Lowering prices and growing value

Creating value is all about giving shoppers, customers, guests and consumers the good experience that we are looking for over and over again.

When it’s done consistently – allowing for movement in currency, fashion, trends, dips and peaks – shoppers stay with you and the value of your brand grows. This is the same for retailers, as it is with manufacturers.

Interbrand is a well-respected brand valuation company that has been valuing brands since the early days of the practice of carrying the goodwill on balance sheets, in the mid-1980s. It started with Coca Cola and GE and then moved into the tech space and retailers.

Unsurprisingly, Interbrand’s annual report on the global value of retailer brands lists Walmart at the top, with Target and Home Depot following in second and third place. Even with Walmart’s decline in revenue to a mere AUD$141 billion, which is down 8% on last year, 180 million shoppers in the US alone, from 80% of the homes in the US, visit its stores.

If Walmart were a country and its revenue were gross domestic product (GDP), it would be the eighth largest country in the world by GDP, just above Sweden.

And what keeps this Goliath awake at night? The individual prices of the 15,000 items sold from its shelves. The price of peanut butter, milk, nappies and a loaf of bread matters to Walmart. Why? Because it matters to its 180 million shoppers. And if those shoppers think that Walmart’s prices aren’t the lowest and the best then they will shop somewhere else on their next visit.

In the words of Walmart CEO, Mike Duke: “Price leadership is critical to our success… This is what WalMart was built on.”

Walmart isn’t the only one suffering because shoppers think prices have gone up. Target’s sales in the US were down 9% to AUD$22 billion. In the minds of its shoppers Target too is suffering from ‘negative price perceptions’; a belief among its core shoppers that shelf prices in Target have risen more than other retailers.

And so to Australia… This week, the CEO of Coles was made to stand in front of our elected government officials and was told off for lightening the cost of our grocery baskets by AUD$800 million per year. Yep, for lowering the cost of living in Australia, he was berated.

Over the past year between Coles, Woolworths and ALDI, who haven’t raised the price of a chook in their stores in Australia since 2008, I would guess over AUD$2.2 billion of cost has been removed from our shopping baskets when shopping for staple food items.

That has allowed us to save more than we have ever saved, eat and drink just as much, and still have money left over for luxuries like wine, holidays, clothes and TVs which have also dropped in price.

So when you hear politicians and public servants in Canberra complaining about lowering the cost of living while raising taxes, just remember that their salaries and superannuation are index linked. Mine and yours aren’t, so low prices matter.