WalMart is the poster child of price warfare. This is how they built their brand. “Always Low Prices” is their mantra and the essence of their brand. But, is being a low cost leader in anything a great brand strategy. Up to this point, it has worked for WalMart, but times seems to be changing. For example, over the last two years, WalMart has posted consecutive same-store sales declines. Also, they are being beaten at their own game by local businesses who have finally learned how to compete with the big-box giant. The GAP/Old Navy is also struggling with the same issue. Old Navy is still showing disappointing results in spite of having low prices.
This brings me to my point, brand marketing vs. value pricing. Most businesses seems to grapple with this perceived dilemma. Does a company center their marketing around branding and put pricing in the backseat? Or, should value be more central to a company’s message, leaving branding as a luxury to be addressed later? The answer, to me, you need to do both at the same time. A business must strike the right balance between branding and value messaging. Even GAP’s Chairman-CEO, Glenn Murphy highlighted the importance of finding a balance between brand marketing and a strong value message. Their latest campaign “Old Navy Records: Original hits. Original styles.” has been under performing thus far. It’s not really doing either very well, branding or delivering a value message.
Wal-Mart is facing a different struggle, but coming from the same problem source. They have built a dominate business on the low pricing model. In recent times, they’ve seen the signs that the era of the “big box” store may be coming to a close and the rise of the local business is dawning. This prompted them to create smaller stores in neighborhoods. These have performed much better than their older, bigger, parent stores. With a brand built around low prices, the recent Morgan Stanley report stating that over 60% of people don’t believe Wal-Mart has the lowest prices any more, is a serious blow to their core identity. In the same arena and time period, Target has posted better and more positive results.
In tight economic times, people are much more price sensitive. It is understandable that it is tempting to center all your marketing efforts around prices and leave brand marketing out for a while. The problem is, you become commoditized very quickly in that game. Even mighty Wal-Mart is facing that problem in a world they created. It has been pointed out by some stock analysts that Wal-Mart’s problem is they have turned the communities they serve into “third-world” economies. In order to compete, all stores within the 10mi radius of a Wal-Mart store must lower their prices to compete. This depresses wages (since Wal-Mart sets this as well). Eventually no one, even Wal-Mart employees, can afford to shop at Wal-Mart. Wal-Mart works until everything turns “third-world”, then it becomes cannibalism.
But, in the land of Target, they still offer a value message, but also keep their brand image marketing equally strong. Though they are not the “low cost leaders”, people want to save money without feeling like they are slumming it. Affordable Sheek. This is Target’s brand and value message all in one. It works both in good and hard times. This is the soul GAP/Old Navy is still looking for. Unfortunately for Old Navy, they were not able to out Target, Target.
The lesson here? To be successful in the long-run, brand marketing and value marketing must work hand in hand and be equal portions of your budget. Too much of one at the expense of the other will either make you vulnerable to economic conditions or devalue you so much, that you become commoditized. As our company has explained to our clients many years, if you are not a brand, you are commodity.