Wallmart, Inc – the Rise to Low-Cost Leader

Wallmart, Inc – The Rise to Low-Cost Leader

Executive Summary

Dated back in 1962, Samuel Walton and his brother J.L. Walton opened their first Wal-Mart Discount City in Rogers, Arkansas. Its name quickly spread across many states and within only 7 years, 18 Wal-Mart stores emerged in Arkansas, Missouri, Kansas, and Oklahoma; the Walton brothers officially incorporated these ventures as Wal-Mart Stores, Inc. Wal-Mart's stock was listed on the New York Stock Exchange in 1972 (1). The giant corporation operated under the core philosophies of excellence in the workplace, outstanding customer service, and most importantly, the lowest possible prices. Strategic decisions are those that aim at differentiating an organization from its rivals in a way that is sustainable in the future, and Wal-Mart represents an outstanding example. Among other retail outlets such as Target, Kmart, etc. Wal-Mart was soon recognized nationally as the leader of the pack, selling everyday low-cost merchandise ranging from the simplest household items to the more sophisticated electronic devices.

SWOT Analysis

Strengths: Wal-Mart has strong retail brand's image, marketing, and human resource management. Wal-Mart has outstanding reputation for selling merchandise at the lowest prices comparable to others in the industry. Being a one-stop-shop, it offers convenience for busy individuals and families because middle class families and low-income earners are Wal-Mart's primary targets.

Weaknesses: Being the jack-of-all-trade retailer meaning Wal-Mart may not have the flexibility of some of its more focused competitors. For example, it may sell general electronic devices such as digital camera, SD memory, but may not list computer video cards, motherboard, CPUs, etc. In addition, despite its devotion to IT development, it is often very hard to ensure top operational efficiency due to its huge size. Although the company is global, its international operation still only presents in about 14 countries, thus missing out huge amount of market share.

Opportunities: As mentioned above, Wal-Mart has incredible potential to expand into many more countries if it really wants. That being said, a sound business plan and marketing strategy, as well as knowledge about local regulation and consumers' wants and needs, are still necessary to be successful. Wal-Mart can aggressively acquire, merge with, or form alliances with other global retailers. Two of the hottest new markets Wal-Mart should consider expanding into are China and India because both are among the fastest growing countries in the world. With the majority of population favor low price, Wal-Mart can acquire additional huge market shares.

Threats: Production and manufacturing costs have been lowering over the years due to outsourcing opportunities. As a result, this leads to intense price competition. Also, Wal-Mart is the biggest rival for the rest of the retailers. The major threat would be the union of other retailers to fight against Wal-Mart, but it's unlikely so. Barriers to entry are high because it's tough for new entrants to tackle an already established Wal-Mart. (2)

Wal-Mart Strategy Analysis

Wal-Mart managers believe that maximizing the effectiveness of its strengths while minimizing and concealing its weaknesses may result in superior operational performance relative to its rivals. By 2010, it is still the world's largest public corporation, revenue in 2009 amounted to $258 billion.

Wal-Mart Price Spin:

Wal-Mart is the master of illusion when it comes to convincing its competitors, consumers, and suppliers to believe that its slogan has always been: "Always low prices". In fact, recent investigations and studies demonstrate that only about 15% and 20% merchandises at Wal-Mart have lower prices than its competitors, while the remaining 80% actually have higher prices than other retailers. Wal-Mart is very successful at marketing itself as the lowest cost retailer in the industry by creating an illusion and embedding that perception into everyone's minds. More specifically, Wal-Mart makes consumers think that its prices are much lower than its competitors' prices using a concept called "price spin", after countless advertising campaigns. The principle here is that customers feel their expectations regarding price are met if they perceive them to be met. For example, the first items that are placed in high-visibility spot in every section of a store are very low-priced. This helps create a perception that since the prices of these first items are so low, the rest in the store are also low.

Expectation