Don't Underestimate Wal-Mart's iPhone Offer

(MoneyWatch)  The iPhone may only be two bucks cheaper at Wal-Mart than it is elsewhere, but don't underestimate what the retailer can do with the Apple device and a couple of dollars.

Wal-Mart doesn't win over consumers by selling a few things a lot cheaper but by selling everything a bit cheaper, just enough so that shoppers know they're getting the best price or one so close it's just not worth shopping around to better. Wal-Mart's core customers are trying to get by on a tight budget, and, by the way, that group has grown appreciably since the start of the economic downturn. One reason its prices end in .97 and .88 rather than .99 as at every other retailer is that Wal-Mart always wants to remind customers that it is saving them at least a few pennies on each purchase. A significant proportion of the consumers in the United States already visit a Wal-Mart at least occasionally, and most of the rest drive by one regularly. So why go somewhere else to spend two more bucks?

The two-buck effect is even more pronounced on line. Consumers searching the web for the best price will discover that Wal-Mart has it. Clearly, Wal-Mart believes in the value of undercutting the competition on the Internet. In early December, Wal-Mart announced it was releasing a batch of Nintendo Wii consoles for sale on its website for $249.24, which undersold Bestbuy.com's price by 75 cents.

Add to that Wal-Mart's ability to prompt secondary purchases. If they search for iPhones on Wal-Mart's web site, consumers come to a page that offers a choice of iPhone and iPhone Accessories. So, Wal-Mart already is putting accessories on an equal footing with the phones themselves. As the year goes by, it will have opportunities to promote those accessories for Mother's Day, Father's Day, graduation season, etc. Consumers might be tempted with a 30% discount on a shiny black iPhone case for Father's Day or, for the really lucky dad, with a special offer for half off that shiny black case with an iPhone purchase.

One way or another, Wal-Mart will demonstrate to consumers that they can get a better deal at its stores. By making the point in consumer electronics, it is making a bid for even more market share in a lucrative area where it already has captured big chunks of key categories, such as flat panel televisions. Wal-Mart can make two bucks go a long way.