Richard A. Lindsey, CPA Lindsey & Waldo, LLC – Certified Public Accountants
  • Why Struggle With the Walmart® Effect?

    Mar 4

    Many years ago, Folgers® coffee scored big with a series of ads taking the viewer inside various gourmet restaurants while an announcer whispered “we’re here at such-and-such snooty restaurant, where we’ve secretly replaced the fine coffee they usually serve with Folgers® crystals. Let’s see if anyone can tell the difference.” And they interviewed diners, who expressed shock, and I’m sure no small amount of embarrassment, when they discovered how much they liked the cheap Folgers® Instant instead of the “gourmet” brand they expected. (This was way before Starbucks® elevated our palates and made us all coffee connoisseurs.)

    A few years ago, Walmart® shamelessly ripped off paid homage to Folgers® with their own ad promoting-believe it or not-Walmart® steaks. “We’re here at the famous Golden Ox Steakhouse in Kansas City, where we switched their steak, with Walmart’s choice premium steak…”

    Now, I can’t vouch for the quality of Walmart’s meats, but let me make two points about Walmart® steaks, with lessons for your own business.

    There is a placebo effect. Diners who gear up for a big night out at a fine steakhouse are primed for a great meal. They expect choice ingredients everywhere, and select service from a well-trained staff. And they’ll probably be pretty happy, even if the experience isn’t “objectively” all that great.

    This effect has been proven time and time again. Researchers at Stanford University used MRIs to study Caltech grad students’ brains as they swallowed five red wines priced at $5, $10, $35, $45, and $90 per bottle. They found that as the price of the wine rose, so did the activity in the subjects’ medial orbitofrontal cortices. (Apparently this is the part of the brain that experiences pleasure.) The “catch,” of course, is that the subjects didn’t drink five different wines-they drank three. The wine presented as costing $45 per bottle was really the one costing $5-and the wine presented as costing $90 per bottle really cost just $10.

    The placebo effect won’t work just anywhere. Diners have to really expect a great meal for it to work. Nobody who shows up at the squat-and-gobble all you can eat buffet expects a world-class steak. They are just happy they don’t see marks from where the jockey was hitting it.

    There is also a Walmart® effect. I understand Walmart® steaks are actually perfectly fine beef. They’re USDA “choice,” which is the same cut you find it mid-priced steakhouses like Outback® or Longhorn®. (The top 3% of beef, with the most marbling is graded “prime.” That’s the stuff you’ll find “dry-aged” at elite steakhouses, often drenched with butter, and sometimes served with a side of Lipitor®. The next 55%, with “slightly abundant marbling,” is graded “choice.” That’s the stuff you grill at home, and it’s really pretty good. Finally, there’s USDA “select,” which usually winds up ground into hamburgers.)

    The problem, of course, is that Walmart® has positioned itself as being the home of discount prices (cheap). And nobody associates “cheap” with “good.” Nobody expects good steaks at Walmart®. So how does Walmart® get around our prejudice?

    Well, here they resort to a classic “dramatic demonstration.” Showing happy diners enjoying Walmart® steaks is a lot like H&R Block® ads showing a stage full of happy clients stepping up to claim surprise refunds. It’s just like “Vince from ShamWow®” telling the camera guy to follow him as his miracle chamois soaks up a spill.

    The downside of this approach is that while Walmart® tells us their steaks are “surprisingly good,” at least some of us still focus on the “surprise” more than the “good.”

    To sum up: 1) the “placebo effect” actually lets us sell downscale stuff at an upscale price; however, 2) the “Walmart® effect” actually keeps us from selling upscale stuff in the downscale environment.

    Still skeptical? Ask yourself this-would you have nearly as hard a time believing steaks from Target® are good?

    The bottom line for your business is this: if you position yourself as a premium provider, clients may not even realize if you occasionally drop the ball. But, if you position yourself as a discounter-if you give yourself a reputation for being cheap-clients will have a hard time believing you’re good!

    You probably didn’t go into business to be the Walmart® of your profession. Let Walmart’s challenge in selling steaks remind you why you should position yourself as high up the food chain as you can!

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