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MARCOM

Advertising Strategies of TOI

The Times of India (TOI) is one of the leading newspapers in India. It is the largest circulated English
newspaper in India. It represents the growing influence of Indian middleclass and the value of English
education in the country. The Chief Manager of advertising at The Times of India was evaluating
effectiveness of its campaign in building The Times of India as a national brand. Most of the advertising in
the past has been functional in nature. It has concentrated on promoting Times of India as a brand with
functional elements like ‘largest circulated ‘ English newspaper; most upmarket newspaper; the
newspaper with a grip on future and other relevant functional attributes which are common for a
newspaper. Recently they have shifted to emotional platform where the newspaper is being projected as
something that chronicles the aspirations of Indians. It reflects struggle, turbulence, success and failure in
an Indian’s life. He was wondering whether such an advertising campaign will help in changing the
outlook of people towards the newspaper.He needs to evaluate the rationale and come up with answers
to few of the questions.

India as a Nation of Newspaper Readers

There are 300 newspapers in India. The Times of India is the largest English newspaper in India and
second largest English broadsheet newspaper in the world. There are more than 8 million readers who
pick up TOI everyday in India. This represents a growth of almost 30% to the previous year and defies the
gleaming outlook towards newspaper industry due to advent of television in India. It is the reigning king in
most of the cities in India. The Times of India offers the largest reach among newspapers in socio
economic categories most coveted by advertisers- sec A and sec B and eight of every ten readers belong
to sec B class. It is ranked as the six best newspapers of the world. Just ten years ago this newspaper
was sold only 845000 copies and today its circulation has gone well above three million copies a day. The
company has followed a world war–II strategy called pincer movement strategy. It is based on twin thrust
of editorial value additions and audacious pricing. More readers chose times of India because it give them
more for less.

Times of India-The Newspaper Product

The Times of India as a newspaper offers a buffet of contents spread over a diverse range of interesting.
From hard, political analysis to soft trend related news reports, to spiritual and metaphysical stories. News
in developed and interpreted with a more local focus and an equally strong global context. There is a
strong emphasis on encapsulating news in lucid info graphs and illustrations. Cartoons and caricatures
are used to create humour and cheer them for the day ahead. News stories are kept short and crisp to
save the reader’s time. A typical paper runs into anywhere between 24 and 32 pages and carries daily
city centric life style and other supplements such as Delhi Times, Bombay Times, Kolkata Times and
related supplements like Education Times (Education), Ascent (Careers) and Times Property (Real
Estate). The supplements recognize the reader’s widening scope of interests. Across the main newspaper
and the supplements, there is a strong emphasis on local content. Individual editions reflect the local
character of their geographic region while being true to the brand philosophy to the core. In May 2002,
TOI came out with a slicker launch in International standards. In 1992, with an invitational price offer, the
cover price was halved and the content in the newspaper was dramatically increased. Primed up local
coverage, additional pages for sports, business and entertainment with color, graphics, cartoons became
the key elements of Times of India new editions. In June 2003, The TOI offered its hindi newspaper
Navbharat Times (NT) with the English newspaper at a special price of Rs 75 per month. It was a great
scheme as existing readers of Navbharat Times got an opportunity to read the English newspaper for only
a small amount. Moreover, people could buy a package for their family. Both the newspapers have
different editorial feel and frequently varying viewpoints. So the reader got a chance to have different
perspective of exposure. In less than 30 days, The TOI-NT combo could move 200,000 orders. In July
2003, TOI offered its second combo offer TOI with Economic Times at the same attractive price of Rs 75
and the response was overwhelming. In early 2003, TOI in Delhi became the first newspaper to go full
colour. This was in line with company’s urge to innovate and the reader’s sensitivity to style and
penetration. TOI embraced technology in earnest in the whole value chain. From receipts of advertising to
production of the newspaper, the company makes extensive use of technology, allowing the newspaper
to interact with customers and advertisers on real time basis, coordinate the scheduling and page making
functions and print and volume smoothly on a sustained basis.

The advertising campaigns can be classified as a set of unified and well planned programs in which the
finger is on the pulse of the audience. The advertising campaign of TOI tries to touch every Indian’s life.
They have moved from functional, circulation based advertising claims to establish an emotional chord
with readers. They have used a set of emotions from hard realty to humour, from slice of life creative to
those celebrate a day in an average Indian’s life. The common thread has been a distinct ‘true to India’
style, which has led to appreciations from readers and a host of awards in various advertising functions.
The campaigns represent the period in which we live. The 50 years of freedom campaign launched in
1997 subtly brought out the various facets of life in India. The advertisements have highlighted the
‘Indian-ness’ in all the campaigns and reflected how TOI is a part of this great journey of Indian-ness.
Now they need to move ahead and develop a campaign which can highlight their success and also build
similar brand values across all the newspapers and supplements.

Questions for Discussion:

1. What factors have contributed to the success of Times of India/ What strategies they have
followed in Indian market?
2. Evaluate the advertising campaign of Times of India. What are the learning lessons from these
campaigns?
3. How the goals of integrated view of all editions can be achieved through a modified advertising
campaign?
4. Suggest an advertising campaign for Times of India covering the objectives, message and media
decisions?

SALES AND DISTRIBUTION

Dupont: Selling “Disappearing” Products

Imagine how tough it would be to be responsible for selling a “disappearing” product. That’s the challenge
faced by a group of marketers at DuPont, a company with a portfolio of brands that, for the most part,
reach final consumers only as ingredients in finished products. Teflon non-stick coating, Lycra fibers,
Freon refrigerant, Kevlar bullet-resistant fabric, Stainmaster carpet—these well-known DuPont products
share the distinction of being used in the manufacture of products that ultimately bear some other
company’s brand.

Jamie Murray, the person in charge of managing what people think of the overall DuPont brand, doesn’t
mind marketing products that can’t be found on store shelves or ordered from catalogs. “We are the
youngest 200 year-old company you will ever meet. We are always out there searching for those needs
that we can invent something to satisfy.”

The company’s slogan, “better things for better living,” hints broadly at the variety of needs DuPont has
satisfied over the years. When the computer industry required new forms of insulation for smaller and
smaller electrical components, or the aerospace program needed stronger material for satellite tethers, or
firefighters wanted fire-retardant suits, DuPont researchers headed to the laboratory. The company owns
almost 2,000 trademarks and markets them in 200 countries around the world.

The challenges DuPont faces in marketing its ingredient brands are no less daunting than the challenges
it faces in inventing them, so the company has developed five key principles to guide its actions. The first
is personality management—controlling what the brand stands for and means to consumers. Gary
Johnston, national marketing communications manager for nylon furnishings, says that, for DuPont, it’s
“science, business savvy, and a moral core.” The second principle is visibility management, which entails
creating awareness and familiarity for the invisible ingredients through integrated marketing
communications.

The third is target management, which Johnston says involves “very clearly defining who it is that you
need to connect with.” For a brand such as DuPont, that includes not only the end consumer, but also the
many constituencies in the manufacturing or value chain. The fourth principle is marketing management,
which has to do with understanding the dynamics of the marketplace so the company can fashion the
best connections with its target. Finally, there is reputation management, which is a proactive approach to
helping people understand what the company is and what it is about.

To reach consumers, however, Lycra must be marketed to manufacturers of garments and retailers. This
requires careful cultivation on the part of Lycra management. An example is the successful Wool Plus
Lycra program initiated in 1995. For this venture, Lycra management teamed with the International Wool
Secretariat to produce woven fabrics made with wool and lycra. This union is particularly noteworthy
because it is the first time that two fiber groups have joined to promote a product globally. It works
because the union provides value to both groups. The venture gives wool a new value-added feature by
leveraging recognition of products off the well-known Lycra name. DuPont can market Lycra beyond its
traditional markets in areas where it has little expertise. Moreover, because the program was sponsored
evenly by the two partners, working together means that each group has to expend fewer funds. As a
result, each side gets increased promotional awareness and market visibility for fewer dollars.

Understanding the dynamics of the marketplace has led DuPont to invest in research to develop a newer,
softer Lycra product. As the baby boomer market ages, it also gains a few pounds, sags a little, and
moves up to a larger size despite diets and exercise.

Firms in the United States are not missing out on this opportunity. Maidenform is already into wear-test
trials with it, so U.S. consumers may soon see these products in stores around the country. One store, in
particular, where they may find garments containing Lycra Soft is Macy’s, which is negotiating for use of
the product in garments sold through Federated Stores.

Some manufacturers are even willing to tie their names to that of Lycra. A case in point is Liz Claiborne, a
giant in women’s clothing. The new line, called Liz and Lycra, includes leggings, pants, turtlenecks, a
crewneck, an A-line dress, an A-line wrap skirt, and two jackets. All pieces will have a special Liz and
Lycra hangtag.

The decision to launch Liz and Lycra was made based on information from Europe, which showed stretch
items increasing in popularity, and on market research in which the company found that women wanted
versatility, comfort, and durability in a garment. The products were wear-tested by staff at Claiborne
headquarters, who found that Lycra eliminated the bagging which generally occurs at the knees on
leggings and stretch pants. Given these good results, the new line kicked off in Macy’s Herald Square in
March 1996 with in-store events, following a New York Times ad on the preceding Sunday. The ads and
instore visuals featured American Ballet Theater principal dancer Julie Kent photographed by Jose
Picayo. Thus, the creation of Liz and Lycra benefited not only Liz Claiborne and DuPont, but also Macy’s,
which is considering adding its own products that include Lycra. Association with the American Ballet
Theater is also a plus for all parties. ABT adds cachet to the Liz, Lycra, and Macy’s brands and also
creates a positive association between each brand and the ballet—a sort of good citizenship status. The
ballet gets promotion at no charge to it.

High standards are required of all the partners with whom DuPont enters into arrangements. “One of the
most serious challenges any ingredient brand faces is [that] when your brand becomes very popular and
very strong, lots of companies want to use it,” says Mary

Kopf, brand manager for Kevlar and Nomex. “Unfortunately, not all of those companies have high ethical
standards, so you might run into what we call counterfeiters. These are companies who either don’t buy
any of your product at all, or companies who may use a tiny bit of it, or use it sometimes and other times
not. But they label the product as if it contains our ingredient, and what we have to do as responsible
trademark owners is make sure that we pursue those counterfeiting situations.”

Enforcing the proper use of its ingredient brands is well worth the cost to DuPont, which sees those
brands as the source of the company’s success during its almost 200-year history. To enforce the Lycra
name, DuPont has a toll-free number in the United States (1-800-64-Lycra) for customers and final
consumers to report any suspected infringement or counterfeiting. It also runs campaigns stating that
Lycra is trademarked, and its staff continually tests garments for Lycra brand authenticity worldwide.
When labelled products that do not contain the Lycra brand are identified, the company takes steps—
frequently legal steps.

“Your competition may try to imitate you technically, they may try to imitate you with service, but one thing
they can’t imitate is your brand,” Kopf says. In this case, the appropriate use of the Lycra brand protects
not only DuPont, but also Liz Claiborne, the International Wool Secretariat, Macy’s, Maidenform, and any
of DuPont’s hundreds of partners. They all benefit from the value added by the Lycra name.

Questions for Discussion

1. How does the “selling-buying” relationship that occurs when Liz Claiborne wants to team up with
Lycra differ from that in which a consumer purchases a garment that contains Lycra?

2. What type of buying situation occurs when Liz Claiborne wants to team with DuPont to obtain
Lycra for the Liz and Lycra line?
3. Why would Liz Claiborne want to use Lycra rather than some other elastic-type product that might
be less expensive?

Product Management

Case Study of LG Electronics: Repositioning a Successful Brand


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LG Electronics is the largest player in the consumer electronics market in India, which is worth Rs 35,000
crore per annum. And now it feels the need to take the brand to the next level. From an aggressive price
warrior and technology provider, the brand will henceforth be communicated as a youthful enabler of life
enrichment, and of value-added products.

For almost 10 years after it came to the country in 1997, LG had focused on the mass market. Initially
LG’s objective was to create a footprint among the sizeable middle class, and other than its aggressive
pricing, there was little to distinguish it from other consumer durable companies operating in India. Its
product range choices also reflected the portfolio of its then rivals such as Whirlpool, Videocon, and
Onida.

Changing profile of Indian consumer durables market

The Indian consumer durables market of today is very different, redefined primarily by the nimble Korean
duo of LG and Samsung. Prior to their entry the consumer durables market in India was largely
characterized by restricted product choice, very poor after-sales service, and distribution through limited
multi-brand outlets. By the time the new millennium came around, LG and Samsung had started making
their presence felt. Their priority was to establish an exclusive chain of company-owned and franchised
outlets where consumer connect could be much more meaningful than in many of the poorly staffed multi-
brand outlets that existed then. The other area which they felt required urgent attention was a service
network which would not only ensure customer satisfaction, convenience, good word-of-mouth, and a
favourable disposition towards repeat purchase, but could also become an additional source of revenue
for the company. Finally, unlike Onida, Whirlpool, and Videocon which then had presence in limited
product lines, the Korean companies expanded their product range to cover both home appliances such
as washing machines, refrigerators, and microwave ovens as well as entertainment electronics such as
music systems, VCD/DVD players and television sets. They wanted to dominate the entire chain of
consumer durables for a household.

Though LG and Samsung were initially perceived as similar in their strategic approach, the latter was
much more interested in developing a higher-end product range targeted at the more affluent consumer.
Samsung’s vision in this respect reflected a shrewd understanding of the changing profile of the growing
prosperity in the Indian consumer market. In fact, LG realized that a sizeable chunk of consumers over
the years had moved up the value chain — a space well captured by rival brands like Samsung and Sony,
which are also aggressively competing for market share. This shows up in the fact that LG is trailing
Samsung in the LCD television market.

Mind over matter


Research carried out by AC Nielsen has shown, according to LG Electronics Chief Marketing Officer LK
Gupta, that people associate LG with quality and reliability. “This is because of our wide presence in the
country and our service network. Most households have an LG product now,” adds he. However the
brand is not perceived as youthful and trendy.

Despite being the largest player in the consumer electronics market in India, LG now feels the need to
take the brand to the next level. So LG is making a concerted effort to redefine itself as a youthful and up-
market brand. Rivals like Samsung, Sony and Videocon too have turned aggressive. And India is a key
element of LG’s global game plan. At the moment, India accounts for about 6 per cent of LG’s worldwide
turnover. LG Electronics India Managing Director M B Shin wants to raise this to at least 10 per cent by
2012. By 2015, India will become the second largest contributor to LG’s revenue after the US and ahead
of South Korea. It’s a tough challenge and the brand needs to keep the buzz alive to meet it.

So far LG has been known in India for its home appliances and entertainment electronics products, such
as audio and video-based products. The product lines where LG intends to make a big splash in India in
2010 are LCD televisions, and in a departure from its past focus, for mobile phones. For the latter, being
able to appeal to youth will be a key determinant of success. LG’s advertising campaigns and its recent
products like the Jazz LCD TV sets and Chocolate mobile phones reflect this thinking.

The right match

Shin admits that the average age of the LG consumer is above 30.The brand has low appeal among
youth. As far as mobile phones are concerned, youth are attracted by music, gaming and file sharing
options. LG’s lack of youth appeal is reflected in its performance in the mobile handsets market. In 2009,
LG was able to increase its share from 4 per cent to 6 per cent in the GSM mobile phone market. While
Nokia’s share went up from 70 per cent to 71 per cent during the period, Samsung doubled its share from
8 per cent to 16 per cent. All three were helped by the fall in the share of Sony Ericsson and Motorola. But
Shin thinks that LG’s lack of contemporariness and up-market image is an issue that can be addressed –
the question is whether the market is willing to see it that way.

QUESTIONS

Q1. Based on the track record of LG Electronics to date, would you classify their competitive strategy as
that of a challenger or follower?

Q2. For consumer durable products do you feel customer retention strategies have any value? In your
assessment, has LG undertaking any such initiative, based on information presented in the case?

Q3. Based on an assessment of its product portfolio so far, identify the factors that could be responsible
for LG not being perceived as a youth brand. LG wishes to associate brand ambassadors with their
communications campaigns for their mobile phones. Suggest a suitable profile for youth-oriented brand
ambassadors in terms of occupation, age group and gender.

Q4. LG’s success in India so far has been based on its mass-market positioning, in terms of pricing, and
product range geared towards household products. How successful do you feel it would be in attracting
higher-end consumers for LCD TV sets, and what are the marketing initiatives it needs to undertake in
order to make this happen?

Case Study of Euro Disney: Managing Marketing Enviornmental Challenges


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Michael Eisner joined the Walt Disney company as the chairman of the board in 1984, after his successes
at the ABC television network and Paramount. The same year, Tokyo Disney was completing its first year
of operations after five years of planning and construction, when the Walt Disney Co. entered into an
agreement with Oriental Land Company in Japan. More than 10 million people visited the park that year,
spending $355 million. This was $155 million more than had been expected and was partially attributed to
the average expenditure per visitor being $35, rather than the estimated $21. The timing of the Tokyo
Disneyland opening coincided with a rise in income and leisure time among the Japanese. Tokyo
Disneyland thus became quickly profitable. Growth continued, and by 1990 more than 14 million people
visited the park, a figure slightly higher than the attendance at Disneyland in California and about half the
attendance at Walt Disney World in Florida. Though, Disney was not a financial partner in the Tokyo
venture, it was reaping the profit from its franchise (10% royalty from admission and 5% from
merchandise and food sales).

The Tokyo park was in some ways a paradox. Tokyo Disneyland is nearly a replica of the two parks in
US. Signs are in English, and most food is American style. The management of the Oriental Land
Company demanded this because they wanted visitors to feel they were getting the real thing and
because they had noted that such franchises as McDonald’s have enormous success in Japan, as
Japanese youth embraced American-style culture. Yet, a few changes were necessary, such as the
addition of a Japanese restaurant. The product was readily accepted by the Japanese, an acceptance
attributed by some to the enthusiastic assimilation of the Japanese to Western ways. The success of the
Tokyo Disneyland led the company to consider expansion into Europe.

In 1984, a few months after his arrival at Disney, Eisner decided to create a Disney resort in Europe. In
1985, Disney announced that it had narrowed its locational choice to two countries, Spain and France.
The park was scheduled to open in 1992 at either location. Since the park was estimated to provide about
40,000 permanent jobs and would draw large numbers of tourists, the two countries openly courted
Disney. If Disney opted for a Spanish location, the park would have to be like the ones in the U.S, where
the visitors are outside for almost all amusements. However, Disney had learnt from the Tokyo
experience that the cold weather does not necessarily impede attendance. But the colder climate in Paris
area would require more indoor shows. Furthermore, France would require more focus on technology and
historical themes.

After three years of discussions, the search culminated with the selection of a site at the heart of Europe:
Marna-la-Vallee, France. Euro Disney was officially born. The total investment by 1992 was estimated at
between $2.4 to 3 billion. Disney opted for a 49% stake. France was in full economic crisis and Disney
was taking advantage of this crisis. In a real estate coup, the French Government sold Disney some very
expensive land at a bargain price and. In spite of the economic benefits the park was expected to bring,
many people in France feared that the Park would be one more step toward the replacement of the
French culture with that of the US. Critics called EuroDisney “a cultural Chernobyl”.

Disney headed off the criticism by explaining in the French press that Walt Disney was of French
Huguenot descent, with an original name of D’Isigny rather than Disney. Disney also agreed to make
French the first language in the park, although relying heavily on visual symbols. Disney would build an
attraction, Discovery Land, based on the science fiction of France’s Jules Verne; and a movie theatre
featuring European history. Many concessions were made to soothe the French resistance. Disney
admitted that it may have to alter its no-alcohol policy for this park, but it didn’t. The park also emphasized
that Pinocchio was Italian, Cinderalla was French and Peter Pan flew in London.

The marketing campaign began in October, 1991. The sales division began ambitious programs to inspire
European families to mark the Euro Disney resort on their vacation agendas. The Sales division
established a strong presence in all the major markets through special partnerships with leading
companies in the travel industry. On April 12, 1992, Euro Disney hosted the biggest event in Disney
history, the official opening of the Euro Disney resort. Looking at the future, Euro Disney had two primary
objectives : to achieve profitability as quickly as possible and to better integrate Euro Disney into its
European environment while reinforcing its greatest asset – Disney heritage. Disney announced plans to
add a second theme park, the Disney MGM Studios-Europe and a water park. Disney was so optimistic
that it was negotiating the possibility of creation of creating a third theme park at the beginning of the new
millennium.

The Park admission fee cost US $45 for an adult and $30 for a child under 11, a price about 50% higher
than the corresponding Disney World price. The US Disney park’s formula in terms of inelasticity of
demand did not apply and the demand fell sharply (a 15% decrease in attendance for a 10% increase in
price.) Attendance figures were kept secret, but this attitude reinforced the idea that even in terms of
attendance, the objectives were not reached. The financial results were not as strong as hoped and the
very difficult economic environment contributed to not meeting the ambitious objectives.

As Eisner started an interview with Larry King, he quipped, “Everybody is giving us 42 reasons why we’ve
made a mistake, because we have financial problems… We are not either responsible for the real estate
crisis nor the high French interest rate, which are dreadfully penalizing us. Not a single manager,
whomever he be, could manage so many uncontrollable forces.”

Questions:

Describe the importance of environmental scanning for Disney in its EuroDisney venture. How does the
marketing environment affect Disney’s marketing? Single out each of these environmental variables and
suggest ways for Disney to manage them.

Case Study: Business Strategy Analysis of Wal-Mart


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Sam Walton, a leader with an innovative vision, started his own company and made it into the leader in
discount retailing that it is today. Through his savvy, and sometimes unusual, business practices, he and
his associates led the company forward for thirty years. Today, four years after his death, the company is
still growing steadily. Wal-Mart executives continue to rely on many of the traditional goals and
philosophies that Sam’s legacy left behind, while simultaneously keeping one step ahead of the ever-
changing technology and methods of today’s fast-paced business environment. The organization has
faced, and is still facing, a significant amount of controversy over several different issues; however, none
of these have done much more than scrape the exterior of this gigantic operation. The future also looks
bright for Wal-Mart, especially if it is able to strike a comfortable balance between increasing its profits
and recognizing its social and ethical responsibilities.

Why is Wal-Mart so Successful? Is it Good Strategy or Good Strategy Implementation? — In 1962, when
Sam Walton opened the first Wal-Mart store in Rogers, Arkansas, no one could have ever predicted the
enormous success this small-town merchant would have. Sam Walton’s talent for discount retailing not
only made Wal-Mart the world’s largest retailer, but also the world’s number one retailer in sales. Indeed,
Wal-Mart was named “Retailer of the Decade” by Discount Store News in 1989, and on several occasions
has been included in Fortune’s list of the “10 most admired corporations.” Even with Walton’s death (after
a two-year battle with bone cancer) in 1992, Wal-Mart’s sales continue to grow significantly.
The Wal-Mart Philosophy — Wal-Mart is successful not only because it makes sound strategic
management decisions, but also for its innovative implementation of those strategic decisions.

Regarded by many as the entrepreneur of the century, Walton had a reputation for caring about his
customers, his employees (or “associates” as he referred to them), and the community. In order to
maintain its market position in the discount retail business, Wal-Mart executives continue to adhere to the
management guidelines Sam developed. Walton was a man of simple tastes and took a keen interest in
people. He believed in three guiding principles: 1. Customer value and service; 2. Partnership with its
associates; 3. Community involvement (The Story of Wal-Mart, 1995).

The Customer — The word “always” can be seen in virtually all of Wal-Mart’s literature. One of Walton’s
deepest beliefs was that the customer is always right, and his stores are still driven by this philosophy.
When questioned about Wal-Mart’s secrets of success, Walton has been quoted as saying, “It has to do
with our desire to exceed our customers’ expectations every hour of every day” (Wal-Mart Annual Report,
1994, p. 5).

The Associates — Walton’s greatest accomplishment was his ability to empower, enrich, and train his
employees (Longo, 1994). He believed in listening to employees and challenging them to come up with
ideas and suggestions to make the company better. At each of the Wal-Mart stores, signs are displayed
which read, “Our People Make the Difference.” Associates regularly make suggestions for cutting costs
through their “Yes We Can Sam” program. The sum of the savings generated by the associates actually
paid for the construction of a new store in Texas (The story of Wal-Mart, 1995). One of Wal-Mart’s goals
was to provide its employees with the appropriate tools to do their jobs efficiently. The technology was not
used as a means of replacing existing employees, but to provide them with a means to succeed in the
retail market (Thompson & Strickland, 1995).

The Community — Wal-Mart’s popularity can be linked to its hometown identity. Walton believed that
every customer should be greeted upon entering a store, and that each store should be a reflection of the
values of its customers and its community. Wal-Mart is involved in many community outreach programs
and has launched several national efforts through industrial development grants.

What are the Key Features of Wal-Mart’s Approach to Implementing the Strategy Put Together by Sam
Walton — The key features of Wal-Mart’s approach to implementing the strategy put together by Sam
Walton emphasizes building solid working relationships with both suppliers and employees, being aware
and taking notice of the most intricate details in store layouts and merchandising techniques, capitalizing
on every cost saving opportunity, and creating a high performance spirit. This strategic formula is used to
provide customers access to quality goods, to make these goods available when and where customers
want them, to develop a cost structure that enables competitive pricing, and to build and maintain a
reputation for absolute trustworthiness (Stalk, Evan, & Shulman, 1992).
Wal-Mart stores operate according to their “Everyday Low Price” philosophy. Wal-Mart has emerged as
the industry leader because it has been better at containing its costs which has allowed it to pass on the
savings to its customers. Wal-Mart has become a capabilities competitor. It continues to improve upon its
key business processes, managing them centrally and investing in them heavily for the long term
payback.
Wal-Mart has been regarded as an industry leader in “testing, adapting, and applying a wide range of
cutting-edge merchandising approaches” (Thompson & Strickland, 1995, p. 860). Walton proved to be a
visionary leader and was known for his ability to quickly learn from his competitors’ successes and
failures. In fact, the founder of Kmart once claimed that Walton “not only copied our concepts, he
strengthened them. Sam just took the ball and ran with it” (Thompson & Strickland, 1995, p. 859).

Wal-Mart has invested heavily in its unique cross-docking inventory system. Cross docking has enabled
Wal-Mart to achieve economies of scale which reduces its costs of sales. With this system, goods are
continuously delivered to stores within 48 hours and often without having to inventory them. Lower prices
also eliminate the expense of frequent sales promotions and sales are more predictable. Cross docking
gives the individual managers more control at the store level.

A company owned transportation system also assists Wal-Mart in shipping goods from warehouse to
store in less than 48 hours. This allows Wal-Mart to replenish the shelves 4 times faster than its
competition. Wal-Mart owns the largest and most sophisticated computer system in the private sector. It
uses a MPP (massively parallel processor) computer system to track stock and movement which keeps it
abreast of fast changes in the market (Daugherty, 1993). Information related to sales and inventory is
disseminated via its advanced satellite communications system.

Wal-Mart has leveraged its volume buying power with its suppliers. It negotiates the best prices from its
vendors and expects commitments of quality merchandise (Thompson & Strickland, 1995). The
purchasing agents of Wal-Mart are very focused people. “Their highest priority is making sure everybody
at all times in all cases knows who’s in charge, and it’s Wal-Mart” (Vance & Scott, 1995, p. 32). “Even
though Wal-Mart was tough in negotiating for absolute rock-bottom prices, the company worked closely
with suppliers to develop mutual respect and to forge long-term partnerships that benefited both parties”
(Thompson & Strickland, 1995, p. 866). Wal-Mart built an automated reordering system linking computers
between Procter & Gamble (“P&G”) and its stores and distribution centers. The computer system sends a
signal from a store to P&G identifying an item low in stock. It then sends a resupply order, via satellite, to
the nearest P&G factory, which then ships the item to a Wal-Mart distribution center or directly to the
store. This interaction between Wal-Mart and P&G is a win-win proposition because with better
coordination, P&G can lower its costs and pass some of the savings on to Wal-Mart.

Sam Walton received national attention through his “Buy America” policy. Through this plan, Wal-Mart
encourages its buyers and merchandise managers to stock stores with American-made products. In a
1993 annual report management stated the “program demonstrates a long-standing Wal-Mart
commitment to our customers that we will buy American-made products whenever we can if those
products deliver the same quality and affordability as their foreign-made counterparts” (Thompson &
Strickland, 1995, p. 868).

Environmental concerns are important to Wal-Mart. A prototype store was opened in Lawrence, Kansas,
which was designed to be environmentally friendly. The store contains environmental education and
recycling centers (Slezak, 1993). Wal-Mart has also adopted the low cost theme for its facilities. All
offices, including the corporate headquarters, are built economically and furnished simply. To conserve
energy, temperature controls are connected via computer to headquarters. Through these programs, Wal-
Mart shows its concern for the community.

Wal-Mart has been led from the top but run from the bottom, a strategy developed by Sam Walton and
carried on by a small group of senior executives led by CEO David Glass. Although recent growth has led
Wal-Mart to add more management layers, senior executives strive to maintain its unique culture. This
culture, described as “one part Southern Baptist evangelism, one part University of Arkansas Razorback
teamwork, and one part IBM hardware” has worked to Wal-Mart’s advantage (Saporito, 1994, p. 62).

Just how Successful is Wal-Mart? — A forecast (see Appendix A) of Wal-Mart’s income for the period
1995-2000, considering increases of 30.6% in Net Sales, 27.7% in Operating Expenses, and 52.3% in
Interest Debt (a level which is below Wal-Mart’s historically compounded growth rate of 55.6%) indicates
that the company should continue to report gains each year until 2000.

Growth on Sales — According to most analysts and company projections, sales should approximate $115
billion by 1996, representing an increase of 30.6% as compared to 1995. If the company continues at this
pace, sales should reach $334 billion by the year 2000. The growth on sales that Wal-Mart reported
during the 1980s and the beginning of the 1990s will be difficult to repeat, especially considering the ever-
changing marketplace in which it competes. In an interview, Bill Fields, President of the Stores Division,
said “Wal-Mart is now seeing price pressure from companies that once assiduously avoided taking it on.
These include specialty retailers such as Limited, category killers like Home Depot and Circuit City, and
catalog companies like Spiegel. I think everybody prices off of Wal-Mart. You’ve got Limited reaching
levels we’d thought they’d never get to. The result is that everyday low prices are getting lower” (Saporito,
1994, p. 66).

In addition, the baby-boomers are reaching their peak earnings years, when financial and personal
priorities change. Thus, savings, not spending, will likely take precedence because most baby-boomers
are approaching retirement.

Debt Position — Based on Wal-Mart’s position in 1994, which was considered a year of expansion for the
company, (Wal-Mart added 103 new discount stores, 38 “Supercenters”, 163 warehouse clubs, and
94,000 new associates) interest debt increased 52.3%. The cost paid by Wal-Mart to finance property
plants and equipment forced the company to increase long term debt by 4.6 times during the period 1991-
1995. Long term debt for 1995 is $7.9 billion. If Wal-Mart continues its expansion plans based on more
debt acquisition at 1994 levels, the company may not attain forecasted gains by as early as 1998.

Operating Expenses — Operating expenses will be a key strategic issue for Wal-Mart in order to maintain
its position in the market. The challenge is how to run more stores with less operating expenses.
According to Bill Fields, “. . . the goal is to increase sales per square foot and drive operating costs down
yet another notch” (Saporito, 1994, p. 66). Trends indicate that operating expenses have been growing at
a rate of 27.7% in recent years. However, Wal-Mart should reap the benefits of its investments in high
technology, and be able to operate more stores without increasing its expenses.

Cost of Sales — Cost of sales historically has been equal to the level of sales. If the company continues
to take advantage of its buying power, Wal-Mart can expect to lower its cost of sales.

Wal-Mart’s future will depend on how well the company manages its expansion plans. For the coming
years, the company will need to justify its expansion plans with consistent growth in sales, in order to
offset the increases in debt interest and operating expenses.

What Problems are Ahead for Wal-Mart? What Risks? — Throughout the 1980s, Wal-Mart’s strategic
intent was to unseat industry leaders Sears and Kmart, and become the largest retailer in the U.S. Wal-
Mart accomplished this goal in 1991. But Wal-Mart’s current strong competitive position and its past rapid
growth performance can’t guarantee that the company will remain as the industry leader or maintain its
strong business position in the future. Carol Farmer, a retail consultant, told the Wall Street Journal that,
“One little bad thing can wipe out lots of good things” (Trimble, 1990, p. 267). Every move in its business
operation ought to be well thought-out and executed.

Wal-Mart needs to address two major areas in order to maintain or to capture an even stronger long term
business position: 1) Single-business strategy — Wal-Mart’s success is mainly based on its concentration
of a single-business strategy. This strategy has achieved enviable success over the last three decades
without relying upon diversification to sustain its growth and competitive advantages. Given its current
position in the industry, Wal-Mart may want to continue its single-business strategy and to push hard to
maintain and increase market share. However, there is risk in this strategy, because concentration on a
single-business strategy is similar to “putting all of a firm’s eggs in one industry basket” (Thompson &
Strickland, 1995, p. 187). In other words, if the retail industry stagnates due to an economic downturn,
Wal-Mart might have difficulty achieving past profit performance.

Also, if Wal-Mart continues to follow Sam Walton’s vision of expansion, Wal-Mart will reach its peak in the
very near future. When it does, its growth will start to slow down and the company will need to turn its
strategic attention to diversification for future growth.

2) Social responsibility — Retail stores can compete on several bases: service, price, exclusivity, quality,
and fashion. Wal-Mart has been extremely successful in competing in the retail industry by combining
service, price, and quality. However, other merchants may object to Wal-Mart’s entry into their
community. Because of its ability to out-price smaller competitors, Wal-Mart’s stores threaten smaller
neighborhood stores which can only survive if they offer merchandise or services unavailable anywhere
else. This makes it very hard for small businesses, such as “mom-and-pop” enterprises, to survive. They,
therefore, fight to keep Wal-Mart from entering their locales. Numerous studies conducted in different
states both support and criticize Wal-Mart (Verdisco, 1994). Nevertheless, Wal-Mart did drive local
merchants out of business when it opened up stores in the same neighborhood. As a result, more and
more rural communities are waging war against Wal-Mart’s entrance into their market. Besides protesting
and signing petitions to attempt to stop Wal-Mart’s entry into their community, the opposition’s efforts can
even be found on The Internet. Gig Harbor, a small town in Washington, recently started a World Wide
Web page entitled “Us Against the Wal.” The town’s neighborhood association promised that they “will
fight them [Wal-Mart] tooth and nail” (PNA/Island Aerie Internet Productions, 1995/1996).

The increasing opposition indicates that the road ahead for Wal-Mart may not be as smooth as Wal-
Mart’s annual report would entail. This requires Wal-Mart to rethink its expansion strategy since it would
not be profitable to operate in an unfriendly community.

How Big Will Wal-Mart be in Five Years if all Continues to go Well? — Before he died, Sam Walton
expressed his belief that by the year 2000 Wal-Mart should be able to double the number of stores to
about 3,000 and to reach sales of $125 billion annually. Walton predicted that the four biggest sources of
growth potential would be the following: 1. expanding into states where it had no stores; 2. continuing to
saturate its current markets with new stores; 3. perfecting the Supercenter format to expand Wal-Mart’s
retailing reach into the grocery and supermarket arena — a market with annual sales of about $375
billion; 4. moving into international markets (Thompson & Strickland, 1995).

Wal-Mart Supercenters represent leveraging on customer loyalty and procurement muscle in order to
create a new domestic growth vehicle for the company. With few locations left in the U.S. to put a new
Sam’s Club or traditional Wal-Mart, the Supercenter division has emerged as the domestic vehicle for
taking Wal-Mart to $100 billion in sales. Before the Supercenter, Walton experimented with a massive
“Hypermart”, encompassing more than 230,000 square feet in size. The idea failed. Customers
complained that the produce was not fresh or well-presented and that it was difficult to find things in a
store so big that inventory clerks had to wear roller skates. One of Walton’s philosophies was that
traveling on the road to success required failing at times.

As a result of the unsuccessful experiment, Walton launched a revised concept: the Supercenter, a
combination discount and grocery store that was smaller than the Hypermart. The Supercenter was
intended to give Wal-Mart improved drawing power in its existing markets by providing a one-stop
shopping destination. Supercenters would have the full array of general merchandise found in traditional
Wal-Mart stores, as well as a full-scale supermarket, delicatessen, fresh bakery, and other specialty
shops like hair salons, portrait studios, dry cleaners, and optical wear departments. Supercenters would
measure 125,000 to 150,000 square feet, and target locations where sales per store of $30 to $50 million
annually were feasible.

Walton’s prediction was right on target. The Supercenter division more than doubled in size during 1993,
then doubled again in 1994. Supercenters, once thought of as risky because of slim profit margins on the
food side, will most likely make Wal-Mart the nation’s largest grocery retailer within the next five to seven
years (Longo, 1994).

Expanding overseas, Wal-Mart moved into the international market in 1991 through a joint-venture
partnership with CIFRA S.A. de C.V., Mexico’s leading retailer. Since then the company has entered
Canada, Hong Kong, mainland China, Puerto Rico, Argentina, and Brazil. The Wal-Mart International
Division was officially formed in 1994 to manage the company’s international growth. By the year 2000,
analysts expect Wal-Mart to be a huge international retailer, with numerous locations in South America,
Europe, and Asia.

Conclusion — The ever-changing market presents continuing challenges to retailers. First and foremost,
retailers must recognize the strong implications of a “buyers’ market” (Lewison, 1994). Customers are
being offered a wide choice of shopping experiences, but no one operation can capture them all.
Therefore, it is incumbent upon management to define their target market and direct their energies toward
solving that specific market’s problems. Technology, demographics, consumer attitudes, and the advent
of a global economy are all conspiring to rewrite the rules for success. Success in the next decade will
depend upon the level of understanding retailers have about the new values, expectations, and needs of
the customer. If Wal-Mart continues its customer-driven culture, it should remain a retail industry leader
well into the next century.