By: Grant Johnson, Jennifer Shim, Elizabeth Urbic
The rules of marketing are changing, and one of the greatest proponents of this change is social media. Marketing can no longer be a one-way street in which a firm “markets to” the consumer—instead, modern marketing is a dialogue in which the two engage in a back-and-forth. Social media sites give unprecedented power to the consumer; thousands of conversations about a brand can be going on at a given time, all over the world, and smart marketers realize the significance of joining the conversation. As David Meerman Scott (2010) says in The New Rules of Marketing & PR, “Your best customers participate in online forums – so should you.”
An exciting example of a company responding to the virtual discussion came a few months ago, when Walmart announced last fall that it would be bringing back its layaway program for the 2011 holiday season.
The service was available from October 17 through December 16 for purchases of toys, bicycles, and electronics. Eligible items featured lower prices and more prominent placement within the store to stimulate demand.
This news came in response to a hard-fought campaign waged by dissatisfied Walmart shoppers, who flocked to social media sites to make their voices heard. Customers barraged the company’s Facebook site with layaway requests and even set up a Facebook page entitled “Bring Back Walmart Layaway”. In addition to paying attention to these platforms, Walmart also acknowledged that they responded to customer listening groups and complaint letters before making their decision. On their Facebook page, Walmart’s layaway announcement had 3,000 likes within two hours.
According to The Washington Post, Walmart discontinued layaway in 2006, during the heady days before the recession. The chain had determined that the option a) presented a logistical nightmare, causing crowded storerooms and confused employees, and b) was not popular anyway, as most customers preferred the immediate gratification of paying for expensive items with credit cards.
Since then, however, housing prices have plummeted, gas prices have skyrocketed, and an extended recession has left Americans re-thinking their financial situations. Walmart customers, unwilling to continue buying items on credit, had a change of heart, and the company had to change in response.
Psychological theory explains why a company would offer what is essentially an interest-free payment plan for an expensive product. People are much more likely to make a financial commitment to something with a lower initial (‘down’) payment, and the ‘foot in the door’ theory states that, once this commitment has been made, it will likely be followed through. In other words, Walmart can use layaway to entice customers to buy items they otherwise never would have considered, and once the payments have started, people will likely finish them rather than walking away.
This principle applies in large part because of the ’sunk cost’ effect, a powerful pull over behavior that researchers have long derided as irrational. Psychology has shown us that people mistakenly factor sunk costs into decisions about future spending, and layaway feeds into that. If someone has already committed $80 towards the purchase of a $200 bike, that $80 should no longer be relevant in the decision to complete the purchase. All that should matter is whether the bike is worth the remaining $120. But people tend to dwell on sunk costs and try to avoid losing them, and so having already sunk $80 into the bike will make someone more likely to spend the remaining $120.
For all of these reasons—the economic need and the psychological pull—layaway, once a relic of a past generation, has made a comeback. Prominent retailers Sears, K-Mart, and Toys ‘R Us have all enjoyed success with the program, with K-Mart in particular attributing their ability to withstand the recession to their introduction of the program in 2009.
With a motto of “Save Money – Live Better,” Walmart cannot afford to not listen to their shoppers. Indeed, Chief Merchandising Officer Duncan MacNaughton referred to layaway as “a key component that our customers asked us for…to make their lives easier.”
One of the basic principles of marketing is highlighting a need within a target audience and angling your product and promotion to fill that need. Walmart has established itself as a leader of this technique, exhibiting operational excellence by “providing middle-of-the-market products at great prices and with minimal inconvenience” (Kellogg on Marketing, 2010). Their turn to social media to interact with the consumer is a smart next step for the dominating Fortune 500 company. Social media does much of the work traditionally performed by market researchers; shoppers volunteer information about themselves and tell the company what their needs are!
