Wal-Mart Escalates the Price War

The retail giant is testing a new pricing tool that should have its competitors concerned.

Mar 25, 2014 at 12:39PM

Lots of companies offer to match competitors' pricing, but a new online tool from Wal-Mart (NYSE:WMT) takes price matching a step further. 

The discount retailer -- which has long used low prices as a cornerstone of its marketing strategy -- has launched a website that compares its prices on 80,000 food and household products with those of its competitors. If a lower price is found elsewhere, Wal-Mart will refund the difference to shoppers in store credit, the Associated Press reported.

The difference between the Wal-Mart price-matching plan and those offered by other retailers is that Wal-Mart does the work for its customers. Instead of forcing people to search through ads looking for the lowest price, Wal-Mart's system -- dubbed the Savings Catcher -- compares prices and delivers store credit on any differences. Customers just visit the Savings Catcher website and enter their receipt number and date.

What prices is Wal-Mart matching?

The service does not match all prices -- Amazon (NASDAQ:AMZN) and other online-only retailers are not included. Wal-Mart detailed exactly what deals it will match in the FAQ section of the Savings Catcher website.

"Savings Catcher compares eligible items on your receipt to items found in the print and digital weekly ads of top retailers in your area. The ads need to be valid at the time you made your Wal-Mart purchase and the advertisement needs to include a specific price." There are exceptions that Wal-Mart won't match including "going out of business or closeout prices," but the Savings Catcher is deeply extensive and should give the company a competitive advantage.

Technically due to the exceptions, Wal-Mart customers won't always be paying the lowest price. But under normal circumstances -- in markets where the service is offered -- price-driven customers should go to Wal-Mart for the best prices on deals any store is advertising. 

Where is Wal-Mart offering Savings Catcher?
Currently the company is only offering the service in seven markets, including Atlanta, Charlotte, and Dallas. Savings Catcher is only valid for in-store purchases. The company details exactly which stores it's comparing prices with on the Savings Catcher website and the list is extensive. Companies listed include everything from grocers like Kroger (NYSE:KR) and Publix to department stores including Target (NYSE:TGT), and Kmart. Even dollar stores are on the list so Wal-Mart seems serious about matching any advertised prices.
 
The company has not said when or if it plans to roll the Savings Catcher service out nationally.

Could consumers reject Savings Catcher?

In 2011 Amazon launched Price Check, an app that let people scan bar codes in whatever store they happened to be shopping in and compare the item's in-store price to Amazon's. At the time there was an outcry over the app claiming that it gave the giant online retailer an unfair advantage over its competitors big and small. Amazon even offered $5 off (up to $15) if customers used the app and ultimately purchased the item.

You would have thought Price Check would have been a huge boon for Amazon, but the public never really took to the idea. The app is still offered for iPhone and Android phones  but the added $5 price incentive is not. Price Check -- which seemed like it could be a game changer when it launched -- did bring a lot of attention to the concept that brick and mortar stores were being used by customers as showrooms for Amazon. That led to companies like Best Buy (NYSE:BBY) creating their own price-matching offers.

The bad taste left by Price Check also appeared to garner Amazon negative attention that highlighted how unfair it was that the company was not required to make most customers pay sales tax. That policy is slowly being reversed across the country and Amazon customers in 20 states now pay sales tax. 

Though people thinking it was unfair may have hurt Price Check, its biggest downfall -- and this could plague Savings Catcher as well -- is that customer still has to take action to get the discount. Not everyone uses coupons and not everyone will go to the trouble of loading their receipt into a website. Ultimately how successful Savings Catcher is will depend on people's willingness to put in the effort required to claim their savings. 

Should other retailers be scared?

Wal-Mart has already won the pricing battle. It might not always have the lowest price on an individual item, but its willingness to offer a tool like this shows it's not concerned about whether it makes every nickel it can as long as it drives customers (and hurts competitors). The Savings Catcher even makes it tempting for customers who want to save money but prefer Wal-Mart competitors like Target to give the discounter a try.  

"The move by Wal-Mart, which has a long history of undercutting competitors, could not only change the way people shop, but also how other retailers price their merchandise," Anne D'Innocenzio of the Associated Press wrote. "After all, Americans already increasingly are searching for the lowest prices on their tablets and smartphones while in checkout aisles."

If Wal-Mart makes Savings Catcher available nationally then its competitors -- specifically the ones that market based on price -- will have to change strategies. Who would shop at a limited selection supermarket like Aldi or a dollar store because they saw a low price advertised if they know Wal-Mart will match that deal and offer a full selection? If this service catches on competitors will have to stop advertising based on price or risk having Wal-Mart poach its customers. 

Savings Catcher is a game-changer in the discount industry if people are willing to use it (which is a big if). A negative reaction like Amazon got seems unlikely because as much as Wal-Mart is the biggest player in the game, which gives it all sorts of advantages, none of these advantages seem like cheating.

If competitors want to compete based on price, they will have to offer a similarly easy-to-use tool. And while it's another case of Wal-Mart flexing muscles most of its competitors don't have, this move should force prices lower and end some of the mysterious price disparity that makes deciding where to shop difficult.

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Daniel Kline has no position in any stocks mentioned. He generally does not shop at Wal-Mart. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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