From Sam Walton's first five and dime store in Bentonville Arkansas to the consumer product kingdom of what we, as consumers, have come to know as Wal-Mart, the philosophy has never changed-keep the prices lower than the competitors. Nowadays, you may walk into any one of 3,000-some Wal-Marts and see aisles and aisles of merchandise piled to the roof with prices dirt cheap. But how does Wal-Mart achieve these Always Low Prices?

Wal-Mart uses three main techniques two, of which, are relatively new. Every entrepreneur knows that you have to keep costs down in order to maximize your profit. That's just simple logic. Wal-Mart keeps their own costs down by spending only a certain percent of sales on their payroll budget, usually around 6%-and they keep it there. If more money is being spent than what is budgeted for payroll, then people get fired.

Oddly enough however, Wal-Mart keeps little of the sales that are made (roughly a quarter of a trillion dollars every year). So, although Wal-Mart is the largest corporation on the planet in terms of sales and revenue, they keep very little as profit, which also helps them to keep their everyday low prices.

The third tactic they use, also the most controversial, is pricing pressure on manufacturers. If you want to sell at Wal-Mart, you have to agree to the price that Wal-Mart sets for your product. It's your responsibility as a manufacturer to make that price. This usually involves lowering wages, moving overseas, or in some cases, completely redesigning the product.

Here's a short anecdote that, to my opinion, is some of the genius of Wal-Mart: back when deodorants were being packaged in individual boxes, Wal-Mart was still a young robust company. When the deodorant companies wanted to selling, Wal-Mart realized an inefficiency (of which, Wal-Mart is known to look for and eliminate to keep costs down). That inefficiency was that little cardboard box that came with the deodorant. They realized that there was absolutely no need for the little cardboard box because when the consumer got it, they were going to take the deodorant out of it and simply discard it. So, they took the cardboard box out of the equation. It saved lot's of money on packaging the product, shipping it, and even saved some shelf space at Wal-Mart.

Nowadays at Wal-Mart, manufacturers compete in the Wal-Mart world headquarters in Bentonville Arkansas, in what is known as a reverse auction. Several representatives of some different manufacturers are brought into a room with a Wal-Mart buyer and they bid for the lowest price to sell their product at. No one wins except Wal-Mart of course.

In order to meet Wal-Mart's demands, manufacturers are also sometimes forced to move their production overseas. In fact, it is estimated that between 1997 and 2004, Wal-Mart had caused the loss of 3.1 million manufacturing jobs in the United States alone. With manufacturing operations moving overseas, the argument of workers' rights is also brought up. Regulations, working conditions, laws etc., are not at the same standards as they are in the United States. In fact, most factories where products are manufactured in Asia, would have working conditions that would be highly illegal in the United States.

So perhaps the real question is, is Wal-Mart worth the Always Low Prices?

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