In a down economy with consumers pinching every penny, you would think that sales at a retailer synonymous with "cheap" would be up, not down. Yet sales at Walmart have been down for two years in a row. Actually, that's nine straight quarters of decline.
The only good news at Walmart is profits rose this quarter 5.7%, but that was mostly due to cost cutting and international growth.
The really bad news is that Walmart's core U.S. business, which accounts for 62% of sales, is in a seemingly irreversible slump with fewer consumers coming into stores. How can this be? And what can Walmart possibly do to reverse it?
The answer has nothing to do with better-looking clothes, smaller stores or launching a Facebook page. The answer is all about reinforcing and defending the Walmart brand in the mind.
So how does the world's largest retailer defend its position in the mind?
Advertising. Massive advertising that reminds consumers in a memorable way what the Walmart brand stands for. But here is where Walmart is making three classic mistakes.
1. Walmart isn't spending enough money on advertising.
Unless you spend enough to get above the noise level, money spent on advertising can be extremely wasteful. That's why mass-media advertising for a brand that isn't well known or doesn't have enough money to spend is ill advised. A brand like this is better off doing PR, social media and anything else it can think of.
For big brands, there is little PR potential, unless it is bad news or an earnings statement. Nobody covers burgers at McDonald's or how real Coca-Cola tastes or how exciting cellphone plans are. For big brands, most other tactics like social media, when taken by themselves, are too small in comparison to the size of the company and number of consumers.
The most effective way to protect a well-known brand with mass appeal is with mass advertising. If you can afford it, nothing is more powerful than mass advertising to protect and defend your position in the marketplace and in the mind. That's how leaders manage to stay leaders for long periods of time. By spending only a few percentage points of sales, they can dominate the media and outspend their competition. AT&T spends $2.9 billion on advertising. American Express, $2.2 billion. Walt Disney, $1.9 billion. Comcast, $1.8 billion. Toyota, $1.7 billion. Anheuser-Busch, $1.3 billion. McDonald's, $1.2 billion.
The leader has the ability to way outspend the competition. Look at McDonald's vs. Burger King. Most consumers think Burger King's burgers taste better, but it doesn't matter. McDonald's dominates the category by spending $1.29 billion on advertising. Burger King spends almost $400 million, which buys a lot of advertising. But since McDonald's outspends them three-fold, Burger King's message gets lost and the brand suffers.
Walmart spends $2.1 billion a year on advertising. But compared to other retailers, Walmart is underspending in relation to its sales. Walmart spends 0.8% compared to Target at 2.2% and Sears at 4.7%.
Walmart should be way outspending Target. If Walmart spent 2.2% of sales on advertising, that would be a $5.72 billion budget, which would be almost four times that of Target's and make Walmart the biggest U.S. advertiser.
That's what leaders do. And that's what keeps leaders more dominant, more profitable and faster-growing than their competition.
2. Walmart doesn't spend its advertising money in the right medium.
Out of a $2.1 billion budget, Walmart spends only $524 million on TV advertising. While Walmart is a top 10 overall advertiser, it doesn't make the list of the top 10 TV advertisers. AT&T spends $1.5 billion on TV alone.
Instead of TV, more than half of Walmart's budget is spent on unmeasured media, presumably newspaper inserts and shopper marketing.
Can you name the last time you saw a Walmart commercial? I watch a lot of TV and I can't. But I do remember lots of Target ads. And a ton of AT&T ads.
For most brands, TV is the place to avoid. But not for Walmart. The world's largest retailer needs to have a dominant presence on the world's largest advertising medium: TV.
3. Walmart doesn't use the right message.
What is a Walmart?
Most consumers would answer "low prices." Many people say cheap, but Walmart didn't build its brand on cheap stuff, it built it on selling brand names for the cheapest prices. Which is why the "Always low prices. Always" tagline did such a good job of reinforcing the brand position.
Why change a good thing? Marketing isn't about tinkering. It is about finding what works and sticking to that. Sure, some minor tweaks are needed over the decades but major change should be avoided.
So what did Walmart do? It scraped its logo for a wimpier-looking font and sunburst trademark. Then it changed its tagline to the unmemorable, undistinguished "Save money. Live better."
What makes Walmart a powerful brand is the guarantee inherent in the name that it has the lowest prices. Always.
So what is Walmart doing now? Advertising a "guarantee to match competitor's prices." Wait a minute, I thought the low-price guarantee was met by just walking in the door? Advertising that you will match prices is the same as admitting you might not always have the lowest price. Not a good direction for a brand like Walmart.
Sam Walton might be proud of the meager 0.8% of sales that his Walmart is spending on advertising. But today Walmart isn't a handful of stores in a couple of small towns. Walmart is the world's largest retailer and it need to start acting like one.