrupting the cost efficient supply chain that is Wal-Mart's core competitive advantage. I'm not sure what took them so long but it looks like Wal-Mart is back to a strategy that is sustainable and executable for them.

What do you say? Send us your comments here

The problem that Wal-Mart is going to encounter is that they provide a standard merchandising and marketing platform for their customers. To be sure, they could take demographic information and shape their stores for dynamics like ethnicity and age. But, the marketing segmentation they have outlined from an in-store perspective is difficult to target. I believe I could step into the majority of non-rural Wal-Mart stores and see all three segments standing in front of the shampoo section as I write.

Probably doubtful as a tactic for Wal-Mart, loyalty cards present retailers with the opportunity to identify and target by customer segmentation purchase behavior. Wal-Mart may be able to send messages through advertising to each of these segments, but they have "stayed on message" with unrivaled consistency. When you hit my knee with Wal-Mart, I kick you with low prices. I am betting it is unlikely that this one instrument band will make it as an orchestra. Stick to low prices...it seems to work.

- Eric Togneri, Principal, VP CPG Solutions, CPG CatNet

In examining the impact of this scheme, as a merchant, I ask how do I execute to this? Will I now have merchandise in my assortment consciously selected to appeal to each of the three groups distinctly? How do I weight the percentage of my mix toward each group? Won't it vary by store? How do I communicate this level of plan-o-gram flexibility? What is the minimum level of representation in the assortment for a given segment below which I'm simply wasting inventory? At what point have I over-invested toward a given segment and no longer present the appropriate mix for the other? Which brands are associated with which groups? How do I know? What do I do if the brands desired by the most aspirational segment aren't available (apparel)?

I have worked with clients who implemented a similar approach. The result has been unprecedented comp store results over a four year period. However, it took over a year to design, train, re-culturate and execute the process and technology changes required to make the strategy work. Merchants have to be re-programmed, and the tools they use have to be redesigned to support this type of approach.

- Don Delzell, Principal, Retail Advantage

 

Read the entire story and RetailWire discussion at:

http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12030

 

Get Plugged in with RetailWire.

Membership in RetailWire.com is free to all retail and related industry professionals. Simply go to www.retailwire.com and click the FREE REGISTRATION button.

 
 

What are your thoughts on data synchronization, and Wal-Mart's new interest? Let us know your thoughts.

 
     
Send an Email
     
     


Supply Chain Digest Home | Contact Us | Advertise With Us | Sitemap | Privacy Policy
© 2006-2009 Supply Chain Digest - All Rights Reserved
.