Price Leaders: Recession Tactic Implimentation

The most critical aspect of maintaining Price Leader status is actually delivering the appropriate minimum level of value across the depth and breadth of the assortment. We've already noted that not all items must be the actual price leaders in their category. Even those products must appear to deliver on the fundamental brand premise.

This means critical and extraordinary oversight by merchandise management, and an institutionalized culture of delivering value. If the entire organization is mobilized around this mission, it's not necessary to depend on a handful of men and women who are trying to oversee the development of the entire assortment. Every single employee of the company can and should become a guardian of this franchise. Because the downside of executing badly is simply not worth experiencing. Further, there's no excuse for NOT delivering on the promise. All it takes is effort.

I've already noted that growth economies do not tend to develop assortment review processes which meet recession economy requirements. Too much leeway provided by all those dollars. What's the first step? Having a clear and easily verified metric for establishing "value" and "price leadership". What do those terms mean in each category? How much over the price leader will the organization tolerate for non-essential products? What percentage of the assortment can be allocated to non-Price Leader merchandise? What is the minimum value level for each category and how is that measured? How is that policed?

Using Walmart as an example (again) in the home soft goods category will help illustrate. This past summer, during White Sale, Walmart had bath towels for $3.98. Which is an outrageous price. However, the product was terrible. The towel didn't absorb. Using it was like using a squeegee, effective only in moving water from one place to another. These towels were advertised, promoted, and placed on end caps. I believe that Walmart sold a ton of them. The end result was to diminish the brand. Evidently the minimum acceptable quality could not be delivered for $3.98. In this case, the merchants were more enamored of enhancing the Price Leadership than in supporting the brand premise. You can't have that anymore. That type of mistake is critical in an recession environment, and only occured because of a lack of oversight and a focus on Price as opposed to Value.

At the start of this week's posts, I noted that Value is the critical aspect of Price Leadership. Minimum value MUST be delivered, or the Price Leadership position erodes. In recessions, consumers cannot afford to make mistakes with their money. They trust Price Leaders because of the umbrella brand promise. It doesn't take very many non-deliveries for consumers to start shopping elsewhere. Remember....there is plenty of Price competition for almost any traffic driving category.

Delivering a Minimum Value isn't hard. It just requires attention to detail, strong process, and an infrastructure which delivers what it is supposed to. There is no doubt that the Walmart merchants did not intend to sell $3.98 squeegees instead of bath towels. Somewhere, a quality control process didn't work which was designed to insure minimum standards. And THAT is the scariest thing if you're Walmart and you are reading this posting. I KNOW you have established processes you THINK are designed to keep minimum value levels intact. They don't work. They don't work because the real God for Walmart merchants isn't Minimum Value. It's PRICE.

Recessions don't allow for non-delivery of Minimum Value. In fact, they punish that action severely. With money in less tight supply, consumers can write a $3.98 buy off as "well, what do you expect for $3.98". Not in a recession. In a recession, there isn't another $5.00 to spend to replace those squeegees with actual towels. The family has to suck it up and use the crappy product. Which just reinforces over and over and over agian the negative brand message....something no amount of advertising dollars will overcome.

So there's at least three elements to this. First, is having oversight on the initial price points. Are they Price Leaders? If not, do they fall into acceptable limits? Are the products truly appropriate for gross margin improvement? Second, is insuring that every product delivers Minimum Value. Value is defined by quality at a price, with a minimum acceptable use intercept point. The $3.98 bath towel was probably the best bath towel anyone could sell at retail for $3.98. The trouble was that the "intercept point" was below the cut off line. Does each product at least meet minimum use expectation? Even Price Leaders have to meet or exceed consumer expectations. That "intercept point" represents that minimum level of meeting expectations for product utility. Third, has each and every dollar in the assortment been spent carefully and with intent. In other words, has the assortment been built along world class lines?