Wal-Mart Case Review - Economics

How is Wal-Mart able to sustain its economic profit in the face of intense competition?

In an article by Burt Helm from Business Week Online, March 28, 2007, Wal-Mart CEO: “I’m not a big fan of marketing”. He later said he meant just “advertising,” but that’s what Chief Executive Lee Scott replied when I asked him what he expected from the upcoming ad campaign, and how the company planned to get shoppers to buy items like apparel (Business Week Online, 2007). The CEO goes on to He started things off with a harsh assessment of last year’s plan to get more of the 137 million Wal-Mart customers interested in items like apparel and home goods. "We're defined by our customer, not by us...We found we can’t wake up and try to do something new and not earn it,” said Scott. He continued: “You couldn’t have spent enough marketing on Wal-Mart apparel last year.” He said he that though they went “too far, too fast,” they hadn’t altogether abandoned the strategy.

So after a tumultuous year in the marketing department, Scott told us he wants to stick to Wal-Mart’s low-price image, and focus on things like smart consumer research and store planning. The key is having the right product in the right place for the right price, he said, and there’s no reason to try anything fancy. "I care that we have good ads, but whether we have a good TV ad or a bad TV ad doesn't make a difference," he said. "The point is reinforcing the message” (Business Week Online, 2007).

I have always been impressed by Wal-Mart’s ability to gain the market share they have.

My only disappointment with them has been their recent indiscretion in hiring and promotion practices of female employees.

Wal-Mart has created barriers to entry; they have been copied but so far, not surpassed. Wal-Mart has been able to sustain positive economic profit earnings for a long period of time. Whenever there is positive economic profit, other firms, including Entrepreneurs will want to get in on the success in the market. In reading Wal-Mart’s case review in Boyes (2004). As stated in the text, “Economic profit arises from a distinctive capability, something that enables companies to produce at a lower cost than their competitors can or enhances the value of their products in ways that put them ahead of their rivals,” (Boyes, p. 149, 2004). I see Wal-Mart as a leader in their respective industry. Wal-Mart differentiates themselves from their competition by creating higher capacity for differentiation in their market. They have distinguished themselves by separating from the traditional relationship between increasing innovation and complexity and costs. “Wal-Mart is able to sustain an economic profit because they are differentiated on the outside, while staying simplified on the inside” (Dow Jones, 2006). They have been able to create offerings on a shorter cycle while reducing complexities brought about by enormous variety and speed. In another article Wal-Mart capabilities are further exemplified, “…componentization and standardization of products, processes, and technology,” (Dow Jones, 2006). Wal-Mart has created a marketplace like no other before or since. I believe before Wal-Mart, Sears did not even have this enormity of market. Since then Sears has fallen to second place. An article in Business Week, states, “Wal-Mart’s marketplace clout is hard to overstate,” (Bianco, 2003). Principal companies that utilize a multilayered approach are able to reduce their costs, have the flexibility to customize their products and services for their varied customer segments. Wal-Mart’s modular approach has enabled them to optimize their global supply chain, which in return allows them to better be able to meet demand, reduce variability and uncertainty, and also reduce product lifecycle costs. “The striking success of companies such as Wal-Mart, Dell Computers and Proctor & Gamble suggest that effective supply chain management can lead to a sustainable competitive advantage (Dow Jones, 2006). They have introduced or innovated technologies to help their focus on modularization, and reduce complexities of the supply