The first Walmart store was opened in 1962 by Sam Walton. In five years and 24 stores later, Walmart made $12.7 billion in sales. By 1980, Walmart’s revenue crossed $1 billion per year with 276 stores across the US. In the 2019 fiscal year, Walmart’s revenue grew to $514 billion and a study found that it accounted for 2% of the US economy as it hired over 1.5 million people in the US. Now, that’s impressive. How does Walmart continue to do so well and which pricing strategy does it use to keep prices at such low levels? To explore Walmart pricing strategy, which is its biggest strength, let us start by Walmart’s mission statement which has been ‘the lowest prices anytime, anywhere’.
Sam Walton was clear from the beginning that he wants to offer customers low prices by keeping profit margins slim and increasing sales volume. He said this will enable economies of scale and give bargaining power to Walmart. Moreover, he focused on keeping the operation costs of Walmart low. Walmart’s mission statement hasn’t changed much since the beginning when it started. All that has happened is today there are more than 11,500 stores worldwide and Walmart has e-commerce websites in many countries. In short, Walmart is huge today and with operations in more than 25 countries, Walmart is just getting bigger.
Pricing strategy of Walmart
In 2019, $510 billion was earned from product sales while the rest was from other Walmart offerings such as membership fees. Walmart’s Everyday Low Price or EDLP for short is the Walmart pricing strategy that worked wonders as it always has and it continues to be the reason why Walmart is doing so well today despite tough competition. But the success cannot be attributed to Walmart blindly implementing the pricing strategy but because Walmart effectively ensured to lower costs and increase sales volume. Let us get into more detail about how Walmart successfully achieved an edge over competitors and continues to do well today.
The EDLP pricing strategy is the key to Walmart’s success and we will focus on this one. The primary benefit of EDLP is higher demand from customers. Customers are price sensitive and if you offer them good quality products at lower prices then they will surely come to your store and buy. This gives Walmart a competitive advantage over others. The demand for products continues to surge as customers are aware of Walmart’s low prices and a wide assortment of products. Customer loyalty increases as a result and which means repeat business that means even with slim profit margins, the sale volume is quite high.
The Walmart pricing strategy works because of how many stores there are. 90% of Americans live within a 15-mile radius of a Walmart store which means there is a high likelihood that they will purchase from the store because it is close by. Walmart is known to sell essential items and this has helped it to keep its profits high and costs low. One of the ways the pricing strategy is made to work is by keeping operating costs and overhead costs to a minimum. As many companies rely on Walmart for their revenue, it is easier for Walmart to have higher bargaining power and buy at lower prices from the suppliers.
Walmart has an advanced supply chain and logistics management that is efficient and helps cut costs. As Walmart deals directly with manufacturers, something it started since the 1980s, it has helped cut costs. Moreover, Walmart gave the suppliers the responsibility of managing their inventory which helped in many ways. It helped in reducing irregularities and in providing better inventory management. It ensured that the products requested by customers are available in Walmart stores. This overall efficiency is one of the reasons Walmart pricing strategy works brilliantly for the retail giant.
Walmart’s distribution centers and their locations which are close to the stores where they supply has helped it to cut costs in areas such as transportation and inventory. This can help Walmart to increase savings and offer EDLP to customers. Walmart has its own drivers and truck fleet which has helped it to shift the cost savings to its customers. Another key factor to note is how Walmart started its expansion strategy. Instead of making a name for itself in big cities, it first opened stores in rural areas which helped keep operational costs low from the start. Then, once it started to do well, it then expanded to bigger cities across the US and then spread to other countries in the world.
Final thoughts
Walmart has been focused on day 1 on Walmart pricing strategy which is to offer products at low prices every day. In addition, Walmart’s clear strategies to make the low pricing work has helped it lower costs, increase profits, and stay true to its mission statement. Walmart is still known to provide low prices and continues to be amongst the biggest retailers in the world. Pricing strategy is important for every business and if you want to make smart decisions like Walmart then you need to have the data to do it. Intelligence Node’s AI-powered Walmart repricing solution can help your brand maximize sales and boost your profit margins.