How to compete on price - and not lose your shirt

You could do worse than follow Wal-Mart, right?

Contrary to popular belief, Wal-Mart does not just simply follow an EDLP strategy; they also apply some marketing smarts. They carefully segment the market as follows:

Brand Aspirationals - People with low incomes who are fixated on brand names;

Price-Sensitive Affluents - Wealthier shoppers who love deals; and,

Value-Price Shoppers - Those with like low prices who can't afford much more.

So Wal-Mart now understands why people shop in their stores (not simply how they shop) and they have created super brand teams (Food, Entertainment, Apparel, Home Goods and Pharmacy) to manage their brand assortment.

The fact is, people will buy premium brands (with higher margins) in an EDLP environment simply because you can sell the idea that your price offer for the better brand is still the best deal around. Low price does not (have to) mean cheap and nasty. Low price does not have to mean the lowest price on anything.

Wal-Mart does not say, but they are using a very old psychological principle used to persuade people (the principle of contrast) by mixing premium brands with cheap brands and house brands. (But I don't mind letting you in on the secret.)