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
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
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
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?
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,
Foresster's Lisa BradnerSays:
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
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
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
the entire story and RetailWire discussion
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