To avoid these types of problems some sellers are taking precautions to protect their brand and to keep prices from slipping. Companies like Dannon and Levi’s are good examples of this. Although Dannon yogurt and other goods are sold at Walmart, their prices are essentially the same as other retailers and supermarkets. However, Dannon created a generic brand of their yogurt (Great Value) specifically for Walmart to sell at a discount. They are the exact same products, the only difference is packaging. The reasoning behind this for Dannon to keep their prices and brand quality up; on the other hand, Walmart buys the same amount of yogurt but averaged down through a generic discount. Levi started to use a color tag to differentiate its products …show more content…
Walmart uses their huge buying power to drive prices down. At a cursory glance, one may conclude that consistently lower prices create a great, yet short-lived, consumer benefit. In order for a company to continue to have their product sold through Walmart, they must continue to cut their own costs in production. For a company to still make a profit, costs can only be cut to a certain point where quality doesn’t begin to suffer as a result. In this case, a false consumer surplus would be created with no lasting value. Cheaper products will be short lived and have a high turnover rate, essentially negating the perceived value of the …show more content…
Recently Walmart released a statement in regards to greater losses than anticipated; a 12% profit loss due to across the board wage increases and decline in sales. In an analysis done by Reuters through interviews with suppliers and consultants showed that the company is putting a greater squeeze on costs. During a recent meeting between Walmart and their vendors in regards to the loss, vendors were not allowed to ask questions, only to listen to what was expected of them. “There might be unpleasant conversations…We want [our suppliers] to be along with us for the ride as we continue to grow.” Says Sams Club/Walmart Spokesman Bill Durling. It would be understandable for open discussions to take place in a situation where there was a downturn in the economy as a whole to discuss cost savings for everyone. However, it is evident that Walmart expects their suppliers to pick up their slack. A key aspect of Walmart’s profitability is its ability to resign vendors and suppliers to new purchase/price terms. When Walmart pushes their suppliers too far, they might not be willing to accept the terms Walmart offers. A continuous push to drive prices down may turn more and more suppliers away or negotiate better terms, by doing so making margins tighter and