Pricing in Marketing in 2003, Term Paper

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" Green stated loss leaders in particular have a drastic effect on those brands that are deeply discounted in the process. According to Green, when consumers see such deep discounts on specific toy items, there is an assumption that such toys are "fads," or popular only in the short-term. Particularly, if other retailers respond to such deep pricing gashes, as did many retail toy outlets in response to Wal-Mart in 2003, this image of a temporary toy fad is increased. According to Green, such actions can actually cause a toy to 'die,' or become less popular, resulting in less sales for the toy manufacturer (Hotten, 47).

However, such critics fail to note the less partisan view of Wal-Mart's actions, which note the place of such actions in the global capitalist economy (Lohr, C5). As Robert B. Reich, former labor secretary, noted, Wal-Mart's actions and dealings in business represent the true end point to the current economy, that of the best deal for consumers (Lohr, C5). In the age of computer technology, online shopping, international shipping, and low cost imports, such deep discounting is vital to the success of Wal-Mart's main marketing tactic, that of low prices for consumers. Without the ability to participate in such standard retail pricing tactics, Wal-Mart could fail to compete with the global marketplace (Lohr, C6).

In addition, critics fail to admit the clearest reason retailers such as Wal-Mart continue to survive, while high-end toy retailers continue to fall: their variety and their adaptability. Retailers such as Toys R' Us, Dhruv Grewel, professor of marketing and retail at Babson College, notes, are highly concentrated in their offerings, making one-stop shopping difficult (Grant, B8). On the other hand, Wal-Mart, whose products range from toys to books to household goods to clothing, makes shopping simple for consumers looking to save time as well as money. This wide range of products allows Wal-Mart to use loss leaders with a higher reassurance that consumers will purchase additional items at regular prices, cutting their losses.

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Further, Wal-Mart has adapted to a new generation of toys. Anthony Gikas, a retail analyst, notes children are playing video games at younger ages, and are using computers far earlier (Grant, B8). Again, Wal-Mart, who carries a large selection of electronics, including desktop and laptop computers as well as all game consoles, can introduce loss leader prices on some of the more popular titles of the season, since their wide range of products ensures additional purchases by consumers.

By 2004, Wal-Mart was expected to soften the blow to other retailers by maintaining a much higher margin, and virtually eliminating the use of loss leaders for the 2004 holiday season (Grant, B8). While critics claim Wal-Mart's practices in 2003 to be predatory, or aimed at eliminating competition, supporters note Wal-Mart's 2004 tactics, as well as their after-holiday 2003 actions, do not show evidence of a price hike following competition removal that is typical of predatory corporations (Lohr, C5). Clearly, the 2003 holiday loss leaders were an effort by Wal-Mart to maintain competition in worldly market rather than an effort to drive others out of business.

There is no question that Wal-Mart's use of loss leaders during the 2003 holiday season was a direct hit to high-end toy retailers. But in a competitive, world market economy, such actions should be expected, rather than criticized. As a large retailer who has consistently offered low prices to consumers, the use of loss leaders is an effective way to increase traffic and overall margins, particularly when selection is vast and varied in content. High-end retail toy stores such as Toys R' Us, rather than bemoaning their losses in light of such tactics, should follow suit, and expand both their product line, as well as their overall company pricing strategy, to compete in today's global market......

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