Wal-Mart is a cost-leader in terms of its highly efficient supply chain and its ability to negotiate steep volume discounts from manufacturers. The retailer executes __ by passing those savings on to consumers in the form of lower prices.
A) satisfaction-based pricing
B) reference pricing
C) relationship pricing
D) perceived pricing
E) efficiency pricing
The correct answer and explanation is :
The correct answer is E) efficiency pricing.
Explanation:
Efficiency pricing refers to a pricing strategy where a company passes on cost savings gained through operational efficiency, such as a highly efficient supply chain or volume discounts from manufacturers, to consumers in the form of lower prices. In the case of Wal-Mart, the retailer is able to negotiate steep volume discounts from manufacturers and manage its supply chain in a way that minimizes costs. As a result, the company can offer lower prices to consumers, effectively implementing efficiency pricing.
Here’s a breakdown of the other options for clarity:
- Satisfaction-based pricing (A):
This strategy focuses on setting prices based on how satisfied customers are with the product or service. It’s not typically used in situations where a retailer like Wal-Mart is trying to offer lower prices based on operational efficiency. Wal-Mart’s pricing is more about cost savings than customer satisfaction directly influencing the price point. - Reference pricing (B):
Reference pricing involves setting a price based on what customers believe is a reasonable cost for a product, often by comparing it with the prices of similar products in the market. This is not the primary strategy used by Wal-Mart. Instead, Wal-Mart is more focused on delivering lower prices through operational efficiencies, not through comparisons with competitors’ prices. - Relationship pricing (C):
Relationship pricing is typically used to build long-term relationships with customers, often offering discounts based on loyalty or repeat business. While Wal-Mart does have loyalty programs, its core strategy revolves around efficiency, not relationship-based pricing. - Perceived pricing (D):
Perceived pricing is when the price is set based on what consumers perceive the value of a product or service to be. It focuses on how customers view the worth of an offering rather than the cost structure behind it, which is not the core of Wal-Mart’s pricing strategy.
Therefore, efficiency pricing is the most accurate term to describe Wal-Mart’s approach, where they pass on savings from operational efficiencies to consumers through lower prices.