MKT slp 5

MKT slp 5

Pricing Strategy

In 2003, the Wall Street Journal reports that a survey conducted by Banc of America Securities found that Wal-Mart's prices of 15 popular toys were 12 percent lower than those of Toys "R" Us, the largest stand-alone toy retailer, and 8 percent lower than prices at discount retailer Target, the nation's No. 2 general retailer after Wal-Mart.

The Journal says that Toys "R" Us executives have acknowledged that the Wal-Mart price cutting has caught them somewhat by surprise and was among factors hurting its recently reported third-quarter results.

It is for the market share. Before 2003, Wal-Mart was No.2 toy retailer. After winning the toy price war in 2003, Wal-Mart became the No.1 toy retailer. On the day after Thanksgiving, Wal-Mart reported the largest single-day sales totals ever, $1.52 billion. Obviously the price strategy in the 2003 holiday season is Penetration pricing.

Penetration pricing is the pricing technique of setting a relatively low initial entry price, a price that is often lower than the eventual market price. The expectation is that the initial low price will secure market acceptance by breaking down existing brand loyalties. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than short- term profit maximization.

For instance, it is charging $29.74 for the Hot Wheels T-Wrecks Play Set, which has a wholesale price of $42, and $19.46 for the Sesame Street Hokey Pokey Elmo, whose wholesale price is $24. By employing an extremely competitive pricing strategy Wal-Mart became the largest toys and games retailer in 2003.

Integration to Marketing Mix

Wal-Mart's aggressive pricing policy, particularly in traditional toys and games put tremendous downward pressure on toy prices and gave a big hit on the other toy retailer. Because of the thread of Wal-Mart's lower price, Toys R Us, the national leading toy retailer would close 75 Toys "R" Us stores in the United States and convert 12 others into Babies "R" Us stores, eliminating about 3,000 jobs in 2003.

After the 2003 toy price war, in 2004 holiday season, Wal-Mart was expected to cut competitors some slack by not maintaining such cutting throat pricing as 2003. Why would Wal-Mart not continue the price war and beat the competitors to the end. "Wal-Mart felt they left money on the table by cutting prices deeper than they needed to in order to get the sale," says Sean McGowan, analyst at Harris Nesbitt.

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