Wal Mart Pricing to Maximize Profits

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Touro University International
Steve Jones
Module 5 Case
MKT 501
Dr. Wollan

Your paper discussed the importance of pricing to a company's strategic position in the marketplace. The different considerations in the pricing strategies were also explored. You described good value pricing and the concept of loss leader as one of Wal-Mart's strategies.

Your case merits an A.

Dr. Weber Wal-Mart: Pricing to Maximize Profits

Wal-Mart has lured hundreds of thousands of shoppers into its stores through its discount prices and promotional campaigns. Its aggressive bid toward grabbing a lion's share of the $20 billion toy market threatens to force other well-known toy retailers, such as Toys-R-Us, out of business. Wal-Mart now stands as the
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The vendor anticipates that the typical consumer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor. Typically, a loss leader is placed at the back of a store requiring the consumer to walk past racks and racks of other displayed goods which have a higher profit margin. Additionally, a loss leader is normally a product that customers are willing to purchase; thus they are aware of the usual price and view the offered price as a bargain (Wikipedia, 2005). Wal-Mart effectively utilized loss leader pricing to generate profitability but it was not without its pitfalls. Wal-Mart's use of loss leader pricing on some of its toys generated two negative effects. First, drastically cutting the price of some items to lure in consumers defaced the notion of creating a value-based pricing system. This direction, now being realized by the company, negated them from extracting the true value of a product and thus the maximum dollars from consumers. While it provided them a short-term competitive advantage and they "recouped some of the margins from sales of other products in its massive selection", it did not maximize their profitability in selling these particular items which indeed held a higher value to consumers (Grant, 2004, p. 2). As a result, Wal-Mart now believes it did not

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