Walmart’s Cost of a Sale
The success of a business often centers on how much it costs to attract, obtain and retain customers versus the revenue over the course of the relationship. For every business it’s different. A dealer of luxury cars might inclined to purchase expensive TV advertisements if they attract affluent customers who are predictably purchase new cars every few years.
Local Subaru dealers, on the other hand, recognizing Subaru owners’ propensity for keeping their cars for decadesmight take a different approach, seeking to not only accommodate current Subaru owners, but attract, and then convert drivers of other brands by offering lenient trade-ins.
Walmart attracts customers through door-busters and lost-leaders, which certainly gets people in the door, but at what cost? This year’s Black Friday mayhem resulted in numerous reports of violence with customers scrambling to get their hands on on rock-bottom priced waffle irons, video games, cell phones, TVs, and more. And while their stores were flooded with shoppers, one has to wonder whether shoppers also purchased regularly-priced items, and will they return throughout December to make additional holiday purchases.
According to the National Retail Federation, this year, a record 226 million shoppers visited stores and websites during the four-day holiday weekend, starting on Thursday, Thanksgiving Day.1This was a 7% increase over last year. In addition, on the average shoppers spent $398.62 versus $365.34 a year ago.
The true test of the value of a campaign to entice customers is whether these same customers will return, and if they do, how much more will they purchase. For retailers like Walmart where “bargain” and “cheap” are synonymous with their name, door-busters and lost leaders have become the de facto means of reeling in and retaining customers.
Grocery stores are equally notorious for promoting weekly deals to entice customers. While these specials might result in issuing rain checks because advertised items are sold out within days (not hours), they don’t create mobs, rushing into stores as soon as the doors open.
The difference is Walmart’s Black Friday door-busters were ridiculously priced and tied to specific timeframes. Starting at 10 p.m. on Thanksgiving, customers could purchase $19 Barbies for $5, children’s pajamas sets for $4.47, and a Black & Decker Coffeemaker for $9.44. If you could tolerate the crowds, starting at midnight, you could get a 51-inch plasma TV for $498 (a $151 savings), and a Kodak 14-megapixel camera for just $49.
Another round of discounts, started at 8 a.m. the following (Black Friday) morning, including DVDs, starting at $1.96. The company even offered downloadable maps of its stores so shoppers could chart routes to the best deals.
The question remains. Did the cost to attract customers translate into increased revenues, improved customer satisfaction, and long-term customer loyalty for Wal-Mart? Time will tell. Walmart may have gotten people in the door, but Target, Kohl’s, K-Mart, and other lower-priced retailers may be the benefactors of customers seeking higher-quality goods, and a safer shopping experience.