CASE 22

Wal-Mart Stores, Inc. : Strategies for Market Dominance

Wal-Mart Stores, Inc. (formerly branded as Wal- WALMART AT A GLANCE

Mart, branded as Walmart since 2008) is an
American public corporation that runs a chain of
large discount department stores and a chain of
membership required warehouse stores. In 2010 it Type : Public (NYSE: WMT)
was the world's largest public corporation by
Industry : Retailing
revenue, according to the Forbes Global 2000 for
that year. The company was founded by Sam Founded : Rogers,
Arkansas, U.S.
Walton in 1962, incorporated on October 31, 1969,
and publicly traded on the New York Stock (1962)

Exchange in 1972. Wal-Mart, headquartered in Founder(s) : Sam Walton

Bentonville, Arkansas, is the largest majority
Headquarters : Bentonville, Arkansas,
private employer and the largest grocery retailer in
the United States. In 2009, it generated 51% of its U.S.

US$258 billion sales in the U.S. from grocery Area served : Worldwide
business. It also owns and operates the Sam's
Key people : Mike Duke (CEO)
Club retail warehouses in North America.
H. Lee Scott (Chairman
Wal-Mart operates under its own name in the
Of the Executive
United States, including the 50 states and Puerto
Committee of the Board)
Rico. Wal-Mart operates in Mexico as Walmex, in
the United Kingdom as Asda ("Asda Wal-Mart" in S. Robson Walton
(chairman)
some branches), in Japan as Seiyu, and in India
as Best Price. It has wholly-owned operations Product : Discount
Stores
in Argentina, Brazil, and Canada. Wal-Mart's
investments outside North America have had mixed Supercenters

results: its operations in the United Kingdom, South Neighborhood

America and China are highly successful, while it markets
was forced to pull out of Germany and South Korea Net Income : US$ 14.33 billion
when ventures there were unsuccessful.
1. Identify and evaluate the marketing strategies that
Wal-Mart pursued to maintain its growth and
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 marketing leadership position. What factors should a
firm consider in the development of its marketing
strategy?

The marketing strategies is the determination of a firm’s objectives, the selection of its target
markets, the development of an appropriate marketing mix for each, and the allocation of the
resources necessary to achieve its goal that Wal-Mart pursued to maintain its growth and
marketing leadership position are identified and evaluated below:

01. People First Philosophy (Pg 504, Para 2): The main reason behind Wal-marts suucees is
the people and the way that they are treated and the way they feel about the company. This
philosophy guided the company to maintain its consistent record of growth and expansion.

02. The Associates (Page 505, Para 1): Put the interest of the Associates first was the motto of
Sam Walton. The employees of Wal-Mart are called associates rather than clerks thus making
them realize that they are a part of the organization and these associates in turn will cause the
business grow by giving better services to the customers.

03. Penney Idea(Page 505, Para 1): Sam Walton was very much impressed by the Penny
method of doing business and later modeled the Wal-Mart chain after many penney
principles.The Penney Idea was adopted in 1913 by the J.C. Penney Company. It reads as
follows:

1. "To serve the public, as nearly as we can, to its complete satisfaction."

2. "To expect for the service we render a fair remuneration and not all the profit the traffic will
bear."
3."To do all in our power to pack the customer's dollar full of value, quality, and satisfaction."
4. "To continue to train ourselves and our associates so that the service we give will be more and
more intelligently performed."
5. "To improve constantly the human factor in our business."
6. "To reward men and women in our organization though participation in what the business
produces."
7. "To test our every policy, method, and act in this wise: Does it square with what is right and
just?"

It was Penney Idea #2 nd #3 which had the biggest impact on Walton. Both relate to giving the
public the most for their dollar. This may mean deep discounting which might not always

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generate the highest profit per item. However, a lower profit margin per item can lead to a larger
overall profit margin if customers buy more items from the business.

04. Selling Strategy (Page 506, Para 2): Saving peoples money is the slogan and goal of Wal-
Mart.Wal-Mart would sell nationally advertised, well known brand merchandises at low prices in
strict surroundings. They will also give refunds, credits and rain checks(A rain check is a
voucher which will allow you to purchase the item at the advertised price after the store has
restocked it). Management conceived the firm as discount department store chain offering a wide
variety of general merchandise to the customer.

05. Expansion Strategy (Page 506, Para 3): The firm developed an aggressive expansion
strategy. New stores were located primarily in towns of 5000 to 25000 population. The average
store size is 45000 sft. The firm also expanded by location stores in contiguous areas, town by
town, state by state. When one area has been dominated the firm moved to adjacent area. Wal-
Mart build the distribution center first and then spotted stores all around it. Most stores are less
than a six-hour drive from one of the company’s warehouses. This ensures availability of
products in the stores all the time or in a short period of time.

06. Customer Satisfaction (Page 506, Para 4): Each Wal-Mart store provides the customer
with a clean, pleasant and friendly shopping experience. Employees wear blue vests to be
identified easily, shopping cart pick ups of the customers is a regular practice. The customers are
welcomed by the “ people greeter” who gave directions and advices to the customers. Even in
some cases merchandise was bagged in brown paper sacks rather than plastic bags as it is
preferred by the customers.

07. Brand Value (Page 506, Para 5): Wal-Mart logo in white letters on a brown background on
the front of the store served to identify the firm. It has been determined that Wal-Mart has adept
a delicate balance needed to convince customers that its prices were low without making people
feel that its stores were too cheap. Customers’ belief that they are buying high quality products at
a cheaper market rate from Wal-Mart.

08. Customer Confidence (Page 507, Para 2): A Satisfaction guaranteed refund and exchange
policy was introduced to allow customers to be confident of Wal-Mart’s merchandise and
quality. This policy allows customers to get refund or exchange merchandise if they are not
satisfied with it within a reasonable time frame.

09. Technological Advance (Page 507, Para 2): Scanner cash registers, hand held computers
for ordering merchandise and computer linkages of stores with general office and distribution
centers improved communications and merchandise replenishments.

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10. Bond and Moral Ground (Page 507, Para 2): Each stores were encouraged to initiate
programs that would make it a integral part of the communities it operates. Thus creating a
strong bond between the customers and the associates of that particular store. Associates were
encouraged to maintain the highest standards for honesty, morality and business ethics in dealing
with the public.

In conclusion, Wal-Mart is the number one retailer in the United States. Wal-Mart operates in
many countries world-wide and is moving into new countries every year. Each year Wal-Mart
founds a new area to grow and offer more services to the customers.In order to stay atop the
company has to follow their strategy and achieve the key policy goals.In this way they are going
to have deal better with their customers and will be able to enhance their excellent reputation in
the market.

Marketing strategies may differ depending on the unique situation of the individual business.
However there are a number of ways of categorizing some generic strategies. A brief description
of the most common categorizing schemes is presented below:

• Strategies based on market dominance - In this scheme, firms are classified based on their
market share or dominance of an industry. Typically there are four types of market
dominance strategies:
o Leader
o Challenger
o Follower
o Nicher

• Porter generic strategies - strategy on the dimensions of strategic scope and strategic
strength. Strategic scope refers to the market penetration while strategic strength refers to
the firm’s sustainable competitive advantage. The generic strategy framework (porter
1984) comprises two alternatives each with two alternative scopes. These are
Differentiation and low-cost leadership each with a dimension of Focus-broad or narrow.
o Product differentiation (broad)
o Cost leadership (broad)
o Market segmentation (narrow)
• Innovation strategies - This deals with the firm's rate of the new product development and
business model innovation. It asks whether the company is on the cutting edge of
technology and business innovation. There are three types:
o Pioneers
o Close followers
o Late followers

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 • Growth strategies - In this scheme we ask the question, “How should the firm grow?”.
The most common gives four answers:
o Horizontal integration
o Vertical integration
o Diversification
o Intensification

2. Discuss the importance of changes in the external environment to an

organization like Wal-Mart.

An organization’s external environment consists of political, legal, regulatory, societal,

economic, competitive, and technological influences. These forces represent “noncontrollable”,
to which the company must monitor and respond.

A number of changes had taken place in the external environment of Wal-Mart. The important
change was the economic recession in early 1990’s. During this period many companies have

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either sold or declared bankrupt. For example - Canadian developer Robert Campeau. After
acquiring United States based Allied Department Stores in 1986 and Federated department
Stores in 1988, he was declared bankrupt with over $6 billion in debt in early 1990’s. Same thing
happened with Chicago-based Carson, Pirie, Scott & Company which was sold to the P.A
Bergner & Company. As it was an external influence, organizations had no control over it. All
they can do cope with the changes. Some retailer responded to changes in the marketplace by
selling goods at price levels (20 to 60 percent) below regular retail prices. For example - Sears,
Roebuck & Company, unsuccessfully introduced a new policy of “everyday low pricing” (ELP)
in 1989. But all these attempts cannot save them from the economic recession.

But Wal-Mart responds to these changes very successfully. Because Sam Walton’s motto was
“Change must be accepted”. To cope with the changes they introduced some new policies like
“malls without walls” or warehouse retailing and their focus was on small towns and cities. Wal-
Mart continued to expand in contiguous trading areas and into larger urban areas such as Dallas
and Phoenix. As a result Wal-Mart became the nation’s largest retailer and discount department
store chain in sales volume in 1991.

3. What conclusion can be drawn from a review of Wal-Mart’s financial

performance over the decade of the1980’s? From this review, what can you
conclude about the financial future of the firm?

Wal-Mart Stores, Inc.

Selected Strategic Profit Model Ratios: 1989-1983

FiscalProfit Asset Return On Financial

Return On

YearMargin Turnover Assets LeverageNet Worth

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 Year (%) (x) (%) (x) (%)

1989 04.0 x 3.25 = 13.0 x 0.51 = 6.63

1988 03.9 x 3.11 = 12.13 x 0.54 = 6.55

1987 03.8 x 2.94 = 11.2 x 0.56 = 6.27

1986 03.9 x 2.72 = 10.6 x 0.57 = 6.04

1985 04.2 x 2.90 = 12.18 x 0.54 = 6.58

1984 04.2 x 2.82 = 11.84 x 0.53 = 6.28

From the above results we can comment that Wal- Mart`s profit margin is
higher in 1984 and 1985 but from then it decreased and again increase at a
decreasing rate. There financial leverage ratio that is debt to total asset ratio
indicates that their debt utilization is growing and return on investment is
increasing.

4. Speculate on how much impact the “absence” of Samuel Walton will have on
the forward momentum of the organization. What steps have been or should be
taken by management to continue Mr. Sam’s formula for success?

The case points out that much of the forward momentum of Wal-Mart had come from the
entrepreneurial spirit of Samuel Moore Walton. Mr. Sam was the Chairman of the Board of
Directors and corporate representative. David Glass, as the new President and Chief Executive
Officer, suggests when approached on the departure of Mr. Sam: "There’s no transition to make
because this company is so sound and so universally accepted. As for the future, there’s more
opportunity ahead of us than behind us.” David Glass thinks that they are good student of
retailing and they have studied the mistakes that others have made. They might made mistakes
but they won’t repeat that.

A number of programs might be introduced to perpetuate the enthusiastic and exciting leadership
that Mr. Sam brought to the organization:
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 1) Give proper idea about Sam Walton`s philosophy by film, in books, in articles, in
a painting to hang in every store;

2) Spread positive thinking about Mr. Sam’s philosophy among the new employees.

3) Train new employees with various training program like leadership programs,
communication programs which would emphasize continuing the Mr. Sam
philosophy in the company;

4) Develop Mr. Sam as a symbol or idea as opposed to an individual.

5) Execute in the firm all the ideas that Mr. Sam stood for, like his homespun humor,
life style, or morality.
6) Continue to encourage the human reactions and human resource, bottom-up style
of management in the firm.
7) Monitor whether the employees follow MR.Sam`s philosophy or not.

5. What evidence is there to suggest that the marketing concept was

understood and applied to Wal-Mart?

The marketing concept emerged in the mid – 1950’s. Instead of a product-centered, “make-and-
sell” philosophy, business shifted to a customer-centered,” sense-and-respond” philosophy. The
job is not to find the right customer for your products, but to find the right products for your
customers. The marketing concept holds that the key to achieving organizational goals is being
more effective than competitors in creating, delivering, and communicating superior customer
value to your chosen target market.

Evidence of an appreciation and application of the marketing concept is found in annual reports
of the firm and in management comments and actions. The 1990 Annual Report of Wal-Mart
Stores, Inc. suggested that corporate and marketing strategies in the 1990s would be based upon
a set of two main objectives which had guided the firm through its growth years in the decade of
the 1980s.

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 1. The customer was featured in the first objective, "Customers would be
provided what they want, when they want it, and at value."

2. The second objective emphasized the team spirit, "Treating each other as we
would hope to be treated, acknowledging our total dependency on our
Associate Partners to sustain our success." The objective was to grow to a
truly nationwide retailer in sales and earnings.

At another point in the case, it was noted that stores were expected to "provide the customer with
a clean, pleasant and friendly shopping experience." Some have suggested that it was many of
the little things that set Wal-Mart apart from the competition and made it an example of the
application of the marketing concept. The "people greeter", wide aisles, employee vests for
recognition, warm interior decor and exterior colors, and the use of brown paper sacks rather
than plastic were considered examples of the "customer first" attitude.

Since customer satisfaction is the major aim of the marketing concept, the "Satisfaction
Guaranteed Refund and Exchange Program" could be interpreted as also part of the application
of the marketing concept. The comments made by Glass also reflect the concept: "We’ll be fine
as long as we never lose our responsiveness to the consumer."