NOTE: Free essay sample provided on this page should be used for references or sample purposes only. The sample essay is available to anyone, so any direct quoting without mentioning the source will be considered plagiarism by schools, colleges and universities that use plagiarism detection software. To get a completely brand-new, plagiarism-free essay, please use our essay writing service.
One click instant price quote
WEB-SAVVY PRICING Using loss-leaders, as the mean to attract potential customers, is not the matter of choice for the Wal-Mart. We know that the company practices a Low-Cost Providers Strategy, in order to remain competitive. It is based on the classical method of raising the margins by lowering the overall cost of production. Companies that employ this strategy, strive to under price the competitors and to attract large enough number of price-sensitive buyers, as the main mean of obtaining profit.
Usually, the cost-cuts are accomplished at the expense of elimination of some production processes, minimizing the shipping costs, hiring nonunion workers or moving production to the Third World countries and bringing the number of administrative staff to a minimum. Low-Cost Provider Strategy is effective when applied to the markets, where price competition is vigorous and the product is available from many other suppliers. Also, it is best suited for the markets, where buyers have a significant bargaining power and where differentiation has little value to them. Knowing this, it appears that using loss leaders is probably single most effective method of boosting its sales for the Wal-Mart, because it is a low price alone that makes Wal-Mart's products appealing to the customers. Critics of Low-Cost Providers Strategy point out to the fact that buyers sensitivity towards the price might decline, as time goes by. But this is rather hypothetical suggestion, as we see that even in Western countries, the gap between the rich and the poor continues to widen, with middle class gradually becoming a part of low class.
Therefore, in my opinion, using loss leaders is absolutely justified, on the part of Wal-Mart. It simply pushes the competitors out of market, by offering ridiculously low prices, but when the competition is eliminated, Wal-Mart raises up its prices again. There have been suggestions that Wal-Mart would do better, had it employed different pricing strategies, such as Broad Differentiation Strategy, which emphasizes on lowering buyers overall costs, making customer more satisfied with purchased value by continually improving the quality of the product, adding to the customers satisfaction non-economically and by making him associated with well-respected brand. Yet, there is no doubt, in my opinion, that while it could have helped to improve company's public image, Wal-Mart's sales margins would drop. Wal-Mart does not have a choice, it uses the expansionist strategy, as the mean of remaining compatible. In other words, it can only be economically successful by continually expanding, by pushing competitors out of business.
The end of expansion would automatically mean the beginning of decline for the Wal-Mart. Yet, ever since Thomas Edison had introduced loss-leader in 1879, it still remains as the most effective method to boost sales, up until now. Especially in the markets, where the issue of pricing is considered to be the most important. It is no secret that the practice of loss-leader is considered to be illegal, under certain circumstances. There is no doubt that company, which applies this method, intentionally misleads the customers. Using loss-leader is nothing but taking advantage of human psychological weaknesses.
It is can be thought of as highly immoral. Yet, we live in capitalist society, where the idea of profit supersedes any other considerations. Therefore, in my opinion, Wal-Mart has chosen the right strategy. It definitely works, as it is a well known fact that it is only the matter of time, before other retail stores close down, after Wal-Mart moves into the new area. The continuous expansion of Wal-Mart retail outlets is the best indication of loss-leaders effectiveness. The modern economists make a mistake, when they suggest there can be other goals of economical activity than making profit.
Various affirmative action and diversity policies, forced upon commercial institutions, divert managers attention from their foremost task. Wal-Mart comercial success comes as a result of ignoring social factor, while focusing its attention on archiving economical domination. Bibliography: Heller, R. Better Business: Survival of the Fittest. (2004). Thinking Managers. Com.
Retrieved September 13, 2006 from web Mitchell, R. Strategy Formulation. (2000). Economy and People. Retrieved September 13, 2006 from http: // 64. 233. 167. 104 /search?
q = cache: ihEEDTpDAm 4 J: web
Free research essays on topics related to: low cost, september 13, wal mart, effective method, wal
Research essay sample on Wal Mart Effective Method
