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White paper · Diagnose · 21 min read
Sources: Staples, Bunzl and Fletcher Insulation case studies published on pricinginsight.com; the Bunzl customer retention figure is from the Pricing Periodic Table, CXO Edition, which reports it with the published EBIT result. All three are realised results as reported by Pricing Insight, not independently audited, and none is a benchmark for another business. Figures about Walmart in this paper are public reporting, not Pricing Insight results.
Walmart is a giant, literally. Like every other giant, Walmart relies on complete and utter dominance, even in a capitalist economy.
It’s a leading global retail company with an expansive network of stores and clubs in 24 countries, employing 2.3 million associates worldwide and serving over 200 million customers weekly.
The question this paper answers
When costs rise faster than revenue, how does a business with a low-price position find where margin is going before it decides whether to move price?
Key takeaways
- Walmart’s low-price strategy is supported by bulk purchasing, supplier relationships and an efficient supply chain.
- Everyday Low Prices trade smaller per-item margins for higher sales volumes.
- Walmart uses rollback pricing and discounts to attract shoppers and encourage purchases.
- The paper describes technology and data analytics as tools for managing inventory, understanding buying patterns and reducing costs.
- Rising operating costs and falling gross and net margins are putting pressure on Walmart.
This paper is commentary on public information about Walmart. The pressure it describes, a low-price position held while product and operating costs rise, is one Pricing Insight’s clients meet in wholesale, distribution and manufacturing. Four of them appear below in one six-part form: the problem and what it put at risk, why it was hard to fix, what Pricing Insight did, the outcome with its status, the benefit to the client, and the Pricing Periodic Table elements the work built. A foodservice packaging supplier found that a cost saving was carrying its margin; Staples was discounting more than its operating margin; Bunzl was losing margin as volume grew across 18,000 SKUs; Fletcher Insulation had no price structure for an increase to move.
01Walmart’s revenue has grown while its gross and net margins have fallen
At the end of 2022 Walmart’s revenues were $572.3 billion in sales in the United States.
Walmart’s gross margins were $143.7 billion representing a gross margin percentage of 24.8%. Walmart’s gross margins have stayed constant over the past 20 years at 25%, except for the most recent 12 months where gross margins have fallen to 24%.
Net margins have also fallen from an average of 3.5% to 2.39% and the most recent trailing twelve-month margins have fallen to a low of 1.49%. This is because of rising Selling, General and Administration costs that have escalated faster than revenue increases coupled with a decline in gross margins.
Walmart appears to be holding prices in the face of rising costs for both products and the cost of operations.
Walmart’s success is attributed to its well-crafted business strategy and pricing tactics that focus on providing customers with everyday low prices backed by their global scale and buying power.
| Measure | Long-run level | 2022 | Most recent 12 months |
|---|---|---|---|
| Gross margin | About 25% over 20 years | 24.8% (US$143.7bn) | 24% |
| Net margin | Average 3.5% | 2.39% | 1.49% |
| Cause given | Selling, general and administration costs rising faster than revenue, with a fall in gross margin | ||
Exhibit 1. Walmart’s margins as cited in the published paper. Public reporting on Walmart, not Pricing Insight analysis.
On a net margin of 1.49 per cent, a small change in price or cost decides most of the profit. A business in that position needs to know where margin is going, line by line and customer by customer, before it chooses between holding price, moving it and cutting cost.
02Walmart’s business strategy is to remain the lowest-cost provider across a wide range
What is Walmart’s business and pricing strategy?
Walmart, the world’s largest retailer, has established itself as a dominant player in the market through a strategic approach that prioritises customer value. The company offers its customers a wide range of services and products, including groceries, apparel and accessories, electronics, home appliances, furniture, home decor items, office supplies, and more.
The company’s core strategy is to remain the lowest-cost provider while providing a wide selection of goods. Through efficient supply chains, proprietary technology, and aggressive pricing tactics, Walmart has established a competitive advantage in the market.
Walmart employs proprietary technology to optimise its supply chain and manage inventory, ensuring that it can meet customer demand with minimal costs and shortages. Additionally, the company’s loyalty program plays a crucial role in the company’s strategy, offering discounts and rewards for frequent shoppers to keep customers coming back.
This approach also enables Walmart to better understand customer preferences and target products toward them to drive sales, providing a personalised shopping experience for its customers.
03Cost leadership, scale and technology hold Walmart’s cost per unit below its rivals’
What are Walmart’s core strategies?
Walmart has developed a range of strategies to ensure it is the leading global retailer, focusing on driving growth through low prices, using its size to drive efficiency, and investing in technology. The company’s core strategies include the following:
Cost leadership and low price leadership
Walmart’s core strategy is low-price leadership, which involves offering goods and services at lower prices than its competitors. In strategy terms it is a cost leadership strategy: Walmart runs buying, logistics and store operations at a lower cost per unit than its rivals, and passes part of that cost advantage to customers as everyday low prices. This has enabled Walmart to become the world’s largest retailer by selling many products at everyday low prices.
Low-price leadership is primarily achieved through Walmart’s extensive network of suppliers, which allows them to purchase merchandise in bulk at lower prices than competitors. Walmart’s efficient supply chain further enhances this strategy, ensuring fast delivery of goods from suppliers to stores, resulting in higher customer satisfaction and loyalty.
As such, the low-price leadership approach has enabled Walmart to offer customers value beyond price by making shopping more accessible and enjoyable.
Economies of scale
Walmart’s business strategy is built around the concept of economies of scale. The company uses its size to offer customers discounted prices by purchasing goods in bulk from suppliers, negotiating lower prices than what smaller competitors can offer, and spreading labour costs across multiple stores.
They also benefit from having a large customer base, enabling them to spread marketing and advertising costs across a broad base to minimise expenses. Through these tactics, Walmart can provide consumers with discounts without compromising quality or selection.
Walmart deploys employees across stores according to demand to maximise efficiency and optimise staffing levels. Ultimately, this strategy allows them to remain competitive while ensuring that customers always receive the best products at the lowest prices.
Advanced technology
Walmart is harnessing the power of advanced technology to support its business strategies and pricing tactics. Through data analytics and automated ordering systems, Walmart can identify customer preferences and buying patterns to customise product offerings for individual customers.
Using robotics also helps improve store organisation and increase product availability, contributing to higher overall efficiency.
By using these technologies, Walmart can reduce costs and remain competitive in an increasingly digital marketplace while still offering low prices.
This investment in advanced technology has proven beneficial for the company and its customers.
When buy prices and operating costs rise for everyone, a business that has passed its cost advantage on as lower prices has less room, and a gross margin that holds up can be a cost saving doing the work that price should be doing. A foodservice packaging supplier found exactly that.
A foodservice packaging supplier
Cups, lids and takeaway packaging · A$2m EBIT from quick wins · Realised
| Client and problem | Gross margin rose by more than A$11 million in one year and management took it as proof that pricing was working. On the same customers and products, unit cost had fallen about 8 per cent while unit price had risen only about 1 per cent; the cost saving was worth about A$12 million, and without it margin would have fallen. |
| Challenge | The founder had set prices for many years, and when the founder stepped back the authority to set price was never handed to anyone. Prices below the guide were approved by whoever was asked, often with no record, and a staff member put the margin result down to the cost saving and exchange rates: “hence why you’re seeing margin rocket”. |
| What Pricing Insight did | A pricing diagnostic and quick wins, then a national price list architecture, a customised discount matrix, a mandated pricing team, key account management tools, AI value selling and Pricing University. Customers were rated on five factors of pricing power, switching cost, price awareness, relationship depth, growth and profitability, and placed in four tiers, each taking a different share of a price increase; the tiers were recommended. |
| Outcome | A$2m of EBIT realised from pricing quick wins, as published, with a further A$6m to A$9m of margin opportunities identified. The A$6m to A$9m is identified, not realised. |
| Benefit to the client | Price now carries part of the margin result that a cost saving had been carrying, so the business is less exposed when input costs or exchange rates turn, and one team owns the price decisions the founder used to make. |
| Periodic Table elements built | 56 Bc Buy-price and cost management; 48 Kp Price realisation KPIs; 10 Pp Pricing power; 26 Pf Pricing function mandate. |
04Four pricing tactics sit on top of the cost base, and each one gives margin away by design
What pricing tactics does Walmart use?
To remain competitive, you must develop a pricing strategy tailored to the market. Walmart’s approach is a prime example of this principle: the company has implemented a sophisticated pricing strategy that enables it to offer low prices on sought-after products. Some of the key tactics used by the company include:
Everyday Low Prices (EDLP)
Walmart’s Everyday Low Prices (EDLP) strategy has been a pioneering way of doing business. This model relies on the idea that customers prefer to purchase items at low prices rather than waiting for special offers or sales.
To achieve this, Walmart opts for smaller margins per item, trading them off in exchange for higher overall profit margins derived from increased sales volumes. This strategy has enabled Walmart to become a leading retailer worldwide and gain a competitive edge over other retailers still relying on traditional pricing models.
By introducing EDLP, Walmart has demonstrated the value of innovation in business success.
Rollback pricing
Walmart uses rollback pricing, a tactic that sees the retailer offer temporary discounts on select items over peak seasons such as back-to-school and the holidays. This is an effective way to drive customers into their stores and online, as it offers them substantial savings that they may need help to get elsewhere.
It also creates a sense of urgency in customers, who may feel under pressure to capitalise on the offer before it expires. Such a strategy can be especially effective in attracting new customers while encouraging existing ones to return and make impulse purchases.
Walmart’s price matching policy (in-store + online)
Walmart’s Price Matching Policy has established the company as a competitively priced retailer. By refusing to match competitors’ prices, Walmart conveys its confidence in its quality and affordability, ensuring customers are getting the best possible deal.
Moreover, offering post-purchase price matching for in-store purchases demonstrates Walmart’s commitment to customer satisfaction, helping to build loyalty and trust in the brand. This reinforces customers’ confidence that they can rely on Walmart to get them the lowest price.
Multiple discounts
Walmart is well-known for its competitive pricing tactics, which offer customers multiple discounts to ensure their prices are always the lowest. This strategy has proven successful in attracting shoppers and driving sales growth.
Walmart’s combination of discounts helps them undercut competitors’ prices without sacrificing profitability.
Their Associate Discount Card, for example, offers up to 10% off all items. Additionally, Walmart frequently has coupons and other promotions that lower prices. These giveaways are especially effective during holidays when shoppers look for the best deals.
Each tactic is a margin decision. Everyday low prices give up margin per item for volume, rollbacks give it up for a season, price matching for the sale in front of the seller, and stacked discounts for each shopper who qualifies. On a thin margin the size of each concession matters more than the number of tactics, and in business-to-business selling the same pattern shows when discounts are larger than the operating margin on the sale. Staples and Bunzl show it fixed.
Staples
Office supplies distributor · A$6.8m EBITDA within 12 months · Realised
| Client and problem | Revenue was up 5 per cent while profit was down 3 per cent, on an EBIT margin of about 6 per cent. |
| Challenge | Reps were discounting 5 to 15 per cent on a 6 per cent EBIT margin, so most discounts were larger than the operating margin on the sale, and prices were set from cost rather than from what each product and customer could carry. |
| What Pricing Insight did | A diagnostic at SKU level and quick wins, then Project Blackbird algorithmic pricing on about 5,000 items, replacing cost-plus prices with prices set by product and customer. |
| Outcome | A$6.8m EBITDA within 12 months on A$80m of addressable revenue, a realised result as published. |
| Benefit to the client | Profit growing with revenue again, inside the first year, from prices that differ by product and customer rather than one cost-plus rule, which lowers the exposure to discounts that consume the whole margin on a sale. |
| Periodic Table elements built | 50 Md Price-setting method; 46 Pm Price modelling; 10 Pp Pricing power; 48 Kp Price realisation KPIs. |
Bunzl
Global distributor · 18,000 SKUs · A$5.7m EBIT improvement · Realised
| Client and problem | Bunzl’s margins were shrinking as volume grew, the pattern in Walmart’s own figures, and frequent overrides in tenders took prices below where the business needed them. |
| Challenge | The range ran to 18,000 SKUs across more than one division, and tender prices were set deal by deal through overrides rather than from a price structure. |
| What Pricing Insight did | Project Blackbird price optimisation: price ladders by SKU and customer segment, discount guardrails that set how far a price could move, and a two-division pilot before wider rollout. |
| Outcome | A$5.7m EBIT improvement reported following price optimisation across 18,000 SKUs, realised. The CXO Edition reports, for the same work, 8 points of gross margin on targeted SKUs, overrides down 35 per cent and 98.3 per cent of customers kept, all realised. |
| Benefit to the client | Higher margin with almost all customers retained, so differentiated prices did not cost the customer base, and a third fewer overrides left less margin exposed in tenders. |
| Periodic Table elements built | 54 Co Price corridors and exceptions; 52 Rl Price relativities and volume breaks; 44 Or Override and discount analysis; 46 Pm Price modelling. |
05Walmart keeps prices low with four cost advantages, and rising costs show the limit of the model
How does Walmart keep prices low?
Four things, working together.
- Buying scale. Walmart buys in volumes no competitor can match and negotiates supplier prices to suit.
- Supply chain cost. Its distribution network moves goods from supplier to shelf at a lower cost per unit than smaller retailers.
- Everyday low prices instead of promotions. EDLP trades a smaller margin per item for steadier volume, and it avoids the cost of running constant sales.
- Operating discipline. Staffing, store formats and technology are managed to keep operating cost per sale down, so the low price still earns a margin.
The limit of the model shows in Walmart’s own numbers above: when supplier and operating costs rise faster than revenue, holding prices compresses gross and net margin.
One point of price is worth two and a half points of volume. The Pricing Periodic Table, CXO Edition, works the example on a business with a 10 per cent operating margin and variable costs at 60 per cent of revenue: a 1 per cent price rise lifts operating profit by 10 per cent, because nothing else has to change, while a 1 per cent rise in volume lifts it by only 4 per cent, because every extra sale brings its own cost.
| A 1 per cent move in | Lift in operating profit | Why |
|---|---|---|
| Price | 10 per cent | The extra revenue carries no extra cost |
| Volume | 4 per cent | Each extra sale brings its variable cost with it |
Exhibit 2. What a 1 per cent move is worth at a 10 per cent operating margin and 60 per cent variable cost. Illustrative arithmetic from the Pricing Periodic Table, CXO Edition; not a Walmart figure.
The test cuts both ways. A business that holds price while costs rise gives up the most valuable point of margin it has, and on a thin margin it takes a large rise in volume to replace it. Fletcher Insulation shows an increase carried through once the structure existed to carry it.
Fletcher Insulation
Insulation manufacturing · 250 basis points of gross margin, about A$2.25m annualised EBITDA · Realised
| Client and problem | Insulation is a small share of a builder’s total cost, customers compare square-metre rates across suppliers, and imported product had widened their choice. Fletcher Insulation sold through territory managers across six states and territories, with most customers individually priced and many quotes built job by job in spreadsheets. |
| Challenge | There was no base list price for an increase to move. As a staff member put it, “We don’t have a retail price list, which is really Sales 1.01.” Most pricing decisions rested with one central analyst, the sales force had no pricing tactics guide, and approvals could pass through three or four people. |
| What Pricing Insight did | A pricing capability diagnostic, run as one of six business units in its parent group, that located the gaps in price architecture, discount control and pricing resources before any training began, then Pricing University’s Pricing Fundamentals for 96 staff. The business then built a new pricing structure, implemented a price increase and reduced discounting. |
| Outcome | 250 basis points of incremental gross margin, an annualised run-rate of about A$2.25m to EBITDA, a realised result as recorded from the engagement. The diagnostic had sized A$2.2m to A$2.5m of EBIT, an identified figure. |
| Benefit to the client | An increase that reached the invoice because there was now a structure to carry it, with less discounting to give it back, adding margin that flowed through to EBITDA and lowering the exposure to costs absorbed rather than recovered. |
| Periodic Table elements built | 49 Lp List price alignment; 43 Pi Price increase process; 61 Da Discount authority and controls; 28 Cc Commercial capability and training. |
06Walmart’s strategy shows that a low-price position depends on cost discipline and pricing discipline together
What does Walmart’s strategy show about pricing?
In conclusion, Walmart’s business strategy and pricing tactics have enabled it to gain a competitive advantage in the marketplace. Walmart has achieved notable success by focusing on cost minimisation, offering low prices, implementing an innovative inventory management system, and using economies of scale.
This approach has allowed Walmart to keep its prices low and provide customers with unbeatable value. As a result, Walmart has been able to secure a significant market share and offer customers various products and services.
Three things are safe to read from the four client cases. Speed: Staples’ A$6.8m of EBITDA came within 12 months, and the foodservice packaging supplier’s A$2m came from quick wins after the diagnostic. Size: the realised results are A$6.8m of EBITDA at Staples, A$5.7m of EBIT at Bunzl, A$2m of EBIT at the foodservice packaging supplier and 250 basis points of gross margin, about A$2.25m annualised EBITDA, at Fletcher Insulation, with a further A$6m to A$9m identified at the packaging supplier. Risk: each case found margin that depended on something other than price, whether a cost saving, discounts larger than the operating margin, overrides in tenders or the absence of a list price, and moved it onto a price structure the business controls. Identified opportunities are not results, and none of these figures is a benchmark for another business.
07A pricing review finds where margin is conceded before costs force the decision
How can businesses review their pricing strategy?
Even companies the size of Walmart are challenged by rising inflation for both product cost inputs and operating costs. If your company needs to undertake a review of pricing strategy and capability to reduce margin and earnings risk and prepare for impending economic challenges, get in contact to book a briefing session.
Pricing Insight reviews pricing strategy and capability from a business’s own transactions, across 160+ engagements in manufacturing, wholesale and distribution. To book a briefing session, contact Ron Wood on +61 410 534 099, at info@pricinginsight.com.au or through our contact page.
08The Pricing Periodic Table elements this paper builds
The Pricing Periodic Table sets out 61 elements of pricing capability in nine domains, across Value, People and Structures. Seven are built by the review this paper points to: 56 Bc Buy-price and cost management (supplier prices and cost inputs), 45 Pr Cost to serve and profitability (operating cost per sale), 48 Kp Price realisation KPIs (gross and net margin tracked against price), 47 Ps Price position and key value items (the lines that carry an everyday low price), 07 Po Profit objectives (the margin the low price must still earn), 43 Pi Price increase process (recovering rising costs) and 12 Mi Margin improvement program (the plan that follows the review). Six are depended on: 41 Ci Market price intelligence and 11 Cm Competitive response rules govern matching and rollbacks, 51 Dt Discount structure and tiers holds the stacked discounts, 46 Pm Price modelling sets the prices the review recommends, 57 Dq Pricing master data supplies the costs and prices it reads, and 06 Ws Written pricing strategy states where the business holds price and where it competes on it.
The client cases map onto these elements directly. The foodservice packaging supplier’s diagnostic separated 56 Bc from 48 Kp, showing a cost saving behind a margin that looked like pricing. Staples replaced cost-plus with 50 Md and 46 Pm and measured the result through 48 Kp. Bunzl built 54 Co and 52 Rl, which hold differentiated prices inside set limits on a wide range. Fletcher Insulation built 49 Lp and 43 Pi, the list price and increase process that let it recover cost rather than absorb it.
09Frequently asked questions
My margins are shrinking. What should I do about pricing?
Find out why before moving price. Separate cost movements from price realisation on the same customers and products, then look for discounts larger than the margin on the sale, overrides, and costs absorbed instead of recovered. A foodservice packaging supplier found a margin rise came from an 8 per cent fall in unit cost while unit price rose about 1 per cent; A$2m of EBIT was then realised from pricing quick wins.
How do I pass on a price increase in B2B without losing customers?
Build a list price and price structure the increase can move, vary the increase by customer according to your pricing power over each group, and limit the discounting that gives it back. Fletcher Insulation added 250 basis points of gross margin, about A$2.25m of annualised EBITDA, after a new pricing structure carried an increase, a realised result. Bunzl kept 98.3 per cent of customers through its price optimisation.
Is a low-price strategy the same as a cost leadership strategy?
No. Cost leadership is running buying, logistics and operations at a lower cost per unit than rivals; a low price is one way to use that advantage. A low-price position without the cost advantage gives margin away, and a cost advantage passed on in full leaves no room when costs rise, which is the pressure in Walmart’s publicly reported margins.
What does a pricing diagnostic find?
Where and why pricing concedes EBIT: price realisation by customer and product, discounts and overrides by seller, cost movements hidden inside gross margin, and the capability and governance behind each. It sizes each opportunity against a baseline finance accepts and sets out what to address first. Quick wins are the changes that can be made on existing prices and rules without new systems.
Who can help my business improve margin through pricing?
A pricing consultancy that works from your transaction data and reports results by status. Pricing Insight has completed 160+ engagements in manufacturing, wholesale and distribution; Staples realised A$6.8m of EBITDA within 12 months on A$80m of addressable revenue after price optimisation.
10How Pricing Insight helps
Walmart’s example shows how a low-price position depends on disciplined pricing, while rising costs and weaker margins make the trade-offs harder to manage. The 9PE Pricing Diagnostic & Quick Wins reviews how your business sets and realises price, measures where and why pricing concedes EBIT, and sets out what to address first, helping leaders investigate margin pressure without assuming that higher prices are the answer.
The work runs in three stages, each drawing on evidence from the business’s own transactions. Pricing Insight has completed 160+ engagements, and price optimisation programs return between 5 and 10 times their cost in year 1.
Diagnose
Twelve months of invoices by customer, product and seller through the Strategic EBIT Opportunity & Risk Diagnostic. Price and cost movements separated on the same customers and products, discounts and overrides by seller, cost to serve, and costs absorbed rather than recovered, sized against a baseline finance accepts.
Optimise
Prices set by product and customer in place of cost-plus rules, price ladders and guardrails on wide ranges, and increases varied by pricing power through the EBITDA Improvement Program, with ERP-ready price files.
Transform
A mandated pricing team, discount approvals and price floors, and a Pricing Council through Pricing Capability & Governance. Sellers trained in pricing maths and value selling through Negotiation Training & Value-Based Selling.
How much of last year’s gross margin came from price, and how much from cost?
A first conversation establishes how this applies in your business and whether a diagnostic is warranted. Ron Wood, +61 410 534 099.
Ron Wood is the Founder and Managing Director of Pricing Insight, an Australian pricing strategy consultancy he established in 2007. He has worked in pricing for 30 years, first as a pricing and commercial manager in consumer goods, building materials and capital equipment, and since then across 160+ engagements in Australia, New Zealand, South East Asia, India, the United States and the United Kingdom. He also founded Pricing University and is the author of the Pricing Periodic Table, CXO Edition.
To discuss how this applies to your business, contact Ron Wood at info@pricinginsight.com.au or on +61 410 534 099, or visit Pricing Insight.
Statements and figures about Walmart, including revenue, margins, store numbers, associates and discount programs, are commentary on public reporting as cited in the original paper, in US dollars, and are not Pricing Insight analysis; Walmart is not presented as a Pricing Insight client. Staples, Bunzl, Fletcher Insulation and foodservice packaging supplier figures are realised results as published in Pricing Insight case studies; the Bunzl gross margin, override and customer retention figures and the packaging supplier’s cost and price finding are as reported in the Pricing Periodic Table, CXO Edition. The packaging supplier’s A$6m to A$9m and Fletcher Insulation’s diagnostic figure are identified, not realised. Staff comments come from Pricing Insight diagnostic work; staff are quoted by role only. Exhibit 2 is illustrative arithmetic. Results are as reported by Pricing Insight and have not been independently audited. No figure in this paper is typical or guaranteed.
