Do Wal-Mart's pricing pressures offer lessons for contractors?
By
Nick Wakeman
Wal-Mart's competitors are making some progress in closing the price gap with the retail giant, and it's not too much of a stress to see parallels with government contractors.
There’s an interesting bit of analysis in the Washington Post today about Wal-Mart losing its low pricing edge to competitors like Target and Kroger.
As the Post’s Lydia Depillis explains, Wal-Mart has lived and thrived by the formula EDLC=EDLP, or Every Day Low Costs equal Every Day Low Prices.
They probably could swap in Higher Profits for the Lower Prices portion of the calculation as well.
The focus on cost and how it relates to pricing is something I think a lot of contractors have been getting more familiar with in the government market these days.
One executive recently told me: “You used to just gather your costs and add your fee and bill the government.” But it’s not that way anymore. Life is much more complicated.
Wal-Mart has earned a reputation – both positive and negative – of how it used its purchasing power to force suppliers to offer it lower prices. The government has definitely moved in this direction with initiatives such as strategic sourcing and enterprise software licenses.
According to the charts in the Post story, Wal-Mart still holds a pricing advantage, but in some cases, it is so small that the consumer might not feel the difference.
Depillis tells one story that really got me thinking about the parallels between Wal-Mart and the government market.
Kroger has been able to gain some ground on Wal-Mart by using analytics to determine when to discount certain items so that it pulls in the highest number of customers. It’s also using a high-tech restocking system to absorb some of the costs of lower prices.
Meanwhile, Wal-Mart has a labor-intensive process for restocking. It’s been trying to trim costs by cutting hours, resulting in some empty shelves, according to the Post story.
The big thing that came to mind for me was Kroger’s use of analytics and technology to close a competitive gap.
I know there is a limit to how far to push the parallels because the markets are so different, but I think it is always worth looking at industry leaders and their challengers.