Who is the largest private employer in the U.S.? Wal-Mart. At annual sales revenue of $165 billion, the company commands 6 %of U.S. retail sales, excluding autos and boats. Its daily movement of goods is prodigious -474,000 pairs of shoes a day, 208,000 bras a day, 279,000 large boxes of diapers a day - and so on. In order to meet this requirement, the company depends on 65,000 suppliers throughout the world.

　　As this corporate behemoth advances to surpass the annual sales revenue of General Motors, a legion of adversaries try to block its path. Local retailers forewarn their demise, but consumers who want more selection and lower prices ignore them. Local governments object to loosing taxes as Wal-Marts develops its center a yard beyond the town line. Community activists rail at her degradation of the local environment and community traditions. But how can they succeed, when local people want a shopping bonanza? Labor unions attack her development, but they are powerless to mobilize Wal-Mart's non-union workers. Human rights advocates condemn the poor working conditions of foreign factories producing goods for Wal-Mart. But third world governments want these factories for employment and manufacturing development. The WSJ reports that suppliers complain that they are getting "squeezed and wrung and twisted", according to Paul Charron, CEO of Liz Claiborne, which produces the Russ clothing brand for Wal-Mart. But suppliers can ill afford to lose high volume contracts from Wal-Mart.

　　The only quarter that has not entered an objection is the anti-trust division of the Justice Department. But the charge of monopoly practice has slight support so long as Kmart, Ames, Target, Marshall, and a host of regional mass retailers play in this space. A case may be made when Wal-Mart reaches $500 billion, which is still less than a quarter of the total U.S. retail sales of $2.3 trillion. Until then, it can safely double its current revenue without restraint.

　　The adrenaline that keeps this giant moving is not just he power of its consumer marketing, but also its less apparent adherence to the discipline of business marketing. Wal-Mart's growth and profitability rests on a three principles. First, with respect to its own operations, Wal-Mart uses leading-edge information technology and logistics to relentlessly reduce its costs of operation. Second, it keeps a continuous pressure on its suppliers to reduce their costs - questioning labor costs, location of manufacturing, inventory control and management practice. It has forced its suppliers to re-engineer their own processes and show the same commitment to lowest cost operation that it practices on itself. Finally, the company insists that their suppliers fully understand Wal-Mart's own cost structure, in order to demonstrate and document how their supply will lower Wal-Mart's cost. Hal J. Upbin, CEO of the Kelwood Company, an apparel supplier says, "They are tough. They want the lowest prices and it requires a lot of creativity and ingenuity on our part to meet Wal-Mart's needs."

　　Business Marketing is different than consumer marketing, notwithstanding that Wal-Mart is a master of both disciplines. The essence of consumer marketing is to build brand equity so that consumers will pay a premium price for the greater perceived value of a branded product over its generic alternative. Perceived value is produced by brand strategies that endow the product with associations of status and quality that are important to targeted consumers. The personality of the product confers the self-image that consumer's desire. Branding is an emotional process, even though certain elements of the offerings may also have superior economic value to the consumer. But since superior economic value involves a higher cost to the producer, brand equity requires an emotional lift beyond economic value to capture high margins.

　　Business marketing is a different process. A supplier to a business is not dealing with a consumer's emotional needs, but with a purchasing agent. Unlike the emotional appeal of the consumer, the purchasing agent is motivated by how the supplier's offering lowers the buyer's cost. The buyer wants the highest margin he can get from his customer, which may be the consumer or another converter in the chain.

　　Many purchasing agents look only for the lowest price. Astute buyers look beyond price to all the elements of the offering - its technology, service aspects, systems, and social costs, to determine whether its offer lowers the buyer's total cost. An apparel offer to Wal-Mart may have a lower price than competitors, but if the color fades and many customers return the item, Wal-Mart service costs spiral and the lowest price increases total cost.

　　Business marketing is the discipline of engineering the lowest total costs to the buyer. Wal-Mart suppliers can defend their price if they demonstrate and document lowest total costs to the buyer. Business marketing will often clash with consumer marketing. When Rubbermaid insisted on a higher margin than Wal-Mart would accept, the retailer consigned Rubbermaid to the back shelves and promoted its lower price competitor Sterlite to the best shelves. Rubbermaid over-estimated its brand equity to Wal-Mart shoppers. Wal-Mart's pressure on consumer brands is so great that Philip Morris merged Kraft with Nabisco largely to leverage its brand equity against mass food retailers like Wal-Mart.

　　In its next phase of growth, Wal-Mart is likely to take business marketing one step further. It will extend the discipline of lowest total cost directly to the consumer. Wal-Mart will endeavor to change the paradigm of consumer behavior from emotional brand buying to purchasing total economic value. Gradually, Wal-Mart is replacing national brands with its own store brands and educating the consumer to calculate the lowest total cost of their purchases at Wal-Mart and Sam's Club. It is providing lower household total costs to consumers. Sometimes its prices are higher, but this is offset by savings in convenience, shopping assistance, time spent in the store, information prior to purchase, and other elements of total household cost. The final vision of Wal-Mart is to reach its next milestone of total retail sales by turning the consumer into a family purchasing agent and bring the discipline of business marketing not only to the supplier, but to the consumer as well.

　　Strategy Builders:

　　1. How does one of your consumer products/services impact on the consumer's household costs?

　　Examples:

　　a. A potato chip that isn't broken and isn't greasy -- Pringles

　　b. A flouride toothpaste that reduces cavities -- Original Crest

　　2. What are the elements of cost that a consumer experiences, and which could he/she be made aware of? Examples:

　　a. Chips that are useless for dipping; greasy chips make your clothes dirty and greasy; chips arrive to picnics or parties broken

　　b. Frequent trips to the dentist

　　3. What are the implications for the positioning of this product? What is the price positioning you should be getting in exchange for your contribution to lowering the consumer's household costs?

　　Examples:

　　a. Pringles asks consumers to trade off some values in favor of reducing costs in some of the consumer's applications, like dipping, eating chips out-of-doors with friends, etc…

　　b. Crest offered an additional increment of value and used this to leverage more market share and a greater price