How intangible assets help avoid a race to the bottom

By selling some of the cheapest goods in the world, US retailer Walmart generated $US611 billion and a whopping $US152 billion in profit for 2023.

This is a bit strange at first glance because Walmart doesn’t really have anything unique to sell. Sure, it has thousands of private-label products, but these items are part of Walmart’s grand competitive strategy to drive down prices for all goods while still commanding strong margins.

Walmart is the king of this basement price strategy. Not only has it morphed into one of the biggest companies on the planet, the size, scale and strength of its intangible assets allow it to squeeze a healthy profit from the fractions of cents it earns on each sale. As the numbers show, Walmart’s strategy has been extremely profitable for shareholders.

This presents a curious question. If your company finds itself in a race to the bottom on price, is it reasonable to expect the same outcome as Walmart?

Almost definitely not.

To a first approximation, Walmart occupies a zone of business where everyone wants to copy them, and it would be fairly easy to do so because it doesn’t appear to be all that different from other retailers. Generally, this is the worst place to be for any company since it is virtually impossible to make any margin.

But while Walmart looks easy to copy, peeling back the layers of what makes this company tick proves why it is the top dog in retail. The collective strength of Walmart’s many underlying intangible assets is the key component of its wildly successful “low-cost” business strategy.

Just a quick list will illustrate this point.

Walmart’s relationship with suppliers and manufacturers is legendary. Its data on customers – and their growth potential – could probably fill the Library of Congress. Its industry expertise and software systems have created some of the most efficient retail operations in the world. And its brand is so well known that some people know more about Walmart than they do about the US.

That’s why Walmart is successful. It has a constellation of intangible assets that allow it to compete on price while still maintaining its margins and profitability. If the company had not invested so heavily in developing its intangible assets, Walmart would be little better than the cliché General Store in Hollywood Westerns.

Walmart succeeds because it understands its role in the ecosystem. Walmart’s primary purpose is to provide shelf space so that manufacturers can sell their goods. Every retailer does this, but Walmart arguably does it better than any other company at a mass market level.

Said differently, Walmart has a very specific contract with manufacturers: in return for stocking their products on its shelves at a lower price, Walmart promises to get the maximum number of customers through its doors so they can (hopefully) buy the things on those shelves. It’s a trade-off that works for everyone.

Using Walmart as an example, if it’s getting tough to differentiate your business from competitors, chances are there’s something about your business that makes it special. If you’re in the middle of a price war, the most urgent task is to locate and codify that asset – whatever it is.

Furthermore, while a company may not be able to protect its products with copyright or a patent, there’s still plenty of room for brand power drawn from deep consumer trust in that product. It may not be protectable, but your company can still be known for its customer service, community involvement, sustainability, friendly staff and myriad other brand dynamics.

Maybe your company targets exactly the same customer cohort as your competitors. That would be a problem if you didn’t know more about those buyers than anyone else. This is the power of data.

Gathering every morsel of data from a company’s interactions with customers, comparing it to public data, and then washing out the results into a fresh new series of insights can be a phenomenal intangible asset. Knowing what customers want, when they want it and how they choose to buy it can be like rocket fuel to reach escape velocity in even the most crowded markets.

Similarly, about ten years ago a small New Zealand company called Lewis Road Creamery came out of nowhere and sold millions of bottles of chocolate milk. It was so successful so quickly that every newspaper wanted to know its secret. After all, its chocolate milk wasn’t out-of-this-world different to other drinks. What was going on?

Lewis Road Creamery’s secret was its marketing campaign. In the early days of social media, the company’s smart marketers tapped into Facebook and Instagram, targeting the “cool” demographic of 18-35-year-olds who were busy, but not quite professional. The company put chocolate milk in the hands of “influencers,” positioning it as a premium product for adults. Soon enough, the beverage was going viral before “viral” was even a concept.

Dovetailed with this was a strategy in which Lewis Road Creamery limited supplies of the product to the retail outlets and restricted how many each person could buy at one time. Hilariously, it even paid for security guards to stand in high-profile locations to manage ‘crowds’ wanting to purchase the milk. By investing heavily in building brand equity, the drink was almost permanently sold out for months.

Finally, don’t be shy to see relationships as intangible assets, either. You never know when an old contact might be enough to get your product or service in front of the right market segment.  

The popular TV show Suits was full of great examples of how relationships can save businesses from sticky situations or help get deals across the line. The concept of “banking” goodwill to “cash it in” at a future date is a well-known practice in many other sectors – not just the legal world.

The ability to pick up the phone and talk directly to a key person in a complex supply chain or the exact decision-maker at a company can be just as valuable as owning a high-rise building.

There can only be one Walmart, but that doesn’t mean every company fighting a price war is completely out of options. By taking a step back to assess your intangible assets, you might be pleasantly surprised by how different – and valuable – your company truly is.