Wal-Mart recently renewed its commitment to low prices. But now it's moved a step further by segmenting the unique value seekers who shop its stores. The goal is to better understand the motivation behind their shopping habits.
In their first interviews since a management shuffle in late January, John Fleming, the new chief merchandising officer, and Stephen Quinn, the new chief marketing officer, told The New York Times that after a year of intense research, Wal-Mart has partitioned its 200 million customers into three core consumer groups. The three are:
- Brand Aspirationals - People with low incomes who are fixated on brand names like KitchenAid;
- Price-Sensitive Affluents - Wealthier shoppers who love deals; and,
- Value-Price Shoppers - Those with like low prices who can't afford much more.
Armed with its new insights, Wal-Mart said, from now on, all product decisions would be organized around the three groups. Company officials believe these groups represent the majority of Wal-Mart's business.
Officials said the new categories are significant because the retailer not only thinks it finally understands how people shop its stores, but why they shop the way they do.
"It explains why people who have to shop here do and why there are BMWs in the parking lot," said Mr. Fleming, who was formerly Wal-Mart's chief marketing officer.
The most noticeable initial change will be that Wal-Mart plans to beef up its brand assortments. Although the research reinforced the view that Wal-Mart's most powerful traffic driver was low prices, it also found that customers place a high value on brands. With a goal of expanding its branded positions, Wal-Mart is creating teams - each with a marketing executive and merchandising executive - to tackle five "power" categories: Food, Entertainment, Apparel, Home Goods and Pharmacy.
Wal-Mart said having one or two name-brand products in each department is not enough. It must build a reputation for brands in each category to be able to compete with a Best Buy, Macy's or Home Depot. A model for this is the electronics department, where Wal-Mart improved sales not only by bringing in the lowest prices, but offering flat-screen TVs from Sony and Magnavox.
"(Customers) really need the assurance of brands," Mr. Quinn told the Times. "In the past, we were so focused on price...but low price on what?"
A better understanding of consumer behavior will also help Wal-Mart determine what not to sell. Last year, customers responded unfavorably to the launch of fashion-forward clothing and other high-end items. Wal-Mart now plans to slow down or scale back those efforts. The chain still wants to get customers to buy more items beyond the household staples it's best known for, but Mr. Fleming expects deeper consumer insights will help in more selectively upgrading its mix.
The overall "low price, quality brands" approach will be showcased in new advertising slogan: "Saving people money so they can live better lives."
Discussion Question: What do you think of Wal-Mart's move to base brand purchasing and merchandising decisions on the behaviors of distinct consumer groups? The company has always been known for limiting assortment to the top one or two items in a category. Will expanding selection positively or negatively affect its business?