Impact Pricing Podcast

#584: Navigating Retail Pricing: Walmart’s Pricing Strategy Explored with Rishi Bhatia

Rishi Bhatia is an experienced analytics consultant, data expert and market research professional with domain expertise in retail, technology, telecom, apparel, manufacturing, and insurance domain.

In this episode, Rishi shares about Walmart’s lower pricing strategy. He emphasizes the importance of prioritizing the customer when determining pricing strategies. He also highlights the significance of leveraging data and analytics to inform pricing decisions. And also the importance of adopting AI-driven models to streamline operations and remain competitive in the market.

Why you have to check out today’s podcast:

  • Learn how Walmart maximizes profitability while maintaining its everyday low prices
  • Discover how AI revolutionizes the retail industry by enabling retailers to make informed pricing decisions, rather than just providing pricing insights
  • Explore the impact of retail pricing on customer loyalty and retention

Put your customer first. Rather than going for the traditional route, learn from the data as much as you can. And then, improve your models constantly based on how can you get the prices right.

Rishi Bhatia

Topics Covered:

01:01 – How he found himself in pricing

02:46 – Why everyday low price policy for Walmart and how do they maximize revenue with this strategy

03:46 – Pricing and how it affects loyalty and retention

05:18 – What makes Walmart’s margins high other than lower prices

06:48 – How AI in pricing optimization has evolved from basic insights generation to sophisticated model-driven recommendations

08:41 – Is AI a blackbox and how the process works in achieving pricing decision

11:31 – Walmart’s primary focus regarding pricing decisions and how AI ensures timely transitions between product cycles and maintaining profitability

13:47 – How algorithms and recommendations ensures consistency and optimization across the retail chain

14:44 – Discussion around Wendy’s dynamic pricing

19:49 – Rishi’s response to Mark’s advice for retailers and also talking about Walmart Plus

21:15 – Rishi’s best pricing advice

23:12 – How do you measure value in retail products

Key Takeaways:

“Value pricing, what does your customer want, at what price your customer will be more loyal to you and what will they… because pricing is one component that everyone wants low price.” – Rishi Bhatia

“When you’re putting the product, rather than going for the traditional route, learn from the data as much as you can and improve your models constantly based on that, how can you get the prices right.” – Rishi Bhatia

“If you’re able to improve on that and the customer, your overall complaints are also going down. And that is one value you can measure from that perspective as well. It’s not always in the monetary term, it’s always on the customer satisfaction side as well.” – Rishi Bhatia

People/Resources Mentioned:

Connect with Rishi Bhatia:

Connect with Mark Stiving:

             

Full Interview Transcript

(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)

Rishi Bhatia

Put your customer first. Rather than going for the traditional route, learn from the data as much as you can. And then, improve your models constantly based on how can you get the prices right.

[Intro]

Mark Stiving

Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the intricate relationship between them. I’m Mark Stiving and our guest today is Rishi Bhatia. And here are three things you want to learn about Rishi before we start. He runs data management at Sam’s Club. Oh my gosh, isn’t that enough? He is an expert in AI and he’s fascinated by startups in India. Aren’t we all? Welcome, Rishi.

Rishi Bhatia

Thank you.

Mark Stiving

Hey, so I asked this question. I’m not sure that you think it applies to you or not, but I’m going to ask it anyway. How did you get into pricing?

Rishi Bhatia

I think it was just not a choice. I think it’s just like I was managing data science for Walmart. I just want to correct, and now I’m not involved with Sam’s Club. I moved to the Walmart side of it, so I was managing assortment planning and category space there. And I got into pricing because it always fascinated me, basically like how do we price the product? What price the customers will buy anything and how can I push it for more revenue? Because it ultimately, like when you are not into pricing sometimes, and even before I started my journey with data science, I think it was always, oh, companies can make revenue because they think that, okay, I can increase the price and I can get the revenue higher because it was just way before I started with data science and all that stuff, and I wasn’t like even start my corporate thing when I was a student, but when you started studying, you start looking at, okay, like, how does pricing helps you in moving the needle across, like customer loyalty, customer behavior,retention.

I think there are a lot of levers around that. And I think one more thing was the key component of Walmart has this policy of everyday low price, which is in their DNA. So that also made me wonder, if it is everyday low price, how will we make money? Then I think that was one of the things I also wanted to see. And then when the opportunity came my way we had a certain person who left the pricing team and then it came to me and when my leader asked me, are you interested in taking up this team? I said, yeah, I would be. And I started with the markdowns team and then moved to pricing. It got under my umbrella as well.

Mark Stiving

Nice. And so I’m fascinated if you’re allowed to answer this question, how is it that you worry about pricing when you have an everyday low pricing policy? So what do you think about it?

Rishi Bhatia

So Walmart’s policy is always to serve customers better. I think that’s one of the key components they have. They want to have basically like they want to give the best product to customers. But I think what you generate revenues out of it is basically like what you do is that you attract more customers. Because if you have a low price, obviously customers will be coming to you more. And that’s what I think when you talk to any of the customers, they think, oh, we get the best prices at Walmart, or we want to shop more at Walmart. And when you shop more at Walmart, you get more revenue out of that and you get the retention out of it and you don’t have to go through like a lot of promotions and all that stuff like where companies are trying to promote or give discounts and everything. So I think that helps Walmart a lot.

Mark Stiving

Yeah, exactly. And one of the things I find fascinating is that you, even in the conversation we had before I hit the record button, you talk a lot about loyalty or retention. How is it that pricing impacts customer loyalty?

Rishi Bhatia

So think of that, like most households across the US. If you look at the suburbs and everything, the income levels are like middle incomes or like the tier two incomes, all those people. And I think everyone wants to save money. Like, okay, even if I, personally, if I have to shop, I will be looking at multiple places of the same product where I get the lowest price and I’ll just buy there. And until, unless it is super urgent for me, I have a medical emergency and I cannot help anything out, I would go and okay, I would spend on that. But most of the time it is always, we are looking for the pricing. Everyone is price savvy. And then if the customer knows I’m going to get the lowest price and they have that trust built within them, then they are definitely going to come back and basically come there because I know that at this point and place I’ll get the best quality at the lower prices and the best product I’m getting. So definitely, I would look at that, come back to that. So it’s a combination of a lot of things like you have to have the right product, right. Again, with the best quality, should we also, right? But if you’re getting it at the lowest price, that’s basically the boon everyone wants will come.

Mark Stiving

Yeah, even rich people don’t want to pay more, right? Everybody wants to pay less, right? That’s just like a hard and fast rule. Everybody wants to pay less. But it seems to me really hard to always have the lowest price on every product. So, it almost seems like you should have the lowest price on the products that matter and have a higher margin, higher price on products that don’t matter as much.

Rishi Bhatia

So in pricing, you also have to think through that way, like how, what’s the byproduct of pricing? There’s a lot, at what cost you are shopping. Well, what your total cost, what your supply chain looks like. So if you have a lot of those in place and you have a super effective system, you can lower down the cost as well. So, if you lower down your cost, then you can always sell at the lowest price as well, because then you can maintain those margins as well. And think of that as what products you are having if you are having these items like grocery items, consumables items, and all these items that we are selling right now. You look at those items, I think those are common man needs and they can go and shop at Walmart.

Mark Stiving

Yes. And so I always thought of Walmart. I know that they always try to have low prices, but I always thought of them as having a great supply chain. Which is what, driving costs out of the system, which enables them to have really good prices as opposed to, hey, we’re just going to take lower margins than anybody else.

Rishi Bhatia

Yeah. So I think the supply chain is really great and I think the planning systems are really great. So that helps them in keeping their core costs lower as well, and that helps in getting the lower price as well to the customer as well. So that’s why.

Mark Stiving

Okay. Let’s talk about the most confusing topic in the world, and that is AI. I assume you guys are using AI. How long have you been doing it? How did you get into it? Can you say something that makes sense to us in terms of how you use AI?

Rishi Bhatia

So my journey started basically like before when I think about when I started my career in analytics and I was a consultant for a smaller company. And we had different clients, we used to do a lot of customer insights for them. Like what is driving customer retention? What is happening? How your sales are coming, what are the levers you can play around with where you can drive more? So pricing was one of the components that used to come in the top. Okay. It was more of an insight that we used to think through that. Okay, if you have a lower price or if you have a right price at the right place you get a higher revenue out of that. Then the journey started with looking at how we can bring those insights to our stakeholders or the business partners.

And then it came into, you started with those dashboards and all that, and the next journey was, okay, how do I recommend prices more AI-driven? Because price elasticity has been the concept for longer time here every time. And everyone talks about that, so those things I started studying and then how can I use those price elasticity in recommending the prices of and getting those models still. Initially, it used to be a regression-based model, then it evolved to deep learning models and then it evolved. There might be a next phase out of it as well. So I think the basic concepts have remained the same, but the techniques that you have started using are much more sophisticated and much more explainable now, which can work at a scale. I think that has driven a lot of stuff right now.

Mark Stiving

So, I always think of AI, especially if I’m going to price something like consumer goods. I feel like it’s a black box. Does that bother you? Is it a black box or do you actually know what’s happening?

Rishi Bhatia

I would not say it’s a black box. So for black box or when you say black box, it’s a black box for the customer or is it for when we are building that piece? From what perspective?

Mark Stiving

So, imagine that you take all of your current prices, current demand information, you stick it into your AI system and it comes back and it says, here, go price this product at this price.

Rishi Bhatia

Okay.

Mark Stiving

Yeah. That would be a black box

Rishi Bhatia

So it depends on what kind of model you are using and if you don’t understand your elasticities and all the stuff well, then it can be black box. I think to an extent it can, it is explainable also, like, basically like if you think that if you look at the past historical data and you look at that, okay, I want to say that like when you’re building your elasticity curve, you say at this price point, I can have this much demand at this price point, I can have this much demand. That cannot be a black box. But when you understand your asset, the other factor in the model is recommending that price that basically like primary drivers are elasticity there and then after that, the seasonality and all those components come into picture, then you are recommending a certain price.

To an extent, I think you can explain something which we have done a great job ourselves as well, like giving to the user why I am recommending this price at this point of time because A, maybe my inventory is too high for that particular item. I want to get rid of that because the season is ending, so I might have to change the price for that, or it’s a high demand item, I might price it lower because it has a cross elasticity effect as well because when this item gets put into the basket, it attracts other items as well. So you think from that perspective as well, or if it is a one-time buy, basically people used to want to buy it and it’s a footfall driver, maybe I would try to price it as a right point as well.

So you always think from that perspective. I think when we look at the pricing piece, sometimes people think it’s basically like either it’s a high price item or it’s a low price item. What I think from the perspective, what the price is always right, what is the right price you can put it at, where you can have, again, going back to same thing like more footfalls, customer potential loyalty and you can get rid of your inventory, you don’t have the overflow of inventory lying in there.

Mark Stiving

Yeah. So those are great descriptions. I would guess that you guys have a dozen or multiple dozens of reasons why you put prices up, prices down. you don’t have to give them all, but is that a true statement?

Rishi Bhatia

Yeah, there are dozens of reasons everyone wants to do that. We know the reasons why would I price certain item, like I gave the example, I would want to price certain item at the lower because when it is in the basket, I see the basket size increasing for that particular like whole thing there. So that’s one thing you always think about from that perspective. With AI you just don’t look at the product pricing at basically a standalone of a particular product. You also have to look at the interaction, how it interacts with other products and all where your cross elasticity component comes into picture.

Mark Stiving

Nice. So many, many, many, many years ago when I was a doctoral student, I remember reading a paper that talked about which prices consumers remembered, right? So they would remember the price of milk and they would remember the price of bread, but most things you could ask them right after they walked out of the store, how much is this? And they have no idea. And so does that influence the way you think about pricing at all?

Rishi Bhatia

No, I don’t think so. We think from that perspective, what we think from the perspective is what is right for the customer. We always think from that perspective. I think, and it’s always the historical sales demand also, like in the model those pieces are featuring if coming in and then you’re basing your decisions based on that. But I think the Walmart policies serve customers best and I think we don’t think that way. Definitely,I think it’s from that perspective only.

Mark Stiving

Right. That’s probably a good thing. And so one of the things we were going to talk about in this world of AI is how AI helps you with your markdowns. How is it that that works? Well, I’ll just stop there.

Rishi Bhatia

So it’s quite similar to the price recommendation model, but what you have here is basically like a set target of the inventory left there. For example, if I’m ending a summer season for apparel, and this is not only with our retailer, most of the retailers might be doing that because if a summer’s ending, you have a lot of stock left, your stocking costs might be higher, your labor costs will be higher. Do you want to think from that perspective that I have to sell this inventory and all that stuff or it’s a seasonal item and so you start marking them down, those items at certain point of time and think through that perspective. That basically like, okay, I have to try it at right point so that I don’t make loss but I can sell this inventory at the right time so that a new item that are coming, going to take that space come at the right time into the store and we are not having too much of stock left also. So you think from that perspective as well.

Mark Stiving

Nice. And out of curiosity, is the timing different between Minnesota and Texas?

Rishi Bhatia

No, it’s mostly similar.

Mark Stiving

Is it really?

Rishi Bhatia

I think we’re building the national price right now, so it all depends on which items you want to…and that’s a strategy decided primarily right now with our stakeholders. What we do is we get the items, store items, these needs to be backed on and we we just mark them down further

Mark Stiving

Now. And so how much, I assume you’re sitting there crunching all the numbers and saying here’s an optimal price point and you said you’re doing it nationwide. How much authority does the region or the state or the individual store have to say, no, this is really the price that we should be doing, and then how do they make those decisions?

Rishi Bhatia

For example, in case of fresh items and all that stuff, they have certain expiry dates. So you don’t want to sell it, you know that expiry date is in three days and the new stock is coming my way. The stores will have the authority to mark them down, but we have an algorithm, again, send it to them and they run that algorithm. It’s created through that and they will recommend that basically this is the price you should be selling it. And they they take that price and give that price.

Mark Stiving

Okay. So they typically just listen to you, they listen to the data.

Rishi Bhatia

Yeah. Most of them.

Mark Stiving

Okay. And then when you do dynamic pricing, how dynamic does it get? Are you changing prices multiple times a day?

Rishi Bhatia

No, we’re not dynamic. I put it down because I was intrigued by that concept, dynamic pricing.

Mark Stiving

Well, so let’s talk about Wendy’s. How’s that? I assume you read the articles.

Rishi Bhatia

I read, I just heard the news, I didn’t read the articles too much, but that was one of the area I was really intrigued by dynamic pricing that like Uber cracked that idea that, now, in fast food chain Wendy, how will it crack it? I was really intrigued by that. I wanted to see how you do, first thing is you need to know when my demand is going to be higher or lower and all that stuff. But specifically in the area where you have a food business, it intrigues me. How can you have dynamic pricing at a certain point of time? So I need to be cautious at what point I’m ordering my burger or something like that so that they get a price.

Mark Stiving

So, look, I’ll share my thoughts on this for just a second. It took Uber two or three years to teach us as users that dynamic pricing made sense. That it was okay. And even today they don’t say you’re on surge pricing. They just give you a price and say here’s your price point. And now if you do the same route over and over again, you can tell if it’s high or low and what’s going on, but they don’t announce that you’re in surge pricing anymore. But they had to work hard to teach us that.

Rishi Bhatia

Yeah. Okay.

Mark Stiving

And so it’s not something people like.

Rishi Bhatia

Yeah, some people don’t like it because if you’re in a hurry then the traffic is higher and someone has to pay more money. If I came from my home to a certain place and I’m paying like $20 at that point of time and I’ll return from there and I have to pay $50 for the same trip, I will be not happy about it for sure because the demand is more at that time. So I might not be happy, but yeah, maybe at $20 I was getting cheaper at that time. But we don’t know what is the actual cost there? What is the actual price there?

Mark Stiving

Yeah. So I personally don’t, it doesn’t bother me about Uber because I understand what’s going on and I’m totally okay with it all. But when Wendy’s announced dynamic pricing, I thought they were insane.

Rishi Bhatia

Okay.

Mark Stiving

But I’ll tell you how they could do it to make it make sense and you could teach them this by the way, right? Instead of saying, hey, we’re going to count the number of people in line and we’re going to raise prices when there’s too many people in line. They could use historical data and say, look, from 11:30 to 1:30 the store’s really crowded. So we’re going to set high list prices and if you come after 1:30 or before 11:30, we have discounted prices.

Rishi Bhatia

Yeah. That is a possibility. But then they are confident about the customer loyalty factor as well. That’s one thing I’m pretty sure about where they know that the people who are buying a band when they will not go in, some buy somewhere else, that’s one thing they might be pretty sure of.

Mark Stiving

Well, so the question is, does someone look at that as a price increase or do they just look at that as the price? Because today Wendy’s raises prices and I still go, well I don’t, but I would if I were a Wendy’s user.

Rishi Bhatia

Yeah, it depends on, again, the customer to customer. I would say it’s a customer perception. Maybe initially, but I think people get used to the system. It took time for people, as you said, to get used to the overpricing as well. So maybe it’ll take time for the user to basically understand why it is happening. Maybe, it can happen. In that situation, if 130 to 330 my price is lower and my lines are getting bigger at that point of time, then people, customer is also very smart in that. But if they know at this point of time I’m going to get the lower price at Wendy’s, maybe they will shift their lunch timing. So that time when they say, I will go ahead buy it at this time, and maybe I’ll buy my dinner or maybe I will because in that time they have a flexibility of changing their timing. In Uber, maybe they don’t have that kind of leverage. Because if I have to go somewhere at a certain point of time, I might be going at, but in this scenario, maybe I can buy my dinner early or I can do my lunch late also, those pieces can come into factor there as well.

Mark Stiving

Yeah. And I actually think that’s what they want you to do. Right? They want more business. And so if you come early or after rush hour, rush hour will still be busy. So they just sold more, they just got more customers.

Rishi Bhatia

But that’s one thing they have to think through. Like is it that the people who are coming at 1230 to 130, are they moving to 130 or they’re getting new customers? That’s one of the things that will be interesting to see what happens and how many additional customers they’re getting. Or is it the same set of customers moving to different time zones? That’s one thing we have to think about.

Mark Stiving

Yeah, absolutely. Can I offer Walmart a piece of pricing advice?

Rishi Bhatia

Yeah, sure.

Mark Stiving

And I actually offer this to all retailers. Please, all retailers listen to this advice. I think that you should have a membership to shop. Now, I think Sam’s Club does.

Rishi Bhatia

Walmart has also that.

Mark Stiving

But I mean, in order to walk in the door, you have to be a member. And the reason I say this, most of the time it makes no difference, but we’ve got these cities where looting is going on constantly and people are stealing things and so how do we keep people from stealing things? Well, we don’t let them in the door unless they’re a member. And I would guess that people who are doing a lot of shoplifting tend not to buy memberships to stores. And so it feels to me like that would be a way to keep loss down, which would hold prices down. And by the way, I would pay for membership to go shop.

Rishi Bhatia

I think that’s an interesting concept, but Walmart already has Sam’s Club where the membership businesses are there, but I think Walmart wanted to be like, I’m not sure, but I can say that it wanted to be equal to everyone. So that’s why they don’t want to have that membership model in Walmart. We have Walmart plus now in the e-commerce side, which is a membership model which people can buy and then order online. And I think there are certain benefits for it in the store. That’s what I’m not sure about, but there might be some.

Mark Stiving

Yeah. And actually since you brought up Walmart Plus, how is pricing between the stores and Walmart plus? Is it identical pricing? Do you have to think through how we treat one different from the other?

Rishi Bhatia

Walmart Plus is mostly online because you get delivery free and all those benefits there. So Walmart Plus is mostly online. It’s not much in store. I don’t think it’s in store. Besides, I have seen some checkout registers, which are exclusively for Walmart Plus. Besides that, I think the pricing is the same, the item pricing is the same. It’s just the benefit you get as you get the delivery free at home. All the other benefits that you’re getting for Walmart Plus.

Mark Stiving

Yeah. Okay. By the way, I recently signed up for Walmart Plus, so thank you. I appreciate it.

Rishi Bhatia

Thank you for signing up.

Mark Stiving

I appreciate it. Rishi, this has been a lot of fun. Can I ask the final question?

Rishi Bhatia

Yep.

Mark Stiving

And that is, what is one piece of pricing advice you would give our listeners that you think could have a big impact on their business?

Rishi Bhatia

I think, put your customer first. Value pricing, what does your customer want, at what price your customer will be more loyal to you and what will they… because pricing is one component that everyone wants low price. And the cost component is really important in it. So I think, put your customer first when you’re putting the product, rather than going through the traditional route, learn from the data as much as you can and improve your models constantly based on that, how can you get the prices right.

Mark Stiving

Awesome. Love that answer. And actually the way you answered it made me, gave me another question that I just absolutely have to ask before we leave. I spend most of my time in B2B, not B2C type businesses, and I think a ton about how is it that customers get value from your products? I I think about that all the time. Yeah. And in the world of B2B, it’s pretty easy to say value is measured in incremental profit, right? So a company’s not going to buy your product unless they think it’s going to make them more money. Now, in the consumer world that doesn’t exist, right? I can’t say, hey, I’m going to make consumers more money. But how do you think about value or do you, and is there a way to think about value from the way you do your work?

Rishi Bhatia

I didn’t get that question. Can you repeat a little bit more of it?

Mark Stiving

Sure. By the way, if you’ve ever taken an economics class, what I’m asking you is what does utility mean and how do you measure it and use it in the way Walmart works? But I’ll ask the question the way I did before and that was what is the value? And if I’m selling to a business customer, I can measure value because that value that I measure is how much more money did I help them make?

Rishi Bhatia

Yep.

Mark Stiving

If I’m selling to a consumer, I can’t measure value that way. How is it that you measure value or do you even think in those terms?

Rishi Bhatia

So we have certain metrics that we get the constant feedback from the customers as well, which we have in one of the KPIs. We constantly track how satisfied our customers are. So one of the metrics that is very important, you go and look at the, when you’re online, you look at the reviews of the item and when the customers are providing those reviews and feedback basically how things are doing. So I think those, if you’re able to improve on that and the customer, your complaints are overall complaints are also going down. And that is one value you can measure from that perspective as well. It’s not always in the monetary term, it’s always on the customer satisfaction side as well. And B2C, you can always measure customer satisfaction. You can send surveys to them, they can provide feedback, you can pick a sample out of that and do your NPS score and all those things basically, and check on that basis as well.

Mark Stiving

Nice. Fabulous answer. Fabulous answer. Rishi, thank you so much for your time today. If anybody wants to contact you, how can they do that?

Rishi Bhatia

And they can reach out to me at LinkedIn. It’s Rishi Bhatia direct, my name is R-I-S-H-I B-H-A-T-I-A. There might be many Rishi Bhatia, but put Walmart behind it. It’s only one person.

Mark Stiving

Okay. And we’ll have the link in the show notes, so not a problem. Listeners, thank you for your time today. If you enjoyed this, would you please leave us a rating and a review. And finally, if you have any questions or comments about this podcast or pricing in general, feel free to email me, [email protected]. Now, go make an impact!

Tags: Accelerate Your Subscription Business, ask a pricing expert, pricing metrics, pricing strategy

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