Can Your Brand Wallop Wal-Mart?

I live in Northbrook, IL.  The big issue in our town is whether to allow a Wal-Mart to be built here.  I am not going to give my opinion, which half of you would like and half of you wouldn’t.  But I do want to mention one argument against that, as a marketer, I have a tough time accepting.

That is the argument that Wal-Mart is bad for small business.  The argument is simply that when Wal-Mart moves in, small businesses close. 

The statement itself is true. And in fact, that is just the free enterprise system working the way it is designed to.  (Here is a great column about this.)  http://www.forbes.com/sites/timworstall/2013/03/31/of-course-walmart-destroys-retail-jobs-thats-the-darn-point-of-it-all/

But why is that the case?  Why do small businesses close?  Here is what happens.

After a Wal-Mart moves in, small businesses shut down if too many of their customers defect.  Why do customers defect?  They defect because Wal-Mart offers lower prices, these smaller businesses cannot compete on price, AND (the key) they do not give their customers a compelling reason not to switch, because they have not differentiated themselves on other factors. 

This is not just true for businesses competing against Wal-Mart; it is true for any company with a competitor (domestic or international) that offers lower prices.  And this is not a new phenomenon.  The same was said in the 1890s when Sears distributed its first catalog. 

Remembering that Wal-Mart itself was once a small business, the question is: how can small businesses compete, if not on price?  The answer: develop a brand that differentiates them from Wal-Mart.  That could be done in a few ways.  Here are just two examples.

First, differentiate on product quality.  The argument goes that Wal-Mart sells low quality merchandise.  If your merchandise is better, communicate that, and explain why higher quality is better.  Higher quality clothing may keep you warmer in the winter or may last longer.  Higher quality toys may not break.  A higher quality furnace (not that Wal-Mart sells these) may cost more, but it could last longer and provide more energy savings in the long run.  “You get what you pay for” may be a cliché, but it is true.

Second, differentiate based on service.  Real world example.  My brother is a wholesaler who sells to various retail outlets.  His customers could go to Wal-Mart and buy the exact same products for a lower price.  Why don’t they?  Because over the years, my brother has provided exemplary service.  His customers know if there is a problem, they can call him.  If they need a rush order, he can take care of that.

Two other quick examples, not having to do with Wal-Mart.  I have had the same property and casualty insurance agent for decades.  I know I could get insurance cheaper elsewhere.  But I don’t even shop it because my agent is always there for me when I need him.  The other example: we recently bought a digital camera from a store we have shopped at for decades.  I could have gotten the exact same camera for 25% less online, but I trusted the store I got it from.

So what are your takeaways?

 1. Do not compete on price.   You are going to attract price shoppers and you are going to lose.  Be prepared to be undersold, and be willing to lose that portion of your customer base that buys solely on price.

 2. Find out what is important to your customers other than price.  Why do they shop with you now?  Once you learn that, communicate it and make it a core component of your brand.

 3. When Wal-Mart or somebody else moves in, don’t just throw up your hands in resignation.  Get aggressive.  Tell your customers you don’t want to lose them.  Remind them why they shop with you in the first place (provided you know).  Ask them what it will take to keep them (just asking them will show them you care; can you imagine a Wal-Mart worker asking that?).

 

Finally, any idiot can sell or market based on low prices.  The challenge and the fun is not being the cheapest place around, but winning anyhow because your brand is valued. 

THAT is how you wallop Wal-Mart.

What do you think?