7-8 - Case - Selling CFLs at Wal-Mart

ID# CU55
PUBLISHED ON
OCTOBER 21, 2011
Selling CFLs at Wal-Mart

BY ERIC J. JOHNSON * AND DANIEL M. BARTELS †
Introduction
In March 2009, Andy Barron, Wal-Mart’s senior vice president for hardlines merchandising,
had some concerns about his lighting business. Previously, he had helped Wal-Mart achieve
an ambitious goal for this division: selling 100 million energy-efficient CFL (compact
fluorescent light) bulbs by year end 2007 as part of the company’s new sustainability
program (see Exhibit 1). Through innovative merchandising, strategic pricing, and an
unprecedented consumer education partnership between Wal-Mart, Yahoo!, the Department
of Energy’s ENERGY STAR program, and environmental non-profits, Barron had been able
to reach his CFL sales goal three months early. 1 But he was concerned: revenue growth had
fallen off during 2008 and the outlook for full year 2009 sales was uncertain. Given the
visibility that CFL adoption had both within Wal-Mart and as part of the company’s public
image, Barron thought it important to meet his lighting business goals for the year. He
decided to re-examine the dynamics of the CFL marketplace to determine what barriers to
purchase needed to be overcome . . . and what opportunities could be seized.
CFL and Technology Use

The energy-saving compact fluorescent light bulb was first invented in the 1970s as a
response to the 1973 oil crisis. CFLs were introduced for consumer use in 1980, but large-
scale production was limited due to the high cost of constructing factories to accommodate
the new design. When concerns about energy dependency on foreign oil and global warming
mounted in the 1990s, greater attention was given to CFLs. Major companies such as GE,
Philips, and Osram Sylvania ramped up CFL production. The bulbs became more widely
available and were sold in the same retail outlets that offered traditional incandescent bulbs,
including hardware stores, supermarkets, home improvement centers, discount retailers, and
online retailers.
Author affiliation Copyright information

*
Norman Eig Professor of Business, Columbia Business School © 2011 by The Trustees of Columbia University in the City of New
†
Assistant Professor, Columbia Business School York.
Acknowledgements This case is for teaching purposes only and does not represent an
Kate Permut ’83 provided research and writing support for this endorsement or judgment of the material included.
case.
This case cannot be used or reproduced without explicit permission
from Columbia CaseWorks. To obtain permission, please visit
www.gsb.columbia.edu/caseworks, or e-mail
[email protected]
This document is authorized for use only in Dr. Preeti Virdi's EX/IMTG/2021-22/163 at Institute of Management Technology - Ghaziabad (IMT) from Apr 2022 to Sep 2022.
CFLs were initially quite expensive, as much as $25 each, but the product offered consumers
great savings on their household energy bills. 2 On average a CFL bulb used 75% less
electricity than an incandescent bulb and lasted 10 times longer, usually five to seven years.3
Because CFLs used less wattage, each bulb saved consumers, on average, $30 a year on their
electric bills and produced 450 pounds fewer greenhouse gases from power plants over its
lifetime. 4 Because the average household had 45 light bulb sockets, this could mean
hundreds of dollars in savings, even if just a few of a home’s incandescent bulbs were
switched. 5
Given these financials, the CFL bulb was a consumer purchase that clearly paid for itself—
and industry manufacturers expected demand to skyrocket. The number of CFL models
proliferated from 1999 to 2008 (see Exhibit 2). Designers developed bulbs in new shapes and
sizes (see Exhibit 3) as CFL technology became well integrated into the residential lighting
industry.
Barron had been offering CFLs at Wal-Mart for some time and knew that prices were
declining. Where CFLs averaged $15 per bulb in the 1990s, the consumer cost was down to
single digits in the mid 2000s. By 2009, the price for one CFL bulb averaged $3, but the unit
price could range from $1 to $6 depending on the discount outlet, manufacturer rebate,
whether the product was purchased in bulk, and whether sales promotions were offered. 6 As
the price per unit dropped, the payback period for consumers grew ever shorter (see Exhibit
4).
Utility companies also had an interest in getting consumers to switch to the new bulbs. In
2007, household lighting accounted for 14% of America’s total electricity consumption. 7 CFLs
promised to reduce that number significantly. Energy companies joined with retailers to
promote the product switch, offering their own coupons, trade-ins, and price promotions to
entice consumers to install CFLs.
These initiatives had some success, as the CFL share of household lamps reached 24% in
2008. 8 But an even more powerful player was active in the drive to increase the number of
CFLs in American households—the US government and its nationwide ENERGY STAR
program.
US Government Programs and Policies

Safety standards, utility price regulation, and government oversight had long been part of
the electrical industry. In 1991, a new consumer education project was launched when the US
Department of Energy and the US Environmental Protection Agency joined together to
create the ENERGY STAR program. This initiative promoted energy conservation across all
types of household appliances and technologies, bestowing the ENERGY STAR logo on
items that used 20% to 30% less energy than required by federal standards. CFLs met this
goal and the US government made a significant effort during the 2000s to increase consumer
usage of the energy efficient bulbs. ENERGY STAR research and education on energy-related
Selling CFLs at Wal-Mart | Page 2

BY ERIC J. JOHNSON* AND DANIEL M. BARTELS†
household expenditures helped consumers track where their energy dollars were being
spent (see Exhibit 5).
The impact of ENERGY STAR’s efforts could be significant. On the program’s website,
consumers could see the direct benefits of using CFLs:
The smallest things can add up to a real difference. We encourage you to
change out the light fixtures or bulbs at home that you use most with
ENERGY STAR qualified models. If every American home replaced their five
most frequently used light fixtures or the bulbs in them with ones that have
earned the ENERGY STAR, we would save close to $8 billion each year in
energy costs, and together we would prevent the greenhouse gases
equivalent to the emissions from nearly 10 million cars. FACT: The energy
used in the average home can be responsible for more than twice the
greenhouse gas emissions of the average car. When you use less energy at
home, you reduce greenhouse gas emissions from power plants and help
protect our environment from the risks of global climate change. 9
Federal tax policies were also used to incentivize energy-efficient households. Barron was
aware of the new the American Recovery and Reinvestment Act passed in February 2009.
The Act provided homeowners with a federal tax credit of 30% of costs (up to $1500) for
undertaking home improvements to reduce energy costs. The previous maximum had been
$500 under earlier incentive programs. CFL purchases, and any related bulb installation
costs, now qualified under the Act and could be deducted from a consumer’s annual federal
tax payment.
Barron also had to keep up with the federal regulations and policies that specifically
addressed the light bulb industry. The 2007 Energy Independence and Security Act required
that general purpose light bulbs become 30% more energy efficient than incandescent bulbs
by 2010. Contrary to some statements by politicians, the law did not ban incandescent bulbs.
Instead, the legislation included an escalating energy-efficiency standard. It required that
consumer-marketed general purpose bulbs (including incandescent bulbs, CFLs, LEDs, and
any new lighting technologies yet to be invented) become 70% more efficient by 2020. This
was particularly daunting for incandescent bulb manufacturers because, unless they came up
with a significant technological breakthrough, they would be hard pressed to meet the
requisite efficiency levels. The challenge was different for other manufacturers: LED screw-in
bulbs consumed 80% less energy and had a very long life cycle (50,000 hours, meaning 10 to
30 years depending on use). But at $40 to $110 apiece, the LED bulbs were too pricey for
most consumers. Industry experts predicted LED bulbs would be at half that cost within two
years, but the difficulty in meeting both consumer price expectations and federal efficiency
standards remained. 10
Given Wal-Mart’s global reach, Barron also kept track of regulations imposed on lighting
products in other countries. A ban on incandescent bulbs had been passed in Australia in
2007 and was set to go into effect in 2010. In 2008 the 27 members of the European Union had
Page 3 | Selling CFLs at Wal-Mart

adopted the ban on incandescent bulbs too. 11 Japan declared a ban on traditional bulbs
starting in 2012. Given these developments, several manufacturers such as Toshiba were
planning to stop production of incandescent bulbs altogether.
The Consumer Experience

Barron was aware of market research that showed many consumers holding misperceptions
about CFLs. When these shoppers thought of CFLs, they wrongly thought of the harsh
fluorescent lighting ceiling fixtures they saw in schools and businesses. The first CFLs
introduced to the consumer marketplace in the 1980s also had a variety of usage problems
that would be difficult for early adopters to forget: the bulbs took a long time to warm up;
they often buzzed or flickered as they wore out; they could not be used with a dimmer
switch; and the promised level of household energy savings was only achieved if the bulbs
experienced continuous use. Moreover, strict, inconvenient recycling procedures were
required to dispose of the new bulbs due to the mercury contained inside.
Thus despite promised household savings of $350 per year (if an entire house converted to
CFL usage), adoption slowed. 12 New CFL models fixed many of the problems of the initial
designs, but consumer complaints regarding unflattering white light, strange bulky shapes,
and fears of mercury poisoning received a great deal of media attention.
A nationwide study in 2008 found that 26% of households accounted for 76% of all CFLs in
residential use, 13 and that 50% of US households had no CFLs at all (see Exhibit 6). What
Barron found most relevant was that higher CFL usage was correlated with higher levels of
income, education, and age. Non-CFL users were more likely to be on the lower end of the
income, education, and age scales; more likely to rent; more likely to live in multi-family
dwellings; and more likely to have occupied their residence one year or less. 14 However, the
impact of local utility promotional programs was clearly seen in states such as Delaware and
California, where both high and low income consumers had adopted the technology. The
report showed that once a consumer installed a single CFL bulb, their likelihood of
purchasing CFLs again in the next year more than doubled.
Wal-Mart’s Challenge
By the first quarter of 2009, the light bulb industry had undergone further changes. CFL
manufacturers had redesigned the bulbs and addressed the major customer concerns.
Mercury levels were greatly reduced and recycling instructions simplified. Dimmer
capability, more sizes for different household fixtures, and a variety of color spectrums were
now available. Many businesses, utilities, government agencies, and non-profits were
educating consumers about energy costs, offering interactive tools to calculate personal
savings from CFLs (see Exhibit 7).
The CFL market had huge upside potential. While the average US house used 45 light bulbs,
some larger residences had up to 100 sockets. US consumers bought 5.5 million light bulbs
each day, totaling two billion bulbs each year. Of the 4.7 billion lamp sockets in the country,

only one in six was filled with a CFL. 15 And the impact of the CFL’s long life on replacement
sales had yet to be felt. 16
However, the global economic downturn of 2008 was having an impact on retail. The
average CFL unit cost of $3.00 was well above the average $.50 price of an incandescent
bulb. 17 The incandescent segment of household lamp sales reversed its trend of losing market
share to CFLs during the fourth quarter of that year 18 (see Exhibit 8).
Given the rapidly evolving marketplace, Barron considered his options. His 2007 CFL
promotional programs had been a big success (see Exhibit 9). In 2008 Wal-Mart accounted for
41% of all CFL shipments in the entire United States. 19 But Barron’s business challenges
remained the same: What could be done to accelerate the US consumer’s adoption of CFLs?
How could he meet his objectives for increased CFL sales at Wal-Mart stores across the
United States?

Questions for Discussion
1. What are the advantages and disadvantages of CFLs to the US consumer? How do
you characterize these factors?
2. What are some of the sources of resistance to CFL adoption from the consumer’s
perspective?
3. If you were managing the lighting product category for Wal-Mart, how might you
increase sales, particularly in light of 1 and 2 above?
4. How might an interested third party such as electric utilities be more involved in the
adoption of CFL bulbs? What is their specific interest? How might they participate in
the issues surrounding CFL adoption?
5. What role can government regulation play in driving greater consumer adoption?
What are the options that local, state, and federal regulators have to help create CFL
demand?

Exhibits
Exhibit 1
Wal-Mart Cumulative Fluorescent Light Bulb Sales October 2007–
January 2009
Lights On
300
250
Sales of CFL bulbs at Wal-Mart
200
(millions)
150
100
50
0
Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09
Source: Stephanie Rosenbloom and Michael Barbaro, “Green Light Specials, Now at Wal-Mart,” New
York Times, January 24, 2009.

Exhibit 2
CFL Manufacturers and Models by Year
Source: US Department of Energy, “Big Results, Bigger Potential,” ENERGY STAR CFL Market
Profile, March 2009, page 4,
http://www.energystar.gov/ia/products/downloads/CFL_Market_Profile.pdf.

Exhibit 3
CFL Models
Source: “Compact Fluorescent Lamps,” Madison Gas & Electric, photo courtesy of Philips,
http://www.mge.com/business/saving/madison/pa_2.html.

Exhibit 4
Trend in CFL Prices and Annual Energy Cost Savings
Source: US Department of Energy, “Big Results, Bigger Potential,” ENERGY STAR CFL Market
Profile, March 2009, http://www.energystar.gov/ia/products/downloads/CFL_Market_Profile.pdf.

Exhibit 5
Prototypical Consumer Energy Costs
Source: “Where Does My Money Go?” ENERGY STAR website, August 4, 2011,
http://www.energystar.gov/index.cfm?c=products.pr_where_money.

Exhibit 6
Proportion of US Households Using CFLs in 2008
Source: Michael Reid, “Who’s Buying CFLs? Who’s Not Buying Them? Findings from a Large-Scale,
Nationwide Survey,” (paper, Association of Computer Electronics and Electrical Engineers Summer
Study on Energy Efficiency in Buildings, Summer, 2008) p. 2-260,
http://www.eceee.org/conference_proceedings/ACEEE_buildings/2008/Panel_2/2_263.

Exhibit 7
Payback Calculator
Source: “Payback Calculator,” EnergySavers.coop, http://www.energysavers.coop/products/cfl-

selector/resources-and-faqs/payback-calculator/?AFFID=11453.

Exhibit 8
Consumer Use of CFLs 2001–2008
Source: National Association of Electrical and Medical Equipment Manufacturers, “More Consumers
Shifting to Incandescent Lamps as Economy Weakens,” press release, February 4, 2009,
http://www.nema.org/media/pr/20090204a.cfm.

Exhibit 9
Wal-Mart 2007 CFL Promotion Programs
• Introduce a private label CFL at Wal-Mart under the Great Value brand that retails at
four bulbs for the cost of three regularly priced brand name CFLs;
• Offer online orders at both www.walmart.com and www.samsclub.com, and put an
online savings calculator on the Sam’s Club Web site;
• Increase shelf space, offer more selection and move bulbs to eye level for easiest
access;
• Install interactive displays in select Wal-Mart stores to allow customers to compare
qualities and styles, and demonstrate the potential savings associated with each type
of CFL;
• Work with manufacturers to lower the mercury content of the CFLs sold at Wal-Mart
stores and Sam’s Clubs, making them safer and more efficient;
• Partner with Yahoo!, Lawrence Bender, the Department of Energy’s ENERGY STAR
program, Environmental Defense and hundreds of others on the 18Seconds
movement to promote energy efficiency.
Source: Wal-Mart, “Wal-Mart Surpasses Goal to Sell 100 Million Compact Fluorescent Light Bulbs
Three Months Early,” press release, October 2, 2007,
http://walmartstores.com/pressroom/news/6756.aspx.

Endnotes
1 Wal-Mart, “Wal-Mart Surpasses Goal to Sell 100 Million Compact Fluorescent Light Bulbs Three
Months Early,” press release, October 2, 2007, http://walmartstores.com/pressroom/news/6756.aspx.
2 Blaine Harden, “Fluorescent Bulbs Are Known to Zap Domestic Tranquility,” Washington Post, April
30, 2007.
3 Michael Barbaro, “Wal-Mart Puts Some Muscle Behind Power-Sipping Bulbs,” New York Times,
January 2, 2007.
4 Barbaro, “Wal-Mart Puts Some Muscle Behind Power-Sipping Bulbs.”
5 Emily Masamitsu, “The Best Compact Fluorescent Light Bulbs: PM Lab Test,” Popular Mechanics,
May 1, 2007, http://www.popularmechanics.com/home/reviews/news/4215199.

6 US Department of Energy, “Big Results, Bigger Potential,” ENERGY STAR CFL Market Profile,
March 2009, page 4, http://www.energystar.gov/ia/products/downloads/CFL_Market_Profile.pdf.

7 “FAQs: Electricity,” US Energy Information Administration,
http://www.eia.gov/tools/faqs/index.cfm#electricity.
8 “More Consumers Shifting to Incandescent Lamps as Economy Weakens,” National Electrical
Manufacturers Association News, February 4, 2009, http://www.nema.org/media/pr/20090204a.cfm.

9 www.energystar.gov
10 Carl-Gustav Linden, “LED Light Bulbs: Are You Ready to Make the Switch?” in Green Tech, CNET
News, April 22, 2008, http://news.cnet.com/8301-11128_3-9923048-54.html.

11 Jonathan Stearns, “EU to Ban Sale of Incandescent Light Bulbs by 2012,” Bloomberg News, December
8, 2008.
12 18seconds.org, as of August 2011, http://green.yahoo.com/18seconds/.
13 Michael Reid, “Who’s Buying CFLs? Who’s Not Buying Them? Findings from a Large-Scale,
Nationwide Survey,” (paper, Association of Computer Electronics and Electrical Engineers Summer
Study on Energy Efficiency in Buildings, Summer, 2008) p. 2-258,
http://www.eceee.org/conference_proceedings/ACEEE_buildings/2008/Panel_2/2_263.
14 Reid, “Who’s Buying CFLs?” page 2-263.
15 US Department of Energy, “Big Results, Bigger Potential,” page 5.
16 Charles Fishman, “How Many Light Bulbs Does It Take to Change the World? One. And You’re
Looking at It,” Fast Company, December 19, 2007,

http://www.fastcompany.com/magazine/108/open_lightbulbs.html.
17 Fishman, “How Many Light Bulbs Does It Take?”
18 National Association of Electrical and Medical Equipment Manufacturers, “More Consumers
Shifting to Incandescent Lamps as Economy Weakens,” press release, February 4, 2009,

http://www.nema.org/media/pr/20090204a.cfm.
19 US Department of Energy, “Big Results, Bigger Potential,” page 3.


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ID# CU55

Selling CFLs at Wal-Mart

CFL and Technology Use

Author affiliation Copyright information

US Government Programs and Policies

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The Consumer Experience

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Source: “Payback Calculator,” EnergySavers.coop, http://www.energysavers.coop/products/cfl-

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May 1, 2007, http://www.popularmechanics.com/home/reviews/news/4215199.

March 2009, page 4, http://www.energystar.gov/ia/products/downloads/CFL_Market_Profile.pdf.

Manufacturers Association News, February 4, 2009, http://www.nema.org/media/pr/20090204a.cfm.

News, April 22, 2008, http://news.cnet.com/8301-11128_3-9923048-54.html.

15 US Department of Energy, “Big Results, Bigger Potential,” page 5.

Looking at It,” Fast Company, December 19, 2007,

18 National Association of Electrical and Medical Equipment Manufacturers, “More Consumers

Shifting to Incandescent Lamps as Economy Weakens,” press release, February 4, 2009,

Selling CFLs at Wal-Mart | Page 16

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