Always low prices, always: marketing origins of Wal-Mart's dubious CSR performance.

ABSTRACT

Wal-Mart, the world largest and most successful corporation, also has the unflattering reputation of being so uncaring that it now symbolizes corporate social irresponsibility in the eyes of many Americans. How did the most powerful company become admired as well as feared and despised? Using the company's marketing strategy as a basis for analysis, the current study argues that Wal-Mart's problems with its own employees are not just perceptual but fundamentally due to the company's targeting and positioning choice: the delivery of always low prices to customers has meant that such stakeholder groups as employees have had to be squeezed.

1. INTRODUCTION

From its humble beginnings in the 1960's Wal-Mart has emerged as not just the most powerful global retailer of all times, but also the world largest company, with annual sales of more than 250 billion. In a short time Wal-Mart has become the largest and the most successful retailer, by a fanatical pursuit of the lowest prices for its customers. Along the way, however, the company has acquired the unsavory reputation of ruthlessness with its supply chain, competitors and employees alike. Few companies have achieved the mixed reputation of being admired, beloved, for their business success and yet despised and feared at the same time for their labor and competitive practices as Wal-Mart. Wal-Mart is the company people love to hate; with intense emotion. More "anti" websites are devoted to Wal-Mart than to any other company. The company is dissected and studied for its marketing triumphs as much as it is for its labor relations failures.

Many studies document Wal-Mart success and ascend to global power (cite). An even larger number discuss its rise from folk hero to corporate monster (cite). The current article examines the origins of Wal-Mart's CSR performance shortcomings, from a marketing perspective. How did a company heralded as a hero as recently as in 2000 become a corporate monster only a few years later? Is the company's current predicament an aberration to be blamed on rapid growth, or was it predictable? The article argues that the company's current predicament was not only foreseeable, but a logical consequence of its strategic choices, through its unbalanced approach to stakeholder commitment.

2. STAKEHOLDER THEORY 

Stakeholder theory (1984) may be offered as a contrarian proposition to generally accepted neoclassical dogmas on the role of the firm as essentially economic. The theory posits that businesses must balance the interests of all parties with a stake (stakeholders) in the firm. Stakeholder theorists (Freeman, 1984) identify a number of groups that have a "stake" in the corporation either because they are directly (or indirectly) affected by corporate decisions & actions, or because they have an explicit contractual relationship with the firm. Such groups (stakeholders) typically include: shareholders, employees, customers, suppliers, the environment, and communities.

Within this tradition, stakeholder mapping appears as a tool to unmask potential disfunctions (especially from a communication standpoint) between an organizations and its stakeholders. In essence, stakeholder maps are visual representations of a company's stakeholders properly categorized along a power/interest grid. The Map is a strategic planning tool that displays stakeholder inter-relationships, and suggests paths the company can follow to achieve its business objectives while avoiding alienation of its stakeholders.

Based on the company's 2003 social report, a stakeholder Map was constructed (see Figure 1). From this document on company policies and actions, it is clear that Wal-Mart views its shareholders, consumers, and the community as their most important group of stakeholders, while employees are its second most important one. In this representation, suppliers and the environment rank the lowest in the company's power/interest grid.

[FIGURE 1 OMITTED]

The current research does not purport to investigate whether Wal-Mart communicates effectively with all its stakeholders, or whether its stakeholder engagement efforts are congruent with the above stakeholder categorization (a common diagnostic use of stakeholder maps). Rather, it focuses on providing an explanation related to the company's poor performance with its self-declared second most important stakeholder group: its employees.

Wal-Mart's labor related problems are well documented and the list of accusations against it, impressive. A recent congressional report (George Miller, 2004) gives a scope and the extent of Wal-Mart's poor labor practices:

Wal-Mart faces suit for underpayment of employees

Maria Gamble, a former employee of Wal-Mart, is bring a suit to accuse the company of underpaying its hourly employees by forcing them to work extra hours unpaid through intimidation and threats. The suit seeks unspecified damages, and seeks class action status.

Wal-Mart denied the allegations, and suggested that the company complies with all state and federal requirements. Supervisors who broke such regulations had been disciplined in the past, it said.

Source: NY Times as reported in Business Respect, Issue Number 10, dated 11 Aug 2001 US: Wal-Mart target for Off-the-Clock suits

Wal-Mart is being sued for what some workers say is widespread bad practice in forcing workers to do extra work "off the clock"--ie. unpaid.

The practice involves catching employees either before they have clocked in at the beginning of the day--or just after they have clocked out at the end--and requiring them to carry out further duties. Wal-Mart's policies forbid the practice, but managers under intense pressure to cut costs have allegedly resorted to it in order to cope. The lawsuits contend that the company has cheated Wal-Mart employees and workers at its warehouse-store division, Sam's Club, out of hundreds of millions of dollars a year. The company argues that the off-the-clock phenomenon is an infrequent and isolated problem considering that the company has 3,250 stores and a million employees in the United States.

Source: NY Times, as reported in Business Respect, Issue Number 10, dated 11 Aug 2001

Workers organizing rights: Wal-Mart has aggressively sought to discourage--even intimidate--workers from unionizing. A hotline is provided to managers to call when they suspect union-organizing activities. Specialists trained to head off organizing efforts are hired by the company. The rare unionizing activities that succeed are aggressively stamped out.

Low wages: By preventing workers from unionizing, Wal-Mart has been successful keeping their wages low. In 2001, Wal-Mart paid its employees an average $8.23 per hour, compared with $10.35 by the average supermarket worker.

Unequal pay and treatment for equal work: Wal-Mart is now the subject of a sweeping class action lawsuit, involving more than one million current and former women employees of Wal-Mart as plaintiffs, alleging that pay and opportunities for advancement do not reach those of their male counterparts.

Wal-Mart asked to disclose information on pay

51 members of the US Congress have signed a letter calling on Wal-Mart to address gender discrimination and to disclose its wage data for Congressional review.

The letter to CEO Lee Scott follows a high profile campaign labeled 'Love Mom Not Wal-Mart' to coincide with mothers day and calls for the disclosure so that Congress can "understand why Wal-Mart pays its women associates less than men".

Over 20,000 people signed a pledge to boycott Wal-Mart's Mothers Day products until the company addresses the issues of gender discrimination.

Source: Business Respect, Issue Number 82, dated 13 May 2005

Off-the-clock work: By December of 2002, 39 class action lawsuits, involving hundreds of thousands of plaintiffs, charged Wal-Mart with withholding earned wages, either by deleting hours from time sheets or forcing workers to work unpaid overtime hours.

Child labor and work breaks violations: An internal Wal-Mart audit turned up thousands of cases of young employees working too late, working during school hours, or working for too many hours a day, in violation of U.S. child labor laws.

Unaffordable or unavailable healthcare: About one-third of Wal-Mart employees are part-time, which restricts their access to benefits such as health care. Only 41 percent of Wal-Mart employees receive health benefit (compared with 66 percent of employees at similar large firms). Employees must wait longer before having enough tenure to qualify for benefits. More of the cost for health care premiums has been shifted to workers. Employees are encouraged to seek charitable and public assistance for meeting their health care needs.

Illegal use of undocumented workers: Evidence shows that Wal-Mart executives knowingly hire undocumented workers as janitors in their stores, and then forced them to work long hours for little pay--$325 for 60-hour, seven-day weeks, for eight straight months, according to one worker.

Exploiting foreign labor: In 2002, Wal-Mart purchased 10 percent of all Chinese goods imported into the U.S. And workers in countries like China, Bangladesh, and Honduras are suffering because of the stringent demands Wal-Mart makes of its suppliers. One factory worker reported working 19-hour days for 10- to 15-day stretches to meet Wal-Mart's price demands.

Wal-Mart faces action over allegations of hiring illegal workers

Wal-Mart has received a notification of investigation from the US Attorney accusing it of complicity in hiring illegal immigrants. The move follows recent raids on Wal-Mart premises across the US in the last month during which around 250 workers have been arrested. Wal-Mart is not accused of hiring the illegal workers itself. But investigators have said that, with 13 subcontractors having admitted doing so over recent months, there seems to be a long-standing pattern of abuse that must involve the company.

The Maintenance Cooperation Trust Fund, an organization that opposes the use of illegal aliens, told the New York Times that the use of illegal labor could provide as much as a 40 percent cost advantage through savings of tax, social security and other benefits.

Wal-Mart has denied the charges, and is expected to face grand jury hearings in December.

Source: Business Respect, Issue Number 66, dated 9 Nov 2003

Disability discrimination: Wal-Mart has been the subject of numerous lawsuits alleging discrimination in hiring people with disabilities.

Workplace safety: It is reported that Wal-Mart locks workers inside stores overnight. In some cases, workers were told not to use emergency exits in any but the most serious emergencies. In some cases, sick or injured workers had to wait for the start of the morning shift, when managers with keys arrived to unlock the doors.

Cleaner at Wal-Mart Tells of Few Breaks and Low Pay

Every night for months, Victor Zavala Jr., who was arrested on Thursday in a 21-state immigration raid, said he showed up at the Wal-Mart store in New Jersey to clean floors. As the store's regular employees left at 11 p.m., Mr. Zavala said, they often asked him whether he ever got a night off.

Mr. Zavala, identified by federal agents as an illegal immigrant from Mexico, told the Wal-Mart workers that he and four others employed by a cleaning contractor worked at the Wal-Mart in Old Bridge every night of the year, except Christmas and New Year's Eve.

Source: Business Respect, Issue Number 65, dated 25 Oct 2003

Wal-Mart attacked for lack of diversity

The National Organization for Women held a day a pretest against Wal-Mart criticizing the company for allegedly failing to promote women to managerial jobs, failing to pay women wages equal to their male counterparts and trying to force out pro-union workers. Among the suits quoted by the campaign as evidence are ongoing cases charging Wal-Mart with failing to prevent sexual harassment in the work place, an instance of racial profiling that led to the false arrest of black shoppers on robbery charges, failing to pay overtime to workers who were forced to work beyond their scheduled shifts, denying workers' rights under the ADA, underpaying hourly workers or forcing them to work without pay, and illegally preventing workers from unionizing.

Source: Portsmouth Herald, as reported in Business Respect, Issue Number 40, dated 28 Sep 2002

3. MARKETING ORIGINS OF WAL-MART PROBLEMS

Wal-Mart's tribulations, most likely, have multiple origins. In the following analysis, however, we propose one that focuses on the company's stated commitment to one stakeholder group: its customers.

The marketing concept/philosophy is predicated on the radical proposition that the customer is king/queen and should be treated as such. Though marketing is ultimately about the creation and resolution of profitable exchange relationships, from this perspective, the raison d'etre of a corporation is essentially the delivery of customer satisfaction.

Since no organization may be able to produce all products/service or serve the universe of all customers, the targeting / positioning implications of the marketing concept become apparent.

It is obvious, even to the casual observer that the unprecedented success achieved by Wal-Mart is due to its ruthless and skillful pursuit of the lowest prices for its customers. "Always Low Prices, Always" is not just a clever but empty tag-line. It's what the company promises--and delivers daily--for its customers.

Given this positioning, it is easily predicted that two customer segments are most likely to be attracted by this promise: the price-conscious, and the value-conscious consumers. The first group, price conscious customers, is attracted by the lowest price possible. The product is primarily bought for its functional value. Perhaps, the product is even viewed as a commodity.

The second most likely group to be attracted by such a promise is that of value-conscious customers: those attracted by the highest quality for the lowest price. The value-conscious segment differs from the one above in its willingness to pay a higher price if a higher product quality may be demonstrated.

Less likely to be attracted, however, are the prestige-sensitive customers: those driven by the prestige embodied in the product. To this segment, prestige is more important than price since the product is bought for its social value. Acceptance by peers, recognition from others, or influence over others is perceived as important.

The only question, therefore, is where to gather the cost savings that must be passed on to the consumer in the form of the low prices promised them.

Stakeholder theory advocates a balanced approach to the interests of all stakeholders. From this perspective, the type of commitment to customers made by Wal-Mart quickly becomes operationally crippling, organizationally dysfunctional and generator of disequilibria: in the current case, suppliers and employees have been easy candidates to be squeezed to the end of providing shareholder value maximization via unprecedented revenue growth generated by price conscious customers repeat business.

4. CONCLUSION

Wal-Mart is a company whose name rhymes with controversy, mainly for its labor abuses, but also for its supply chain practices. The analysis and vignettes above clearly indicates that Wal-Mart is still primarily driven by the precepts set forth by the classical theory of corporate responsibility, with its main focus on shareholder value maximization. Despite public declarations to the contrary (i.e. desire to be a good corporate citizen) present corporate practices still eloquently express a neglect of other stakeholder groups. This is exemplified by the fact that, despite current trends at other large corporations, Wal-Mart issued no separate social report up until last year.

Wal-Mart gets praise for response to hurricane Katrina 

Wal-Mart has attracted praise even from some of its critics for its fast organization in the face of the devastation wrought by hurricane Katrina in New Orleans. In the first few days, the company delivered $20m in cash, 100 truckloads of free merchandise, and food for 100,000 meals. The company also promised a job elsewhere for every one of its workers affected by the catastrophe.

The contrast has quickly been drawn with the criticisms attracted by the response of federal and state officials, whose operations and disaster planning have been widely seen to have fallen well short of what was required.

Former presidents Bush and Clinton praised the company during a press conference, and a number of commentators have made the observation that had the authorities been as well organized there would not have been such a crisis.

This comes at a time when Wal-Mart has been under fire from a number of quarters for issues around its supply chain practices and employee wages. But the company's scale and renowned efficiency is now proving to be exactly what is needed.

Source: Business Respect newsletter No. 86, dated 6 Sep 2005

In a deviation from the pure classical dogmas, however, a number of Wal-Mart's deeds prove that the community is a significant focus of its corporate strategy. Though critics will to charge that such interventions are purely driven by self-interest and PR motives, there is anecdotal evidence taken from recent news to indicate that the company does care about its community involvement (e.g. hurricane Katrina intervention).

Even the company's notoriously poor labor practices may see the tide turn somewhat, due in part to the bad publicity generated in the press and its actual/potential negative effect on future business. To be sure, Wal-Mart is still desolately behind the trend where responsibility follows power. Nevertheless, since being ranked the number-one good corporate citizen by the 1999 Cone/Roper Report, a number of positive signs have been observed: the introduction of the term "associate" in 2001 with a stated commitment to respect them as much as customers; and the appearance of the previously absent term "stakeholder" (defined as our customers, our associates, our suppliers, our communities and importantly, our shareholder) on the second page of the company's 2002 report. The real doubt is the extent of the predicted changes/improvements. As demonstrated in the above analysis, in the absence of a momentous legislative intrusion, promised improvements may not be significant or deep enough for the critics, given the crippling nature of the company's positioning commitment to its customers.

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Tahi J. Gnepa, California State University-Stanislaus, Turlock, California, USA

Dr. Tahi J. Gnepa is a professor of international business and marketing at California State University, Stanislaus. He earned his Ph.D. from the University of Wisconsin-Madison. His current research focuses on corporate social responsibility and sustainability as an emerging global test of corporate legitimacy. Dr. Gnepa is Managing Editor of the Journal of International Business and Economics and Program Chair of the AIBE-2006.