Case Assignment

On

WALMART

Submitted to

Omar Faruq

Submitted By

Name ID

Israt Jahan Saima 2015-1-10-345

Date Of Submission: 24th October, 2018

1.
Sam Walton’s original strategic vision for Walmart-

Sam Walton strategic vision for Walmart was to offer discount merchandise to the southern cities
whom where avoided by the rivals because they thought small towns could not support a large
discount store.This enabled the company to gain markets in small towns across America that the
competitors did not thin was possible.

How did this strategy help Walmart to gain competitive advantage?

Walmart Inc. (formerly Wal-Mart Stores, Inc.) applies its generic strategy to achieve competitive
advantage based primarily on low cost and the correspondingly low selling prices of goods
offered to consumers in the international retail industry. Michael E. Porter’s model illustrates that
a company uses a generic competitive strategy as a general and basic approach to effectively
compete against other firms in the industry. In this business analysis case of Walmart,
competitive advantage is maintained through a variety of strategies and tactics. However, the
main generic strategy applied in the business relies on minimizing cost. This condition enables
the company to adjust its selling prices accordingly. As shown in the SWOT analysis of Walmart
Inc., selling price minimization is a strength that makes the business competitive against other
firms that operate in the global retail market. The company directly and indirectly competes
against firms like Costco Wholesale, Amazon.com Inc. and its subsidiary Whole Foods Market,
Home Depot, and eBay Inc. These companies influence Walmart’s strategic management and the
implementation of its generic competitive strategy and related strategic objectives.

 Walmart’s Generic Strategy for Competitive Advantage (Porter’s Model)

Walmart Inc.’s generic strategy is cost leadership. Michael Porter’s model defines cost leadership
as a generic competitive strategy that focuses on achieving low costs. As a low-cost producer of
retail services and related business outputs, Walmart is able to compete based on low selling
prices. Low prices are a fundamental strategic objective used in the company’s pricing strategy
(see Walmart Inc.’s Marketing Mix or 4Ps). Low prices are a main selling point of the retail
business. The company uses various approaches to maintain low costs and, consequently, low
prices. For example, through automation and related technologies, and through minimized
spending for human resources, the company achieves low costs in operations.

Cost leadership involves low product differentiation. With focus on low prices as a selling point,
Walmart Inc.’s retail services are common and, thus, poorly differentiated from retail services
from other firms in the industry. In addition, this generic strategy involves a low level of market
segmentation. For example, the company offers its retail services to every consumer in all
segments of its target markets. Doing so aligns with Walmart’s corporate mission and corporate
vision, which aim for leadership in the global retail market. To succeed in implementing its
generic competitive strategy, the company relies on process efficiency, management approaches,
and other strategies, such as intensive growth strategies, that help reduce costs. With the strategic
objective of keeping costs low, the corporation is known for large-scale imports of low-cost
goods from countries like China.

 Walmart’s Intensive Strategies for Growth (Ansoff Matrix)

Market Penetration (Primary Strategy): Walmart’s main intensive growth strategy is market
penetration. In Igor Ansoff’s model, this strategy entails selling more goods or services to the
company’s current markets. Current markets are those where the business has existing
operations. In implementing this intensive strategy, Walmart Inc. sells more goods and services
to its current consumers by giving discounts and related offers. For example, as a cost leader, the
company offers discounted wholesale packages of various goods.

Market Development: This intensive strategy is of secondary significance in supporting

Walmart Inc.’s business growth. Market development involves offering the company’s existing
goods and services to new markets. For example, in using this intensive growth strategy,
Walmart opens new stores in countries where it does not yet have operations. A related strategic
objective is to continue to establish the company’s presence in new markets. This objective
includes online presence for retail transactions. The cost leadership generic competitive strategy
supports the market development intensive growth strategy through low prices that attract
consumers to Walmart stores in these new markets.

Product Development: Walmart Inc. uses product development as a minor intensive strategy for
growing the retail business. Based on the Ansoff Matrix, product development involves
developing and offering new products to the markets where the company currently has
operations. In this case, Walmart has minimal investment in new product development. The
company focuses its investments on sales and marketing, which are at the core of the retail
business. Nonetheless, using this intensive growth strategy leads to the strategic objective of
investing more in research and development (R&D) to introduce new services or improve
Walmart’s existing products. The cost leadership generic strategy requires that product
development must focus on new products that do not impose costly processes.

Diversification: This intensive growth strategy involves providing entirely new products in new
markets, which are usually industries or sectors where the company does not yet operate. For
example, Walmart Inc. entered the video streaming market in 2010 upon acquiring the content
delivery and media technology company Vudu Inc. A strategic objective in using this intensive
growth strategy is to search for and acquire companies that can be integrated into Walmart’s
existing operations, such as via the company’s e-commerce website. Despite its use in the
business, diversification remains a minor intensive strategy in growing the company. Walmart
Inc. has a low rate of diversification, as the business focuses on retail operations.

2.
How Wal-Mart continued to strengthen its competitive advantage over time and What this
teaches us about the source of a long-term competitive advantage-

a. Over time, the company became an innovator in information systems, logistics, and human
resource practices. Actions taken in these functional areas resulted in higher productivity and
lower costs as compared to rivals, which enabled the company to earn a high ROIC while
charging low prices. Wal-Mart led the way among U.S. retailers in developing and implementing
sophisticated product-tracking systems using bar-code technology and checkout scanners. This
information technology enabled Wal-Mart to track what was selling and adjust its inventory
accordingly so that the products found in each store matched local demand. By avoiding
overstocking, Wal-Mart did not have to hold periodic sales to shift unsold inventory. As Wal-Mart
grew, its sheer size and purchasing power enabled it to drive down the prices that it paid suppliers
and to pass on those savings to customers in the form of lower prices–which enabled Wal-Mart to
gain more market share and hence lower prices even further.

b. It taught me that you need to continuously improve and diversify other components - like
information systems, logistics, and human resources - to help power, improve, and sustain the
long-term competitive advantage. This teaches me that the future of a company depends on how
it handles people and how it adapts to upcoming changes within industries, especially those that
have to deal with technologies.

3.
By the early 1990s, Wal-Mart was encountering limits to growth in the US. How did it
overcome these limits to growth? Explain how the expansion moves that Wal-Mart made
In the 1990s made economic sense and helped to create value for the company’s
shareholders.

Wal-Mart overcame these limits by diversifying into the grocery business. This allowed groceries
and merchandise to be sold less than one roof, which was more convenient for customers. It also
diversified into the warehouse business with Sam’s Club. These expansion moves made sense as
they allowed more convenience for customers, while giving Wal-Mart more profit lines.
4.
Wal-Mart is encountering limits to growth within their chosen industries, as there are only so many
consumers within America. Wal-Mart should consider diversifying into more profit lines, such as
whole food stores in order to push back at these limits.

5.
From the very beginning Walmart has been responding to the changes. Not all the strategies were
planned at the outset. With the passage of time, they have been coping up with new challenges
and opening up new dimensions to success. For fifteen years(Before Wal-Mart), Sam had been
running a chain of independent variety stores in smaller towns. He and his team had been
working very hard but the business itself seems to be of limited growth. He felt that he had to
find an idea with a better payoff for all their efforts.  Sam did a detailed research and found out
that the future appeared to be headed towards ‘discounting stores’. He saw how some larger
stores were doing revenues of more than $2 million from each store compared to $1.4 million
from Sam’s 15 stores. He visited many discounting stores all around the country and studied the
concept in-depth. It was clear that discounting would go and dominate the market. “Buy it low,
stack it high, sell it cheap” was the guiding principle of discounting.

In response to different circumstances, Walmart’s strategy has evolved in every phase. This
strategies suggest me how the nature of strategic development works in the real field.

 Value Propositions
Always Lowest Price : That time, retailers were selling products with higher margin . A retailer
would sell a product costing 80 cents for $1.20. Sam, during one of his research work, found out
that by pricing the product at $1.00, a retailer could sell 3 times the volume and the profits were
much greater. This tip changed Sam Walton’s idea about the retail and his life. His motto became
“We Sell For Less — 20% less than the competition”. Discount everything the Wal-Mart carries.

Customer-Centric — Sam learned the importance of ‘Customer Service’ while running the

‘Variety stores’ for 15 years in those small towns. In those years, he and his associates built a
strong relationship with customers, who would keep coming back. Loyalty drove the business.
Sam wanted to extend ‘Best Customer Service’ to Wal-Mart’s customers too. To provide the best
service, he encouraged his employees to think and act like the customers. Thus, Wal-Mart’s
guiding principle was ‘Low Price’ and ‘Satisfied Customer Service’.

 Growth by expansion in the US and Internationally

A strategic goal of Wal-Mart is to expand. It has done so successfully. Looking at the facts and
figures clearly shows the corporations dominance and power. Currently the corporation employs
over 1.3 million employees, one million in the US alone. The company owns over 4000 stores
worldwide. Over 1,200 units (stores) are in operation internationally. Domestically, Wal-Mart is
the largest US retailer, employing around 1 million people. It has over 3,000 stores and outlets,
and 77 distribution centers. The company serves more than 100 million customers weekly in all
50 states, Puerto Rico, and several nations around the world.

 Internal Culture

Sam considered people working in his stores, warehouses as partners and called them
‘associates’ rather than employees. He believed that the more he shared profits with his
associates, the more profit the company would gain. Other than sharing the profits, Sam gave
incentive bonuses, discount stock purchase plans and health benefits to his associates. If the
company could treat the associates well, then the associates would treat the customers well. If the
customers were treated well, then they would visit the store again and again. Real profits in
business lie in ‘repeat customers’. Moreover, Sam’s belief was that Wal-Mart exists to save
money for the customers in addition to the valuable service and the quality. He asserted that
whenever Walmart spends one dollar mindlessly, it comes right out of our customer’s pockets
and if Walmart could save one dollar, that puts the company one more step ahead of the
competition.

Information System: One of the keys to this success was the implementation of Retail Link, a
supply-chain management system. This system, unique when initially implemented in the mid-
1980s, allowed Walmart’s suppliers to directly access the inventory levels and sales information
of their products at any of Walmart’s more than ten thousand stores. Using Retail Link, suppliers
can analyze how well their products are selling at one or more Walmart stores, with a range of
reporting options. Further, Walmart requires the suppliers to use Retail Link to manage their own
inventory levels. If a supplier feels that their products are selling out too quickly, they can use
Retail Link to petition Walmart to raise the levels of inventory for their products. This has
essentially allowed Walmart to “hire” thousands of product managers, all of whom have a vested
interest in the products they are managing. This revolutionary approach to managing inventory
has allowed Walmart to continue to drive prices down and respond to market forces quickl

References:

Akan, O., Allen, R. S., Helms, M. M., & Spralls III, S. A. (2006). Critical tactics for
implementing Porter’s generic strategies. Journal of Business Strategy, 27(1), 43-53.

Allen, R. S., & Helms, M. M. (2006). Linking strategic practices and organizational performance
to Porter’s generic strategies. Business Process Management Journal, 12(4), 433-454.

Campbell-Hunt, C. (2000). What have we learned about generic competitive strategy? A meta-
analysis. Strategic Management Journal, 21(2), 127-154.
Hussain, S., Khattak, J., Rizwan, A., & Latif, A. (2014). Interactive effects of Ansoff growth
strategies and market environment on firm’s growth. British Journal of Business and
Management Research, 1(2), 68-78.