Wal-Mart is cutting the price on generic drugs to $4 for a month's supply (the average cost is $28.74), and the reaction is all over the map. The people who hate Wal-Mart can't quite bring themselves to say anything good about it -- "Well, they're just trying to spruce up their image." Yeah, by offering disocunts of up to 70 percent for something people can't do without. Those fiends!
Actually, it's marketing genius. When I was growing up, I had some friends who worked in the grocery business here, and they gave me an early education in the concept of "loss leader," a term I haven't heard in quite a while. That was an item the store sold for little or no profit just to get people in the store, the idea being that in the long run the extra traffic would more than make up for the profit loss. The loss leader had to be something people needed frequently, like bread or milk, and it was often put in the back so people had to walk through the whole store to get to it. You encounter the concept every day -- it's what McDonald's dollar menu is. When you buy that really fancy but cheap inkjet printer only to run into huge cartridge replacement costs, you are also participating.
Wal-Mart is discouting something people have to refill once a month -- that's millions and millions of people 12 times a year -- who will then notice, if they didn't already know, that everything else is cheap at the store, too. And Wal-Mart's chief competitors for drugs, like Walgreen's and CVS, will find it challenging to retaliate with their own lower prices. Drugs are their main business, so they don't have enough variety of merchandise to make up for the profit loss.
As those two guys in the Guinness commercial say: Brilliant, simply brilliant.
