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Al Norman

Al Norman

Posted: June 27, 2009 02:09 PM

Wal-Mart Pulls Misleading Ads -- Again

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Advertising Board Says Wal-Mart's Savings To Shoppers "Not Even Close"


The driving mission of the Wal-Mart corporation is to make money by saving its customers money. "At Wal-Mart," the company says, "everything we do flows from our purpose of saving people money so they can live better."

This week, Wal-Mart's truthfulness about "saving people money" was called into doubt again. The retailer's cost-saving claims in its advertising were labeled "unsupported" by the advertising industry's cop -- the National Advertising Division. The NAD, in a case published this month, found that Wal-Mart's radio and TV ads which claimed "you could save on average over $700 a year" on groceries, was not based on any evidence in the record.

Wal-Mart's TV ads featured two small disclaimers: at the bottom of the screen it reads, "Excludes fresh meat and produce." The voiceover then states, "if you bought these kinds of groceries at Wal-Mart, you could save on average over $700 a year." A second disclosure, lasting four seconds, appears directly below the packaged goods and states that the claim is based on the "8/15/08 Global Insight, Inc. U.S. Cost Comparison Study based on 2007 sales of packaged foods by category; excludes meat, produce & other random weight items. Local savings vary."

Wal-Mart's ad was challenged at the NAD by the Texas-based grocery chain H.E.B., which charged that the $700 savings claim was based on a faulty study paid for by Wal-Mart. Since 2005, Wal-Mart has paid the firm Global Insight to produce market studies. Their 2005 study concluded that Wal-Mart had produced consumer savings of $2,329 per household per year. Global Insight determined that Wal-Mart was responsible for an overall 3.1% decline in consumer prices. That reduction in price level "translates directly into savings for consumers amounting to $263 billion by 2004" according to Global Insight.

Wal-Mart was so enamored of its consultant's findings that it installed a calculator on its website to show how many millions of dollars in savings the company had created for Americans as the months rolled by. That calculator is now gone from their website.

But the Global Insight study was roundly criticized by economists who said its conclusions were "deeply flawed" and "unreliable." The Economic Policy Institute noted that the Global Insight study was based on the retailer's impact on the Consumer Price Index -- but 60% of the items in the CPI are services, not commodities at Wal-Mart. "The real pressures on family income are coming from items that can't be bought at Wal-Mart (health care, housing, transportation)," said EPI.

H.E.B. complained that the 2007 Global Insight report blended together the whole grocery market, showing only that Wal-Mart's grocery prices were better than the average of all prices offered by all stores that sell food, including many small or specialty food stores that would have higher prices. H.E.B. said that Global Insight failed to look at brand, grade or quality of merchandise in its comparisons, and that the methodology used would allow Wal-Mart to claim lower prices even when consumers buying identical items would see no price difference on the shelves. H.E.B. even produced its own item-by-item cost survey of H.E.B. vs. Wal-Mart stores in Waco, Texas and concluded that "some shoppers will save more at H.E.B. due to its use of promotional pricing and coupons."

The NAD reviewed H.E.B.'s charges, and Wal-Mart's response, and found "a significant disconnect" between the Global Insight study and the claims made in Wal-Mart's commercials. NAD wrote that the Wal-Mart TV ad made it appear that "you" (the individual viewer) could save $700 a year by buying groceries at Wal-Mart. The NAD said "the Global Insight study cannot support this message, as it concerns a national average. Consumers who live in many towns and cities will not save even close to the promised $700." NAD was also concerned that grocery items in the Global Insight survey accounted for less than 36% of total supermarket sales, and items such as fresh meat and other produce were omitted from the survey -- disclaimers that no consumer would read or understand.

As a result of the H.E.B. complaint, the NAD found that the savings claim by Wal-Mart "was not supported by the evidence" and recommended to Wal-Mart that it discontinue its $700 savings claim. Wal-Mart responded by saying its claims were adequately substantiated and "well-supported," and "we stand by these findings and are proud of the savings we deliver to our customers." The company, however, admitted that it was no longer airing "that particular spot," and that it would take the Division's recommendations "into account in future advertising."

If all of this sounds familiar, it should. In 1993, Target challenged to the NAD Wal-Mart's advertising slogan, "Always the low price. Always." The NAD ruled that the ads were misleading, because Wal-Mart did not always have the lowest prices. Wal-Mart appealed the NAD ruling to the National Advertising Review Board, a group of 70 professionals from the advertising field. Wal-Mart ultimately agreed to slightly change its slogan to "Always low prices. Always. Wal-Mart." The NARB ruled that Wal-Mart's older slogan, which it had used for nearly six years, indicated that Wal-Mart carries the lowest price for all items at all times -- a claim it simply couldn't substantiate.

Wal-Mart has spent a fortune misleading consumers. Last year Wal-Mart spent $2.3 billion on advertising. By comparison, ten years ago its advertising budget was $405 million. In this past decade, Wal-Mart's net income has increased three fold (from $4.43 billion in 1999 to $13.4 billion in 2009), but its advertising budget has skyrocketed almost six-fold.

These advertising watchdogs like NAD and NARB have bitten Wal-Mart repeatedly, but the company's deceptions simply morph into new slogans that imply savings that are neither honest, nor accurate. Wal-Mart boasts that 'always low prices' was Sam Walton's 'pricing philosophy' when he opened his first Wal-Mart in 1962. But the retailer has struggled over the years with truth in its advertising -- and it has been the burden of its competitors to repeatedly challenge its unsubstantiated claims. American shoppers have been manipulated into believing not only that Wal-Mart will save them money, but that the retailer can even quantify how much.

But the truth, as Wal-Mart might say, is that "local savings vary."

Al Norman is the founder of Sprawl-Busters. His books include "Slam Dunking Wal-Mart," and "The Case Against Wal-Mart." His website is http://www.sprawl-busters.com