Wal-Mart Runs Smack Into Behavioral Economics

Interesting post from Brandchannel.com on the effect of SKU rationalization on consumer shopping habits. Or to put it in everyday terms: What happens when you remove options from people's lives.

The basic gist is that Wal-Mart, in an attempt to lower costs storewide, implemented a program of losing products that weren't selling well and providing economies of scale. Not a bad move from the world's biggest retailer, especially one who bases much of their process on suppliers taking initiative and actually providing the right amount of product at the right time. That shelf space if valuable, so if something ain't selling it ain't making Wal-Mart money.

So the Big Box started losing the losing products. And found that customers started to leave as well. Turns out people come to Wal-Mart for everything AND very specific things. And if those very specific things aren't to be found....well then what's stopping you from going somewhere else for everything.

To quote the brandchannel.com article:

Rather than buying a similar product or brand – but not the exact one customers had an attachment to – for $1 more at Wal-Mart, shoppers instead skipped shopping at Wal-Mart altogether and went to competitors that carried their favorite products. It turns out certain sizes and flavors for many food products are game-changing factors for shoppers, and that reality wasn't lost on Wal-Mart. According to Simon, “[We] lose an $80 basket or a $60 basket and not just the dollar for the one-pound brown rice.”

WM quickly pulled a Tropicana and has started to restock some of the items that led to brand attrition on its shelves again.

But the bigger question is: Why did customers leave in the first place?

Personally I think there are some interesting things to look at here. One is the concept of familiarity. In a world where everything is "new, improved, better, the ultimate!!!!!!" it's nice to know you can go to your "friendly, neighborhood store" (and yes, WM is that for some people) and get things you like. If they happen to be cheap, so much the better. And in this time of recession, little things like the brown rice you enjoy or the soft drink you care for in an 8oz can are the tiny luxuries that make life just a bit easier. To lose those means questioning the whole idea that your nice neighborhood store is that at all. 

Related to, but not exactly the same, is personal relationships. For some people I'm sure seeing something they look for everytime disappear overnight was a harsh reminder that this big box retail giant is just that: A huge corporation that doesn't care one iota about them as a consumer. In this age of personalization and instant communication, I think people stand for that less and less.

So, what could WM have done to turn this oops into an opp? One of the first things that comes to mind is use it as a chance to drive more online sales. For many of Wal-Mart's suppliers, the shelf is simply rented space as WM doesn't actually take ownership of the product until the moment of sale. This is, therefore, a perfect opportunity to keep that rent down by offering online only items and turning this streamlining plan into a chance to get more people more familiar with online shopping. Throw out free shipping on orders over $100 and create some examlple carts for a normal family of 4. Push convenience and regularity and let the in-store experience be a more spur of the moment, as-needed shopping time. As someone who regularly goes into Target (I'm from Minneapolis) I know that a pack of TP often turns into $150 of crazy.

At the end of the day I'm glad Wal-Mart had this happen to them. They are definitely one of the few companies who are analytics driven enough to take notice and make a positive change. And I'm sure they will figure out how to turn old product into new profit channels.

Pax vobiscum.