Wal-Mart's Use Of Loss-Leaders

Paper Summary:

This paper discusses Wal-Mart's use of loss-leader pricing strategies in their toy retailing operations and how it is detrimental to the long-term viability of the toy industry and ironically, to Wal-Mart itself. According to the paper, this loss-leader approach to pricing toys below their cost to drive up traffic in Wal-Mart's retail stores, is flattening the elasticity curve of newly-introduced toys and causing manufacturers to second-source and often move their manufacturing off-shore, where quality and safety standards are not nearly as rigorous as in the United States.

Outline:
Introduction
Wal-Mart's Pricing Yardsticks: Setting Loss Leaders In Motion
Evaluating Pricing Strategies in the Context of Marketing Strategies
Conclusion
Appendix:Wal-Mart's Supply Chain Efficiencies Pay For Losses on Loss-Leader

From the Paper:

"For any business model or even the strategies that support them to survive, there has to be more of a balance between the 4 Ps of marketing which include promotion, place or distribution, and product in addition to price. In fact price is the most volatile and over-used of differentiators in many companies and entire industries, as Wal-Mart exemplifies in their loss-leader pricing strategies.
This has been exacerbated by toy manufacturers moving their manufacturing and production off-shore as a direct result of the loss-leader pricing strategies of Wal-Mart. These manufacturers are looking for the 40 - 70% reduction in costs to justify moving their services spending, manufacturing operations, or both offshore, which has been promised to them by companies who specialize in offshore manufacturing in the toy business. "

Sample of Sources Used:

• CNN (2003) - Wal-Mart kicks off toy price war. Accessed from the Internet on October 22, 2006: http://money.cnn.com/2003/11/19/news/companies/walmart_toys/index.htm?cnn=yes
• McKinsey (2003) - Marn, Michael; Roegner, Eric; Zawada, Craig. "The Power of Pricing", 2003 Number 1. Boston, MA McKinsey Quarterly. Pages 27 - 36.
• Grant (2004) - Wal-Mart Doesn't Plan to Toy Much With Prices; Last Year's Cuts Hurt Other Retailers and Left Giant Thinking it Slashed Too Much. USA Today. Pg. B8, October 11, 2004.
• Retail Pricing (2006) - Retail Pricing: The Optimization Story Expands. Michael Barret and Janet Suleski. Thursday September 7, 2006. Accessed from the Internet on October 22, 2006: http://www.amrresearch.com/Content/View.asp?pmillid=19731
• Wal-Mart Facts (2003) - Wal-Mart Tops $1.52B in A Single Day of Sales.Accessed from the Internet on October 22, 2006: http://www.walmartfacts.com/articles/4037.aspx

More papers on Wal-Mart's Use Of Loss-Leaders:

• Term Paper # 100867 : "Loss Leader Pricing"
• Research Paper # 96487 : "Pricing, Marketing and Wal-Mart"
• Business Plan # 88798 : "Product and Pricing Strategies"

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