August 6, 2007
Wal-Mart Seeks to Rule Consumer Electronics Market
Wal-Mart dominates any number of categories at retail and the retailing giant is intent on adding to that list. Among the categories the Bentonville behemoth has targeted are apparel, home furnishings and consumer electronics. While it’s been widely reported the retailer has had its struggles in the first two categories, it has done quite well in electronics.
Today, according to a Wall Street Journal article, Wal-Mart ranks as the number two retailer of consumer electronics in the U.S. with $22.6 billion in 2006 sales not counting Sam’s. Best Buy is currently in the top spot with $31 billion while Circuit City is third at $11.9 billion.
Christine Augustine, an analyst with Bear Stearns, is looking for Wal-Mart to increase its sales of consumer electronics between 10 and 12 percent this year compared to seven percent for the category as a whole.
Wal-Mart has used its familiar low-price tactic to drive sales in its consumer electronics departments.
Rival Best Buy’s response to-date has not been to get into a price competition with Wal-Mart, particularly in the area of flat-panel televisions, but focus on offering a broader selection and improving the customer experience.
Circuit City has played the price game and has suffered as a result. Low margin sales led to the company closing stores and laying off workers.
While Wal-Mart and price positioning are inseparable, the retailer has also expanded product selection and departments to attract a larger share of the consumer electronics buying market. The company has even made some modest steps to improve staffing to address questions posed by shoppers.
"We’re not trying to tech it up (in departments)," Gary Severson, Wal-Mart’s senior vice president of entertainment, told The Wall Street Journal. "They (consumers) want it to be fun, cool and functional," he said.
One area where Wal-Mart continues to suffer in comparison to CE specialists like Best Buy and Circuit City is in customer service and technical assistance.
Stephen Baker, vice president at NPD Group, told the Journal, "There’s just no way you can explain some things through signs." He said Wal-Mart employees lack the expertise of employees at Best Buy and Circuit City "and they’re not going to invest in that type of training."
Wal-Mart’s Severson said, "I’m not here to tell you that we have completely trained sales associates. But we’re working toward having a knowledgeable associate that can help the customers with the basics."
Best Buy with its Geek Squad and Circuit City with Firedog offer in-home service while Wal-Mart’s part in the customer experience does not go beyond the front register.
Both of the consumer electronics chains also offer home delivery and setup services while Wal-Mart does not. Sam’s Club has experimented with delivery and installation of consumer electronics but Wal-Mart has yet to test a similar service.
Discussion Questions: What is your analysis of Wal-Mart’s consumer electronics push? What will it mean for other companies selling consumer electronics?
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I recently purchased both a flat screen monitor and TV from a Wal-Mart store and both were, in my mind, good value purchases. I am in the market for a new computer and that experience as I begin my search and talk to sales staff has not been as good as the last.
If Wal-Mart does figure out the service and knowledge aspects of the whole electronic relationship with the consumer as Best Buy has, they will begin to become a destination for a lot of consumers.
The issue as it pertains to other retailers can be most harmful to Target. As Wal-Mart figures a way to bring some of their core consumers into a Wal-Mart environment and begins to find categories to entice additional purchases, it will lead to a breakdown of the resistance to shopping at a Wal-Mart that a lot of Target consumers share now.
Last holiday season, I was helping my parents search for a computer and my husband and I were in the market for a Flat-Screen TV, so I scoured the Thanksgiving/Holiday ads, looking for the best deals. I noticed that Wal-Mart often advertised super low prices…but didn’t mention brand names. If you looked closely at the photo, if there was a brand on the product at all, it was an unknown. When it comes to major purchases, I try to make myself knowledgeable about my options and research a variety of products, so that I know what I should be paying and what to expect for my money. I’m not a Wal-Mart shopper, but would consider shopping there if they promoted better quality merchandise. Downplaying the brands (when it comes to electronics, especially), because they are unknown and possibly inferior, and just selling on price alone won’t more upscale customers. Maybe now that they’re getting the big-name brands, they’ll change their ways and try to earn the trust of more knowledgeable shoppers who are searching for value…that ideal combination of quality AND price.
After having a problem in the fashion area, Wal-Mart appears to have revamped its strategy going back to “making products that rich people buy available for ordinary people.” In the electronics section, Wal-Mart has added Olevia flat screen TVs that Circuit City has been selling and Dell computers for example. Adding name brands that rank high in independent ratings, offering products that have name brand recognition, and keeping prices low has been successful for Wal-Mart in many other categories so there is every reason to expect that this category will be successful. One additional issue in this category is providing education to consumers and provide support after the purchase. If they get that part right, then success should follow.
Wal-Mart’s push into consumer electronics in a big way should be particularly troubling for the electronics category killers. For some time now, category killers have dominated this segment. Not any more. For a while now category killers have offered great brands with not so great prices and gotten away with it. This has been largely due to the lack of alternative formats with similar big brand assortments and better pricing. This paradigm has changed. Consumer electronics have almost become disposable. That is, most consumers expect to replace many of their electronic devices as new models emerge with new technology. Most of us want the latest!
So here comes Wal-Mart and other value players. With the emergence of the better club stores and now Wal-Mart entering the game, category killers are in for a real fight. Why? Many consumers trust certain big manufacturer brands and don’t necessarily need the perceived service of the retailer after the purchase. Many are just as comfortable going to the manufacturer for service as they are going back to the retailer.
For example, as kids head back to school in the millions over the next few weeks, many will leave with new Personal Computers. Most of today’s astute students and many of their parents already have a manufacturer brand preference. Additionally many know the specifications of the particular brand they desire. If it’s easier, costs less and with less hassle to purchase that product as Wal-Mart, now you have a winning solution. The offset of the “perceived after sale service” is now a great price. GAME CHANGED!
One more point…as concerns linger about the economy as a whole, one continuously finds more BMWs, Mercedes, Audies and Lexus brands in the Wal-Mart parking lot. The reason is simple; people are looking for the best value. While one doesn’t expect to get the same level of perceived “expert service” in a Wal-Mart, many consumers simply don’t care. If consumers can get product efficacy, manufacturer service and great values then they or (we) are likely to accept Wal-Mart and other value players in the electronics game.
Apparel and home furnishings have many style and quality ranges. Except for installation, branded electronics are fungible commodities. May the lowest price win.
I’m with Charlie & Trainer Bob.
If people want one-on-one advice and education about high ticket electronic products, they’ll go to Circuit City or Best Buy and pay extra for the service. Or thank them for the advice and go buy at Wal-Mart or Sam’s. (Costco also does a respectable business and provides about the same level of service)
A great many customers do their research online, then go for the best price, which can usually also be researched online, then to the stores for pick-up.
Wal-Mart does a good job of running on the 80/20 rule. Offering the top 20% of SKUs in a category that do 80% of the volume. And they put a lot of responsibility on the supplier to make the products as “plug & play” as possible, with simplified installation, easy, cook-book directions, 1-800 help lines, etc.
The complicated stuff they’ll leave to everyone else.
For gosh sake let’s all get behind Wal-Mart in the consumer electronics area. I believe that the competitive pressure they are putting on the category is cleaning up the “REBATE” as a marketing tool. The rebate has long held my disdain as the sleaziest form of product marketing. Manufactures actually choose fulfillment houses based on how many rebate requests they can find ways of disqualifying. Wal-Mart does not deal with manufacturer rebates as was pointed out in their recent humorous television advertisements.
It would seem that they have the clout with manufacturers to get the best deal for their customers. Also, Wal-Mart has a corporate goal to reduce the price to the consumer. Consumer electronics provides the perfect category to deliver this promise, as we all know that technology constantly provides more for less. The trick for Wal-Mart will be to find ways of capturing the early adopters of developing technologies. I would strongly suggest to Wal-Mart that they find a way to get an Apple boutique into every Wal-Mart in the USA in the next two years. As Apple’s only alliance is AT&T, there may be room for another retailer–especially one that can deliver new exposure for previous generation equipment.
Points made here about segmenting the consumer electronics market are extremely apt. Wal-Mart is not and cannot (in my opinion) meet the needs of consumers shopping for emerging technology. Emerging technology requires trained associates and an educated sale process, in which price is not the dominant lever to motivate purchase.
However, a vast array of consumer electronics products have already gone through the emerging technology phase and represent mature or at least moderately understood products. Combine this with the explosion of information and ease of access to it on the Web, and the predominance of consumer electronics falls into the “Wal-Mart Zone.” This “Zone” is defined by products where the underlying technology is well understood, non-proprietary, and almost impossible to differentiate. Flat panel TVs made by Vizio are almost impossible to differentiate from flat panel TVs from Panasonic or LG (comparable size and technology).
Wal-Mart can and will continue to grow sizable portions of every segment within the consumer electronics arena as each segment matures. Further, as these segments mature, they enter into the Wal-Mart consumer’s aspirational model, creating ever greater brand equity for Wal-Mart. Consumer electronics, particularly in perceived high-end segments, serves WM extraordinarily well. WM’s brand equity is derived from making a lifestyle possible which had previously only been aspirational. Flat panel TVs have been out of the question for the WM customer. No more.
What is left for Best Buy and Circuit City are emerging technologies, proprietary builds, and continued price pressure.
Consumer electronics, like other categories, has become a commodity. As such, price is an overriding factor in purchasing.
However, I would agree with those who say that Wal-Mart has to get the consumer piece right. I did a little experiment last weekend. I went into a Wal-Mart store in suburban New York, walked into the electronics department and asked one of the associates for some help. When he was finished talking on his cell phone, I asked him what the difference was between LCD and plasma TVs. He didn’t know and said he’d get someone. He never did. For those of you who think I’m picking on Wal-Mart, I did the same at Target. They were more attentive but just as helpless.
Whether people have done their homework on high ticket electronics or not, they want the comfort of having a sales associate that has.
If we were to break down the electronics department into categories where experienced and knowledgeable sales help is required it might look like this;
Knowledgeable staff required:
> Computers and Computer Accessories
Knowledgeable staff not required: > Nearly everything else
Most people today have friends and family who can make up for their lack of knowledge and who can assist in the set up of networks, handle installations and so on.
Many, if not the majority, of consumers use the core functions of their electronic products and pay little attention to the more technical accessories and functionalities that the product can provide. Operating at this level requires little more than a well written “getting started” summary.
Wal-Mart should continue to prove to be a formidable foe in consumer electronics where price is king. Fashion is fickle, and like technology, changes quickly. The difference between the two is that Wal-Mart doesn’t have to design their technology offerings, there is plenty of money to be made in developing and maturing businesses such as flat screen and LCD businesses.
Additionally many companies have come to realize that they need Wal-Mart’s distribution network (DELL for example) to differentiate their product offerings to take advantage of the marketplace more fully. They won’t be the last.
While Wal-Mart may be the low price leader, many may go to Best Buy, Circuit City or Ultimate Electronics to get the education, then turn to Wal-Mart to make the purchase.
Best Buy (et al) needs to compete on service and selection and not price. Wal-Mart doesn’t offer delivery or setup service.
I tend to shop at Best Buy when I need education in order to purchase the product that best fits my need.
In certain area’s, such as LCD TVs, I will conduct my research online and gain as much information as possible. It then usually comes down to a price versus functionality decision for me. If the retailer (in this case Wal-Mart) sells a brand that I have researched and has scored well, I will then make the purchase based on price.
The decision will come down to price point versus customer satisfaction. In many other categories once dominated by price point, we have seen a loyalty battle based on differentiation, such as customer experience.
This will continue to be a trend, so each category in consumer electronics may come down to a battle, but I’m still uncertain who will win the war.
So often, by so many people, electronics are shopped by price. Shoppers get their questions answered by their friends, the internet, or well-informed salespeople. Then the shoppers go to the source with the lowest price. Wal-Mart’s low overhead gives it an advantage over the electronics specialty stores, but it’s disadvantaged compared to the lowest overhead internet sites. And certain brands will avoid shipping Wal-Mart because they don’t want to lose their distribution elsewhere.
I would have to agree with Mark. When I research and buy new computers (which is probably more often than my wife would like), I do A LOT of research before buying. What are the best features? What is the best price? What does it come with? If Wal-Mart can figure out how to get the same product to me cheaper, I have to admit: I am likely to bite.
The only thing I would add, however, is that I just don’t see myself at that point in the near future. I can’t see making that sort of investment from a retailer (even Wal-Mart) that is not known for selling such big-ticket items on a regular basis. When I go in, I want the sales folks to know what they are talking about when it comes to the features lingo and etc.) Best Buy is there. CompUSA is there. We just aren’t there yet with Wal-Mart, and I remain a skeptic.
Does it really matter? Wal-Mart will not follow through on a very key factor in selling home electronics…that being very, very knowledgeable sales associates, and department personnel being available continuously.
Wal-Mart tries many new categories, but still doesn’t ‘get it’; the need for engaging the consumer…knowledgeable, available sales associates to serve them.
Wal-Mart should become a noted self-service retailer…that isn’t spending money on labor or service! Anyone disagree with this? Hmmmmmmmm
MAD MARKETING…retailers who know better, but do nothing about it.
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I recently purchased both a flat screen monitor and TV from a Wal-Mart store and both were, in my mind, good value purchases. I am in the market for a new computer and that experience as I begin my search and talk to sales staff has not been as good as the last.
If Wal-Mart does figure out the service and knowledge aspects of the whole electronic relationship with the consumer as Best Buy has, they will begin to become a destination for a lot of consumers.
The issue as it pertains to other retailers can be most harmful to Target. As Wal-Mart figures a way to bring some of their core consumers into a Wal-Mart environment and begins to find categories to entice additional purchases, it will lead to a breakdown of the resistance to shopping at a Wal-Mart that a lot of Target consumers share now.
Last holiday season, I was helping my parents search for a computer and my husband and I were in the market for a Flat-Screen TV, so I scoured the Thanksgiving/Holiday ads, looking for the best deals. I noticed that Wal-Mart often advertised super low prices…but didn’t mention brand names. If you looked closely at the photo, if there was a brand on the product at all, it was an unknown. When it comes to major purchases, I try to make myself knowledgeable about my options and research a variety of products, so that I know what I should be paying and what to expect for my money. I’m not a Wal-Mart shopper, but would consider shopping there if they promoted better quality merchandise. Downplaying the brands (when it comes to electronics, especially), because they are unknown and possibly inferior, and just selling on price alone won’t more upscale customers. Maybe now that they’re getting the big-name brands, they’ll change their ways and try to earn the trust of more knowledgeable shoppers who are searching for value…that ideal combination of quality AND price.
After having a problem in the fashion area, Wal-Mart appears to have revamped its strategy going back to “making products that rich people buy available for ordinary people.” In the electronics section, Wal-Mart has added Olevia flat screen TVs that Circuit City has been selling and Dell computers for example. Adding name brands that rank high in independent ratings, offering products that have name brand recognition, and keeping prices low has been successful for Wal-Mart in many other categories so there is every reason to expect that this category will be successful. One additional issue in this category is providing education to consumers and provide support after the purchase. If they get that part right, then success should follow.
Wal-Mart’s push into consumer electronics in a big way should be particularly troubling for the electronics category killers. For some time now, category killers have dominated this segment. Not any more. For a while now category killers have offered great brands with not so great prices and gotten away with it. This has been largely due to the lack of alternative formats with similar big brand assortments and better pricing. This paradigm has changed. Consumer electronics have almost become disposable. That is, most consumers expect to replace many of their electronic devices as new models emerge with new technology. Most of us want the latest!
So here comes Wal-Mart and other value players. With the emergence of the better club stores and now Wal-Mart entering the game, category killers are in for a real fight. Why? Many consumers trust certain big manufacturer brands and don’t necessarily need the perceived service of the retailer after the purchase. Many are just as comfortable going to the manufacturer for service as they are going back to the retailer.
For example, as kids head back to school in the millions over the next few weeks, many will leave with new Personal Computers. Most of today’s astute students and many of their parents already have a manufacturer brand preference. Additionally many know the specifications of the particular brand they desire. If it’s easier, costs less and with less hassle to purchase that product as Wal-Mart, now you have a winning solution. The offset of the “perceived after sale service” is now a great price. GAME CHANGED!
One more point…as concerns linger about the economy as a whole, one continuously finds more BMWs, Mercedes, Audies and Lexus brands in the Wal-Mart parking lot. The reason is simple; people are looking for the best value. While one doesn’t expect to get the same level of perceived “expert service” in a Wal-Mart, many consumers simply don’t care. If consumers can get product efficacy, manufacturer service and great values then they or (we) are likely to accept Wal-Mart and other value players in the electronics game.
Apparel and home furnishings have many style and quality ranges. Except for installation, branded electronics are fungible commodities. May the lowest price win.
I’m with Charlie & Trainer Bob.
If people want one-on-one advice and education about high ticket electronic products, they’ll go to Circuit City or Best Buy and pay extra for the service. Or thank them for the advice and go buy at Wal-Mart or Sam’s. (Costco also does a respectable business and provides about the same level of service)
A great many customers do their research online, then go for the best price, which can usually also be researched online, then to the stores for pick-up.
Wal-Mart does a good job of running on the 80/20 rule. Offering the top 20% of SKUs in a category that do 80% of the volume. And they put a lot of responsibility on the supplier to make the products as “plug & play” as possible, with simplified installation, easy, cook-book directions, 1-800 help lines, etc.
The complicated stuff they’ll leave to everyone else.
For gosh sake let’s all get behind Wal-Mart in the consumer electronics area. I believe that the competitive pressure they are putting on the category is cleaning up the “REBATE” as a marketing tool. The rebate has long held my disdain as the sleaziest form of product marketing. Manufactures actually choose fulfillment houses based on how many rebate requests they can find ways of disqualifying. Wal-Mart does not deal with manufacturer rebates as was pointed out in their recent humorous television advertisements.
It would seem that they have the clout with manufacturers to get the best deal for their customers. Also, Wal-Mart has a corporate goal to reduce the price to the consumer. Consumer electronics provides the perfect category to deliver this promise, as we all know that technology constantly provides more for less. The trick for Wal-Mart will be to find ways of capturing the early adopters of developing technologies. I would strongly suggest to Wal-Mart that they find a way to get an Apple boutique into every Wal-Mart in the USA in the next two years. As Apple’s only alliance is AT&T, there may be room for another retailer–especially one that can deliver new exposure for previous generation equipment.
Points made here about segmenting the consumer electronics market are extremely apt. Wal-Mart is not and cannot (in my opinion) meet the needs of consumers shopping for emerging technology. Emerging technology requires trained associates and an educated sale process, in which price is not the dominant lever to motivate purchase.
However, a vast array of consumer electronics products have already gone through the emerging technology phase and represent mature or at least moderately understood products. Combine this with the explosion of information and ease of access to it on the Web, and the predominance of consumer electronics falls into the “Wal-Mart Zone.” This “Zone” is defined by products where the underlying technology is well understood, non-proprietary, and almost impossible to differentiate. Flat panel TVs made by Vizio are almost impossible to differentiate from flat panel TVs from Panasonic or LG (comparable size and technology).
Wal-Mart can and will continue to grow sizable portions of every segment within the consumer electronics arena as each segment matures. Further, as these segments mature, they enter into the Wal-Mart consumer’s aspirational model, creating ever greater brand equity for Wal-Mart. Consumer electronics, particularly in perceived high-end segments, serves WM extraordinarily well. WM’s brand equity is derived from making a lifestyle possible which had previously only been aspirational. Flat panel TVs have been out of the question for the WM customer. No more.
What is left for Best Buy and Circuit City are emerging technologies, proprietary builds, and continued price pressure.
Consumer electronics, like other categories, has become a commodity. As such, price is an overriding factor in purchasing.
However, I would agree with those who say that Wal-Mart has to get the consumer piece right. I did a little experiment last weekend. I went into a Wal-Mart store in suburban New York, walked into the electronics department and asked one of the associates for some help. When he was finished talking on his cell phone, I asked him what the difference was between LCD and plasma TVs. He didn’t know and said he’d get someone. He never did. For those of you who think I’m picking on Wal-Mart, I did the same at Target. They were more attentive but just as helpless.
Whether people have done their homework on high ticket electronics or not, they want the comfort of having a sales associate that has.
If we were to break down the electronics department into categories where experienced and knowledgeable sales help is required it might look like this;
Knowledgeable staff required:
> Computers and Computer Accessories
Knowledgeable staff not required: > Nearly everything else
Most people today have friends and family who can make up for their lack of knowledge and who can assist in the set up of networks, handle installations and so on.
Many, if not the majority, of consumers use the core functions of their electronic products and pay little attention to the more technical accessories and functionalities that the product can provide. Operating at this level requires little more than a well written “getting started” summary.
Wal-Mart should continue to prove to be a formidable foe in consumer electronics where price is king. Fashion is fickle, and like technology, changes quickly. The difference between the two is that Wal-Mart doesn’t have to design their technology offerings, there is plenty of money to be made in developing and maturing businesses such as flat screen and LCD businesses.
Additionally many companies have come to realize that they need Wal-Mart’s distribution network (DELL for example) to differentiate their product offerings to take advantage of the marketplace more fully. They won’t be the last.
While Wal-Mart may be the low price leader, many may go to Best Buy, Circuit City or Ultimate Electronics to get the education, then turn to Wal-Mart to make the purchase.
Best Buy (et al) needs to compete on service and selection and not price. Wal-Mart doesn’t offer delivery or setup service.
I tend to shop at Best Buy when I need education in order to purchase the product that best fits my need.
In certain area’s, such as LCD TVs, I will conduct my research online and gain as much information as possible. It then usually comes down to a price versus functionality decision for me. If the retailer (in this case Wal-Mart) sells a brand that I have researched and has scored well, I will then make the purchase based on price.
The decision will come down to price point versus customer satisfaction. In many other categories once dominated by price point, we have seen a loyalty battle based on differentiation, such as customer experience.
This will continue to be a trend, so each category in consumer electronics may come down to a battle, but I’m still uncertain who will win the war.
So often, by so many people, electronics are shopped by price. Shoppers get their questions answered by their friends, the internet, or well-informed salespeople. Then the shoppers go to the source with the lowest price. Wal-Mart’s low overhead gives it an advantage over the electronics specialty stores, but it’s disadvantaged compared to the lowest overhead internet sites. And certain brands will avoid shipping Wal-Mart because they don’t want to lose their distribution elsewhere.
I would have to agree with Mark. When I research and buy new computers (which is probably more often than my wife would like), I do A LOT of research before buying. What are the best features? What is the best price? What does it come with? If Wal-Mart can figure out how to get the same product to me cheaper, I have to admit: I am likely to bite.
The only thing I would add, however, is that I just don’t see myself at that point in the near future. I can’t see making that sort of investment from a retailer (even Wal-Mart) that is not known for selling such big-ticket items on a regular basis. When I go in, I want the sales folks to know what they are talking about when it comes to the features lingo and etc.) Best Buy is there. CompUSA is there. We just aren’t there yet with Wal-Mart, and I remain a skeptic.
Does it really matter? Wal-Mart will not follow through on a very key factor in selling home electronics…that being very, very knowledgeable sales associates, and department personnel being available continuously.
Wal-Mart tries many new categories, but still doesn’t ‘get it’; the need for engaging the consumer…knowledgeable, available sales associates to serve them.
Wal-Mart should become a noted self-service retailer…that isn’t spending money on labor or service! Anyone disagree with this? Hmmmmmmmm
MAD MARKETING…retailers who know better, but do nothing about it.