Imitation born of competitive necessity
Word out of Minneapolis this week courtesy of a Bloomberg story is that Best Buy plans to emulate Walmart’s pricing model in order to confront the issue of price transparency and simplify its operations. Smartphone wielding shoppers armed with price comparison apps have quickly changed how consumers shop and make purchases of highly considered items, such as those which dominate the product mix at Best Buy or in Walmart’s electronics department.
According to Bloomberg, Best Buy is considering curtailing three decades of tactical discounting in favor of Walmart’s everyday low price model. Curious that Best Buy would want to inform competitors of a significant shift in its pricing strategy, and also interesting is the degree to which Walmart’s approach to pricing is misunderstood.
From Best Buy’s perspective it faces the perpetual quandary of all highly promotional retailers in that consumers are wise to the game and understand that no matter how often a retail tells them, “These deals won’t last long,” the reality is another sale is always just around the corner. If Best Buy does go with an everyday pricing model it may not want to emulate Walmart where in recent years the company deviated from the EDLP philosophy to a considerable degree. New leadership has vowed to restore discipline to the notion of low prices every day, but even so the need to produce acceptable gross margins dictates that prices at Walmart tend to fluctuate as they do at other retailers and oftentimes they are optimized based on the competitive set of nearby stores. It’s why unbeatable price guarantees only extend to local competitors and online prices and different from in store prices. Best Buy won’t solve its problems by emulating Walmart because Walmart facings its own pricing challenges, including how to achieve the type of pricing differential with key competitors that enable it to deliver on the lofty value proposition of saving people money so they can live better.