For the past months, I’ve been doing the grocery shopping for my mother. Her most recently craving is marshmallow pinwheels, which run around $5 for a dozen. You can buy three dozen Oreos — a far superior cookie — for that price!
We decided to see if Walmart offered a cheaper generic brand. Normally, I avoid shopping at Walmart, especially after reading Nickel and Dimed by Barbara Ehrenreich and seeing the documentary “Wal-Mart: The High Cost of Low Price.” Nevertheless, the search for cheaper cookies and other off-beat items she requested was worth a visit.
Sure enough, we found less expensive pinwheels, and while we were wandering the aisles, we decided to purchase the other things on our list, including produce. It was early Sunday morning, and many of the bins of fruits and vegetables were empty or picked through, including the ones labeled “organic.”
I recalled reading an article several years ago, which lauded Walmart for introducing organic fruits and vegetables. The article showcased the massive purchasing power of Walmart, and how they could shape an industry for the best. It’s estimated 18% of the groceries purchased in the United States are from a Walmart store.
In the case of produce, growing and shipping organic tomatoes for hundreds of Wal-Marts across the nation rewards farmers who don’t use pesticides, sends a clear message of the company’s commitment to earth-friendly products, and provides consumers with choice.
Recognizing the health value, and sometimes higher quality of organic produce, consumers are willing to pay more. The mushrooming of local farmers’ markets attests to the elasticity of pricing with shoppers paying significantly more for farm-fresh products, which are typically organic, sustainable, and produced in smaller, less soil-depleting quantities.
With higher prices comes prestige, luxury, and exclusivity. It’s the strategy employed by leading brands from appliances (Wolf, Bosch, Electrolux) to vacation destinations (Wynn Encore Resort, Hotel Bel-Air, Club Med). These brands depend on fewer consumers, paying higher prices. And for the most part, price isn’t a key determinant. These brands compete on features, benefits, quality “ingredients” (electronics to feather beds), and topnotch service.
Conversely, many brands (like Walmart) resort to low prices to snag buyers. While they might get people in the door, they end up with nothing to compete on besides price. It’s a tenuous strategy with few options. You can continue to lower the price, or slowly inch up, fearful that consumers will go elsewhere.
It makes sense, therefore, to aim for the mid-price or even better, don’t compete on price. Strive to differentiate by focusing on features and benefits.
Consider Taco Bell’s short-lived “dollar menu.” Sure you could buy three bean burritos for three bucks, but they tasted awful, primarily consisting of beans and a mediocre hot sauce. Whereas their Cantina Bell Bowl, which costs over $4, is tasty, satisfying, made with quality ingredients, and as filling as the three burritos. More importantly, the chicken bowl has half the calories, and a third less fat.
Many fast food restaurants are starting to realize the value of providing higher quality, significantly more expensive products. And consumers are responding by spending more. While McDonald’s, the largest fast food chain in the world, has kept their prices low, establishments like Chipotle Mexican Grill, Panera Bread, and Starbucks haven’t been bashful about offering higher quality foods at significantly higher prices. Year-over-year, revenues for Chipotle Grill have increased 18% to $817 billion.
Returning to produce. What would happen if Walmart raised the price for all of the fruits and vegetables they sell? Would people buy less? Maybe at first, but in the long-run demand would probably stay the same.
The goal, however, shouldn’t be to increase Walmart’s coffers, but enable farmers to not only charge more for their crops, but reward them for investing in more sustainable, earthy-friendly practices. In addition, farmers might be more inclined to invest in more varied crops such as heirloom tomatoes, rainbow carrots, etc. In the short-run, output might be smaller, but the quality would be higher. And consumers, recognizing the increased value would respond accordingly, perhaps buying more because of its appeal and health benefits.
Yes, the generic marshmallow pinwheel cookies were cheaper at Walmart, but there was a significant quality difference. The taste, shininess of the chocolate, and size of the cookies varied from the name brand. In the future, we’ll purchase the higher priced cookies.