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How to Get Wal-Mart on Your Side When You Buy a New Home Computer: A Strategy That Can Protect You

Gary North
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The #1 goal of Wal-Mart is repeat business. It's unique selling proposition is this: "low prices and an enormous selection." Wal-Mart makes money on volume. This retailing saves buyers money and time if they buy a lot of items per trip. That's why Wal-Mart has opened its 24-hour SuperCenter stores: larger selection and more time for shopping. Once you go in, you buy lots of things.

Marketing guru Jay Abraham emphasizes the lifetime value of a customer: the overall profit on repeat sales. The lifetime value of a Wal-Mart customer is enormous. It may actually last the customer's entire lifetime. Even if he moves to a new town, he probably will remain a lifetime customer.

Wal-Mart concentrates on retail selling. With 50,000+ products on its shelves, the company cannot possibly do repairs. Therefore, it takes another approach. It offers an absolute money-back guarantee. Sam Walton's personal rule was this: "Your money back, no matter what." He sold other companies' products. He manufactured nothing under an in-house brand. He bought a fleet of trucks, but no brands.

Does Wal-Mart lose money on making a refund? A little. There is some loss of time for a store's product-return personnel. But the time lost is Wal-Mart's, not the buyer's. The buyer can get a replacement product or his refund immediately. For most people, that's good enough. Then Wal-Mart turns around and ships the defective item back to the manufacturer. The manufacturer eats most of the loss, as it should be.

Is he willing to sell to Wal-Mart on this basis? Of course. The volume of sales makes his business big. This gets manufacturers strongly behind quality improvement for their own products. If there are too many requests by buyers for their money back, the company may lose the Wal-Mart account. Wal-Mart will drop any company that cannot manufacture reliable products.

The strategy of the manufacturer is price competition: the traditional free market strategy. Price competition gets products to the masses, who can now afford to buy. Does this process dilute quality? On the contrary, this raises quality. Wal-Mart sells through price competition as the middleman of the manufacturers. But its policy of the money-back guarantee puts pressure on the manufacturer to raise reliability.

The fact that Wal-Mart serves as a middleman is what makes the product-delivery system work. Wal-Mart is constantly pressuring manufacturers to lower prices and raise reliability. The lure of enormous volume of sales forces sellers to comply.

Does volume work? Yes. I live about 40 minutes from Wal-Mart's national headquarters. There is a steady, non-bubble boom in the Bentonville residential real estate market. Manufacturers are sending their top salesmen to the little town so that they can deal face-to-face with Wal-Mart executives. The number of $500,000 homes being built is amazing. These sales people are doing very well.

A manufacturer has no face-to-face relationship with the final consumer. But he has one with the buyer from Wal-Mart. Is the seller worried about just one buyer? It depends on who the buyer is. If it's some person who buys one product, the seller can live without his lifetime value. If the buyer is Wal-Mart, acting as the economic agent of an army of buyers, the manufacturer sincerely worries about that buyer. He has gone into debt to expand production to sell to Wal-Mart. If he loses the Wal-Mart account, he's dead in the water.

The strategy for the manufacturer is therefore to sell products that don't get returned. This means that the free market puts pressure downward on retail prices, and it puts upward pressure on quality. That's what the consumer wants! The middleman -- Wal-Mart -- puts on the pressure both ways.

Can you imagine the CEO of a company who is told by his Vice President that the purchasing agent for Wal-Mart is on the phone? Let me tell you, he doesn't transfer the call to India.

I received a letter from a person who had bought eyeglasses at a local Wal-Mart, and who found that the anti-scratching warranty was for 60 days, not one year. The glasses got scratched after two months. I told the person to photocopy the guarantee, which specified this 60-day limit, and send it to Wal-Mart headquarters in Bentonville, Arkansas. Wal-Mart wants repeat buyers. The reason why the stores rent space to opticians and others is to get you into the store for a couple of hours. It's good business. Wal-Mart is not making money on the glasses. It makes it on the rental space and the time that the customers spend in the store. Wal-Mart can rent space to someone else. A lot of businesses like the idea of being at the front of a Wal-Mart store. There is a lot of traffic and no advertising costs.

One retail buyer could not get that optician to change his guarantee. Wal-Mart's national manager can, I guarantee you. It would not hurt the customer to mail a photocopy of his letter to national Wal-Mart to the local store's manager. That will catch his attention.

Wal-Mart is large and somewhat impersonal. That's why there is a greeter at the front door. That person personalizes the overall system. The person has no authority, but he has presence. He can tell you which department is where. That reduces shopping time and increases buying time.

Not every kind of product can be sold this way, but a lot of them can.

What about computers?

WE NEED A MIDDLEMAN

When someone buys from one company that sells its own brand, he is at a disadvantage. The profit generated by his lone purchase is minimal. How many computers will one person buy in a lifetime? Most people will buy one every three years. A business may buy more, but unless it is a big business, the sales won't amount to much. A computer company therefore will write scripts for its people, which basically end, "I'm sorry. Go to India."

I received the following letter. There is the possibility that it's a hoax, but it doesn't sound like one.

I experienced Dell's technical service over the last year. My Inspiron 3500 laptop developed a skip in the audio of the driver. Any time I played an audio file, it would have skips that sounded like quickly hitting the pause button on a CD player. I spent many, many hours on the phone with tech weenies, some of which were Indian, and had such thick accents that I had great difficulty understanding them. Once, I had to hang up and call back again to get an Anglo because I could not understand the Indian at all. Most of the early hours were spent on software issues, which I knew was not the problem. The laptop was under warranty, so all of the repairs that they authorized cost me nothing. Unfortunately, none of the repairs fixed the problem. They replaced the driver, the sound card, the CDROM Drive, and even the motherboard. The final thing that they wanted to replace was the hard drive, but I did not want to lose all my data on my existing hard drive. The warranty expired before the problem, which is still with me.

The cost of the tech support ate up the profit in the computer. There comes a time when a wise company takes the Walton solution: "We'll replace it or else give you back your money." But apparently Dell won't.

If Dell offered a no-questions-asked a money-back guarantee, it would go bankrupt. Computers get obsolete in months. As the seller of an in-house product, Dell or Gateway do not dare to offer an easy-to-execute money-back guarantee.

Why does Wal-Mart avoid all this hassle? Because Wal-Mart passes the broken unit back to the manufacturer. It's no hassle for the buyer, and it's not much hassle for the local Wal-Mart. It's a big, fat loss for the manufacturer.

The middleman has enormous clout with the manufacturer. You and I don't.

After I wrote this report, I had dinner with a friend who buys computers for the engineering department at the University of Arkansas. He mentioned a company he uses to buy lots of parts, computers, and stuff. It's called CDW.

http://www.cdw.com

It's basically an on-line Wal-Mart for computers. They offer a money-back guarantee. And they have phones with real, live people at the other end.

It's Wal-Mart's strategy. The company sells other companies' products. They sell top-of-the line products at a good price. They even have a local sales representative for the University of Arkansas. His job is to sell, even with thin price spreads.

CDW can safely offer a money-back guarantee because the company knows that the time involved to the buyer to transfer data to a third-party storage system and then re-configure the replacement isn't worth the time and trouble just to save a few dollars. CDW knows that time is the precious resource for a professional user. CDW has decided to save the unsatisfied buyer time. CDW will send the defective unit back to the manufacturer: no muss, little fuss. The blue screen of death kills the manufacturer, not the buyer.

My friend had mentioned this company to me before, but like so much information in life, I regarded it as noise. I was not alert to the opportunity. But the blue screen of death had made me far more alert on such issues. Then I remembered that the man who designed my web site, www.freebooks.com, had also recommended CDW. I had forgotten. I paid for my lapse of memory. Maybe you will benefit.

Here is the great service of the middleman. As the economic agent of lots of consumers, he holds the hammer over any manufacturer. He is willing to use that hammer because he can always buy a different, competing product from somebody else.

Competition works for the benefit of the final consumer. This is the greatness of the free market.

TIME IS MONEY

If you're in business, your time isn't worth fooling around on the phone, trying to follow directions from someone who isn't there to see what's going on. Phone lines to India may be cheap, but dealing with a technician isn't. Our job as buyers is not to save the manufacturer money. Our job is to get what we have been promised.

Rule: read the guarantee. It may not help with the guy in India, but at least you know what you haven't been promised.

Some of my correspondents suggested that I buy from a local, home-brew manufacturer. But there is an inescapable problem: your lifetime value to him is affected by the cost of fixing your computer. He may prefer to lose you. He will resist replacing his error. He loses too much on that single transaction. Before you write the check, you must make it clear to the seller that you are buying service above all.

The other approach is to buy from a middleman who offers many brands. He can afford to give you the replacement machine. He doesn't get stuck with the loss. He sends it back to the manufacturer, who takes the loss (as he should).

When you buy from a middleman, you buy his clout. You also buy time. You let him argue with the manufacturer.

In either case, we don't deal with Indians. We don't deal over the phone with people with a script.

We want up-time. We want to avoid down-time. There is very little down time with a money-back guarantee. If the unit crashes, we return it by UPS -- FedEx if we're in a rush. We also deal with a seller who will not suffer most of the loss: a middleman. He wants what we want: to save time. He holds a large enough hammer to achieve this.

There is another factor: he can see if one manufacturer's product line is more or less reliable. He is dealing with lots of clients. He can see patterns developing. A single buyer can't. He uses a middleman to act as his screening agent for information on reliability.

A businessman wants reliability above all. That's why Dell is hurting: its old unique selling proposition -- low prices for small businesses -- no longer works the way it used to. The product line is just too cheap.

It's worth paying more to secure local repair. It's a matter of saving time. It's also a matter of frustration. Forget your warranty. Pay a specialist to deal with the frustration factor. You pay when it's fixed.

My gripe with Dell isn't that the computer didn't work. The blue screen of death is a universal threat. My gripe is that Dell has lost its original commitment to its core USP -- unique selling proposition.

Maybe Gateway is as bad or worse. Some people don't like Gateway. It's like Ford Truck people and Chevy Truck people. There are different commitments.

From now on, I will deal with a middleman. I want to hire someone with a large hammer to serve as my agent.

CONCLUSION

Is Wal-Mart for everyone? No. It are for people who know what they want to buy. They only need to know which aisle the product is on. You don't get much help at Wal-Mart for comparisons. You don't get counsel. You get low price and a money-back guarantee. If you have done your homework and you know what you want, Wal-Mart is for you.

Wal-Mart and other mass retailers lower selling costs for those buyers who have invested in gaining knowledge. If you have already paid for information, a mass-market retailer enables you to capitalize on your information.

Some people don't know what they want. For them, there are product-delivery systems that are commission- heavy. They rely on salesmen who motivate people to buy high-commission products. This is the price of a lack of knowledge. There are no free lunches.

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