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Wal-Mart enters the ad age

Long envied for its logistical prowess, the big-box retailer is learning the power of marketing.

By Suzanne Kapner, writer
Last Updated: August 17, 2008: 12:03 AM EDT

(Fortune Magazine) -- If you've been watching TV lately, you may have come across Wal-Mart's new back-to-school ad. It features a well-scrubbed teenager wearing the California surf brand Op, as her Everymom exults that the giant retailer satisfied her daughter's fashion cravings without breaking the family bank. On the surface the spot doesn't look radically different from the company's advertising in years past. But its creation, part of Wal-Mart's "Save money. Live better" campaign, is a result of dramatic changes taking place behind the scenes.

Wal-Mart famously amassed its daunting market share by using sophisticated systems for logistics and operations. By contrast, its marketing was always something of a backwater, and the retailer's ads looked homemade, with Wal-Mart's price-slashing smiley-face character in a prominent role. An attempt to inject some pizzazz by hiring Chrysler marketer Julie Roehm resulted in a culture clash, and she departed in a 2006 mini-scandal.

Now the company is bringing new sophistication to its marketing, and the changes are generating eye-opening results. Analysts say the latest campaign, which launched in September 2007, has helped Wal-Mart deliver strong sales growth - repeatedly beating expectations - at a time many retailers are gasping for breath.

"Marketing had been considered a support function at Wal-Mart," says Stephen Quinn, who was promoted to chief marketing officer last year. "I had to convince people that it could have a direct impact on sales."

When Quinn, 49, joined Wal-Mart fromPepsiCo (PEP, Fortune 500) in 2005, the behemoth was slumping. Consumers complained that its stores were too big and too difficult to navigate. Advocacy groups blasted Wal-Mart's treatment of employees. Big-box stores were losing cachet.

The company got panicky enough that it tried to emulate its much smaller but infinitely cooler rival Target (TGT, Fortune 500). Wal-Mart introduced relatively chic clothing and pricier home goods. The results were forgettable, to be kind. (Remember Wal-Mart's ill-fated Metro7 fashion line and its ads in Vogue? I didn't think so.)

One reason Wal-Mart struggled to adapt was its insular mindset. Says Craig Johnson of the consulting firm Customer Growth Partners: "Wal-Mart was inward-looking, not outward-looking."

Quinn pushed to change that. He applied practices common at consumer product companies like PepsiCo's Frito-Lay North American unit, where he'd been chief marketing officer. Quinn spent two years conducting quantitative research - something Wal-Mart had avoided - to determine why consumers shop at the retailer and what they want. When, for example, pharmacy customers told researchers that they broke pills in half because they couldn't afford their full prescription, Wal-Mart conceived its wildly successful $4 prescription drug plan.

Perhaps the most important finding: Wal-Mart's most profitable customers are also its most price-sensitive. That told Quinn's team that Wal-Mart didn't need to mimic Target; the low-price mantra still resonated. "We simply needed to articulate it in a modern way," Quinn says.

Save and have a better lifestyle

Wal-Mart's new ad firm, the Martin Agency, combed corporate archives seeking ideas that would resonate with core budget shoppers. A eureka moment came while watching a video of a Sam Walton speech from 1992. "We'll give the world the opportunity to see what it's like to save and have a better lifestyle," Walton said. From that sentence sprang the "Save money. Live better" tagline.

As mild as the changes look from the outside, they represent a significant cultural shift. Though Quinn had the support of top executives like CEO Lee Scott, many of Wal-Mart's midlevel managers resisted. Also not to be understated was the impact of the economy's downward spiral. Suddenly Wal-Mart has the right message at the right time. Johnson, the consultant, says the new marketing approach "is one of the key elements behind the company's turnaround." Since the new campaign launched last September, the retailer's long-stagnant stock has risen 32%. Customers save money - and Wal-Mart lives better.  To top of page

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