Wal-Mart Stores' attitude concerning the marketing dollars it should get from manufacturers is pretty straightforward. If a supplier generates X percent of its sales from Wal-Mart, the retailer wants that same percentage of the vendor's ad and promotional budget. That is what it is asking suppliers to pony up.
A report on the Advertising Age website, calls the action "probably the boldest retailer grab for suppliers' consumer-marketing funds ever."
In recent months, Wal-Mart has rolled out its "cost-supplement initiative" to obtain what it views as its fair share of dollars for use in co-branded media spots, the chain's in-store network and on walmart.com.
Ad Age estimated that if suppliers were to accede to Wal-Mart's wishes, the chain would bring in more dollars from a single manufacturer (in this case Procter & Gamble) than it spent on its own all of last year.
Reluctance on the part of suppliers to participate in Wal-Mart's program could prove harmful to a brand's prospects, especially if it is a slow mover. The chain has been looking to cut back on its product assortments by 15 percent overall with much higher percentages in categories not considered critical.
Leon Nicholas, director of retail insights at WPP consulting firm Management Ventures, told the publication that it is implicit that suppliers that meet the retailer's demands will "get more favorable treatment and placement." Mr. Nicholas said that while consumer demand is Wal-Mart's prime criteria for making distribution and space decisions, marketing funds (or lack thereof) can play a deciding role.
According to Ad Age, no major marketers have met Wal-Mart's demands. If they did, it would mean they would have to do the same for all other merchants or risk violating Robinson-Patman.
Discussion Questions: What do you think of Wal-Mart Stores' push to get ad and promo dollars from suppliers that is proportional to sales? Will suppliers comply? Do you expect to see other retailers follow Wal-Mart's lead?