Introduction
The problem of the case concerns the situation in Walmart. The overall performance of the company seems to be disappointing in terms of sales, which urges its national sales director to become focused on holiday sales (Baye & Prince, 2021). For Walmart, holiday sales present a lucrative opportunity to raise revenue via increased consumer spending.
Yet, investors and reporters need a specific forecast for the period to be able to manage their financial resources mindfully and profitably. Hence, the goal of Walmart is to review available data to justify the claim about the profitability of the coming holiday sales.
The information under analysis includes statistics from Walmart’s metropolitan statistical areas (MSAs), which allowed the analytics department to design a formula for predicting holiday sales, average prices, and consumer confidence. The formula is as follows: “ln (HolidaySales) = 25.8 − 0.8 ln (Price) + 0.9 ln (Consumer Confidence)” (Baye & Prince, 2021, p. 74). There is a concern about “a decrease in consumer confidence of approximately 4 percent” as well (Baye & Prince, 2021, p. 74). This business report will investigate the evidence and its meaning for the holiday sales outcomes.
- Low consumer confidence signifies that customers expect prices to increase;
- Consumer confidence means lesser spending;
- If the prices at Walmart remain unchanged, consumers will try to reserve their money, making fewer sales;
- Revenue will also fall due to the supply surplus.
Discussion
First, the influence of a decrease in consumer confidence should be analyzed to determine whether the evidence supports the positiveness of holiday sales if prices stay unchanged. Consumer confidence is a leading indicator for companies and economists to determine how consumers feel about the present economic situation. When it pertains to significant purchases, it should provide a decent indicator of how a customer thinks and what their future spending intentions are.
Consumers are more positive and spend more when they are more optimistic about their financial status and the economy. There are multiple critical macroeconomic elements influencing household economic perspectives. For example, according to Malovaná et al. (2021), the mixture of rapid earnings growth and low borrowing costs can lead to overly optimistic expectations, eventually believing that the good days will endure forever.
Disposable cash, earnings, savings, wealth distribution, employment, and demographic patterns can impact consumers’ assessments of their economic position (Malovaná et al., 2021). However, the situation is the opposite in the case under discussion, and consumer confidence is lower than usual.
A downward trend month after month implies that consumers are pessimistic about their ability to find and keep decent employment. As a result, manufacturers may anticipate that consumers would avoid making consumers shop, particularly for large-ticket products that require financing. Manufacturers may cut inventory in order to save costs and postpone investments in new initiatives and equipment.
Banks might also expect a drop in loan business, home mortgages, and bank card use. A growing amount of consumer confidence shows that consumer purchasing habits are improving. Manufacturers can expand output and hire more workers. Banks might expect higher credit demand. Builders may brace themselves for an increase in house development, and the government can anticipate increased tax revenues as a result of increased consumer expenditure.
When consumer confidence is poor, the vast majority of individuals believe prices will rise. If consumer confidence falls for any reason, customers feel less comfortable about their financial future and begin to reduce their spending, and this impacts businesses as sales start to fall. Hence, in application to the case, lowering consumer confidence signifies that the customers of Walmart experience unwillingness to buy.
External factors might cause these feelings, or Walmart’s credibility is perceived as low, which is also a frequent cause of low spending (Sahin, 2021). Whatever the reason, the fact that consumers are not confident or even restrained from a financial activity means that Walmart’s holiday sales success is at risk.
Hence, the evidence does not support optimism for holiday sales if prices remain unchanged. One explanation for such a verdict might be that Walmart usually organizes discounts during the holiday season, which is expected by the customers (Chiu et al., 2021). However, the low consumer confidence supposes that at the particular moment of the case study events, buyers feel that Walmart will not lower the prices, leaving them high as usual.
Therefore, the lack of certainty regarding the financial prospects will result in a self-fulfilling prophecy if Walmart does not change its strategy. As Baye and Prince (2021) highlight, changes in customer expectations can significantly affect a product’s demand. Since the customers are unwilling to buy the goods at the current price and do not want to spend at all, it is highly unlikely that an unchanged price will meet the demand.
The other consequence of the strategy that implies not changing the prices is low revenue. As consumers’ expectations regarding the high costs will be fulfilled, they would wish to preserve their money. However, Walmart will already purchase the goods for further sale and take financial resources from investors to sustain the holiday season’s trade.
Since the positive expectations of Walmart would not correspond to the demand influenced by economic confidence, the quantity of the supplied goods would be excessive. According to Baye and Prince (2021), the excess supposes unsold inventory. Namely, Walmart’s non-durable goods provided for the holiday sale will spoil due to lower demand, although durable goods might be financially realized later. Yet, since immediate sales would not ensue, Walmart’s revenue would drop.
- Change in price can bolster revenues if Walmart decides to lower it while increasing price will not increase revenue.
- Lower prices result in higher demand under the condition that the quantity of supplies remains the same.
- Discounts are especially needed for non-durable and seasonal goods.
Generally, there was an increasing trend in the number of customers who believed that holidays were an ideal time to make a large purchase in Walmart. However, as was indicated earlier, this tendency has decreased somewhat recently (Baye & Prince, 2021). Hence, Walmart must take action to convince consumers to keep spending. It must ensure that its pricing and promotions maintain or raise demand levels, or its earnings will suffer.
The company might change its price, affecting the demand and overcoming the barrier of low consumer confidence. According to Chiu et al. (2021), Walmart is a lower-cost business, which means that it can drop its price and acquire enough consumers to compensate for lost income on existing sales.
The effect of lowering the price could be explained through the law of supply and demand. According to Baye and Prince (2021), “as the price of a good rises (falls) and all other things remain constant, the quantity demanded of the good falls (rises)” (p. 41). Hence, low prices will attract more customers, while the higher price will produce lesser demand. For example, if Walmart reduced the price (and profit per sale) by a cent, it would result in an increase of 1,000 units in demand.
This strategy would increase revenue by the percent of sales coming from additional 1000 units sold. As was mentioned earlier, this strategy is especially pertinent due to the fact that Walmart is a low-cost firm of scale. However, lowering the price may boost overall sales, but not enough to compensate for revenue lost on current sales.
Alternatively, the revenue can be impacted by the change in price through the law of supply. In Baye and Prince’s (2021) explanation, “as the price of a good rises (falls) and other things remain constant, the quantity supplied of the good rises (falls)” (p. 50). Hence, the costs of the producers of the goods sold in Walmart would remain the same, and suppliers will not want to sell more at lower prices, knowing that there is lesser demand.
Yet, In a competitive market, the cost of a product is affected by the interaction of quantity supplied and consumer expectations for the commodity. When there is a surplus, the price tends to reduce to the equal amount provided with the required quantity. Producers who are not able to distribute their items may request a lower price in order to minimize their unsold stockpiles. Yet, the supply should not exceed what Walmart initially estimated since increased quantity might lower the demand. Namely, consumers might feel relieved by the low prices and vast supply and relay spending as a result.
Conclusion
In conclusion, the mentioned strategies could be separated into two categories: supply and demand. In terms of supply, not changing the price might mean that all the goods are sold at a price requested by the marketer, yet some non-durable goods might not be sold due to consumers’ decision not to spend money. At the same time, this strategy undermines the demand in Walmart since customers are being ensured that the prices are high even during the holidays. As for changing the price, it affects the demand positively if lowered. However, such a price might cause the producers to sell lesser supply, thus affecting this category of the market law.
Therefore, Walmart should consider ensuring that people opt to buy rather than save. With low consumer confidence, pricing will need to be more appealing to get customers to spend. It will need to find strategies to remain pertinent and competitive in a market where customers are more interested in obtaining a good deal or having a remarkable shopping experience.
Walmart may need to provide a high-end product for a lower price to tempt consumers. How the company aims to entice customers will be critical as events such as Halloween in October need deliberated season approaches. To make these events successful, their offers and prices must be appropriately positioned compared to competition specials. It can be argued that to attract customers, Walmart should provide the lowest pricing and concentrate on generating large sales rather than a few. This strategy is more viable per supply and demand law, and a discount approach adds a degree of urgency to consumers’ purchase experience.
References
Baye, M., & Prince, J. (2021). Managerial economics & business strategy (10th ed.). McGraw Hill.
Chiu, Y. L., Hsu, Y. T., Mao, X., & Wang, J. N. (2021). An empirical study of holiday season discounts: A comparison between Third-Party marketplace sellers and fulfilled by Walmart sellers.SAGE Open, 11(2). Web.
Malovaná, S., Hodula, M., & Frait, J. (2021). What does really drive consumer confidence?Social Indicators Research, 155(3), 885–913. Web.
Sahin, S. (2021). Consumer confidence, consumption, and macroeconomic fluctuations: A systemic stock‐flow consistent model.Metroeconomica, 72(4), 868–904. Web.