Walmart

How did Walmart become the largest retailer in the world? There are two core principles responsible for the company’s success: low prices and broad selection.

Let’s start with price. Walmart’s pricing policy is famous in its own right. The company’s policy is called EDLP – Every Day Low Prices – and Walmart works hard to deliver on that promise.

But how do they manage to do so?

In a word, efficiency. Walmart is ruthless in taking every possible measure to cut its costs and lower its prices.

Here’s just one example: In the early 1990s, deodorant was packaged in cardboard boxes. Walmart saw this as an unnecessary cost, as the extra packaging took up precious shelf space and wasted fuel in transport, making shipping more costly. So Walmart asked deodorant suppliers to sell their products without boxes. And as a result, the retailer saved 5 cents on every deodorant sold!

Scale also plays an important role in Walmart’s commitment to low prices. Buying and selling higher volumes of goods allow the company to reduce prices.

This may seem counterintuitive, in that we typically assume that selling a product at a lower price leads to lower profits. But that’s not necessarily true, as Walmart knows well.

Let’s say you buy an item for 60 cents and sell it for $1, rather than $1.20. By pricing the item lower, you’ll sell three times as many items. So although you’re earning less per item, you earn more overall.

It’s also worth noting that there’s another advantage to scale. In Walmart’s case, the larger it becomes, the more bargaining power it has with suppliers. Walmart has such market clout that suppliers simply can’t afford not to place their products on the retailer’s shelves.

Thus, suppliers sell to Walmart at lower prices, which allows the retailer to pass on the savings to customers.