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