Sometimes the business news takes your breath away. This morning I read with great interest that Walmart has announced that effective this Friday, November 22, 2013, they are starting their "Black Friday" sale a week early. In addition, they have added a "Christmas Match" campaign that effectively matches the lowest price of any competitive offering http://news.walmart.com/news-archive/2013/11/19/walmart-turns-up-holiday-heat-matches-competitors-best-black-friday-deals-one-week-early.
In the press release , Walmart explicitly states and calls out that they are doing this to make sure they are more aggressive in pricing than Target, Toys R' Us and Best Buy.
As readers of this blog – and as past Business Acumen participants know – we are constantly looking for real-world examples of big, bold strategic moves that help execute a strategy and value proposition. This is a pretty big and bold strategic financial management tactic.
We define Operation Excellence as the value proposition to customers that delivers the lowest possible cost to customers at the relatively highest level of quality. Organizations achieve operational excellence by focusing on business process improvements, low levels of customization, high volume, and an overall emphasis on cost minimization.
Walmart is the quintessential operational efficiency organization and this latest tactic furthers that standing. Moreover, further analysis reveals the extent and impact of this tactic. Typically, as many of our participants have learned in our business simulations, when you start the vicious cycle of price cutting it is not sustainable. However, Walmart's move will challenge that thinking because their operational efficiencies have given them such a cost advantage they can afford to go significantly lower than any other competitor. For example, in their press release Walmart announced that they are selling the classic version of Monopoly for just $5. The nearest prices from competitors including Amazon are selling it for $12.
This of course generates additional questions:
- How can they do that?
- Why are they doing this?
- What is the long term gain?
The answers to these questions provide tremendous insight into how to effectively execute Operational Excellence.
How can Walmart do this?
Walmart can do this because they have negotiated a low price, probably based on volume, from the manufacturer. That negotiation gives Walmart a low price advantage.
Why is Walmart doing this?
The snarky answer is because they can. The business answer is because they can. In the volume grab of cutting prices, Walmart can afford to do this because they will have so many more people in their stores, and the more people in their stores, the greater the likelihood is that those shoppers will buy additional (non-sale) items.
What is the long-term gain?
Besides crippling the competition, the long-term gains include building further brand equity, developing new customers, increasing volume and creating even more leverage with vendors and manufacturers for next year.
In summary, this is a bold move. As we always say, the organizations that make the smartest and boldest moves often time win. Looks like Walmart is doing it again and its a great financial acumen lesson.