Académique Documents
Professionnel Documents
Culture Documents
Date: 26th August 2011 Submitted By: Name Oswin Diniz Jason Goveas Ankita Jha Rahul Malpani Samik Sarkar Sanjeev Singh Saurabh Suman Roll Number Division 34223 C 34227 C 34230 C 34237 C 34252 C 34258 C 34262 C
In the following paper, we intend to discuss penetration pricing by using Walmart as a case study with an Economic outlook.
We have chosen to take three aspects into account while presenting the paper: 1) The Theory of Market Penetration Pricing 2) How Walmart uses it effectively 3) The downside of the Walmart strategy
Our objective is to look at the impact of the presence of a retail giant like Walmart on the following: 1) 2) 3) 4) 5) Small Retailers Customers Other Chains Suppliers The economy as a whole
2|Page Market Penetration Pricing: The Case of Walmart Diniz, Goveas, Jha, Malpani, Sarkar, Singh, Suman
5 6
3|Page Market Penetration Pricing: The Case of Walmart Diniz, Goveas, Jha, Malpani, Sarkar, Singh, Suman
7 8
4|Page Market Penetration Pricing: The Case of Walmart Diniz, Goveas, Jha, Malpani, Sarkar, Singh, Suman
By creating an impression in the customers minds that Walmart offers the lowest possible prices, they overshadow the other expectations of customers12. Its a self-created loop that Walmart is stuck in. It used penetration pricing so effectively that price became the most important factor for customer choice. As their suppliers perceive their prices are low, they offer them better prices hence ensuring that lower sourcing costs. Walmart traditionally has kept its operating costs low even at the risk of ill-treating its employees and suppliers. And, now, in order to ensure long-term sustaiability, Walmart needs to continue in the same vein. In recent times, Walmart has realised that there exist negative overtones associated with Walmart and is working towards reducing its negative image. 13 There are various forums which are unhappy with Walmart and its impact on markets and customers and its treatment of its workforce. There are various groups targeting the retail giantiii iv as well as examples of manufacturers who have managed to say no to Walmartv Our verdict is that while Walmart has managed to become the worlds largest retails giant, it owes its success to a few factors other than just penetration pricing: 1) 2) 3) 4)
i
Lack of awareness among customers Lack of counter-action from competitors An outstanding positioning strategy An outstanding usage of the Economies of Scale
Price Skimming: http://www.investopedia.com/terms/p/priceskimming.asp#axzz1W68cNEk1 Predatory Pricing: http://www.oecd.org/dataoecd/7/54/2375661.pdf Women Against Walmart: http://www.the-spearhead.com/2010/04/27/over-one-million-women-set-to-take-down-wal-mart/ iv One woman army: http://www.thedailybeast.com/cheats/2010/05/03/bringing-down-walmart.html v Snapper Lanemowers: http://www.fastcompany.com/magazine/102/open_snapper.html
ii iii
12 13
http://www.street-therapy.com/articles/2-saving-money/14-are-wal-mart-prices-really-lower.html http://www.ibtimes.com/articles/183847/20110720/michelle-obama-walmart-bring-healthy-food-to-food-desert.htm
5|Page Market Penetration Pricing: The Case of Walmart Diniz, Goveas, Jha, Malpani, Sarkar, Singh, Suman