Week 3 Group Case on Wal-Mart Stores
1. Why is Wal-Mart successful in the US? What are the sources of Wal-Mart’s competitive
advantage?
To Walton, the most important ingredient in Wal-Mart’s success was the way it treated its
associates. He believed, if we wanted the people in the stores to take care of the customers, you had to
make sure that you were taking care of the people in the stores. There was one aspect of the Wal-Mart
culture that bothered Walton from the time Wal-Mart became really successful and Wal-Mart is the
leading and most popular brand of United States. However, it has also grown its presence in more
countries and its number of international retail stores has crossed 6,300. At the core of its business
model is the EDLP pricing strategy which s also its core strength. The company sources from more than
100,000 suppliers from around the globe. Being their (Such as P&G) largest client, it is able to source
products at significantly low prices which advantage is then passed on to the customers. Its product
range is also significantly large. Moreover, its focus on customer service and innovation has also helped
it strengthen its distinct advantage. To strengthen its global presence and extend its business empire
farther the retail giant is focusing on growing the benefits it offers through its e-commerce channels. In
every way, Wal-Mart is in a very strong position and despite challenging economic situations and fast
changing consumer trends would be able to perform well for several coming years.
2. Could Wal-Mart sustain its competitive advantage in the US?
Wal-Mart is famous for its ability to deliver “products that are available in low prices. But there’s more
to Wal-Mart’s business strategy than low prices. Wal-Mart has been able to sustain its distinct
advantage of being the most popular and leading retail chain of US. United States is its main market but
its international presence and revenue have grown impressively. At the end of 1993 sales per square foot
was $300 where industry average was $200. Sales went up from $16 billion to $67 billion from 1987 to
1993. They introduced satisfaction guaranteed policy which is returning the products with no questions
asked. Number of Wal-Mart employees in 2018 was 2.3 million with 1.5 million in US and 0.8 million
outside US. Number of Wal-Mart retail units in 1993 were 1953 (discounted stores), in 2018 it reached
11,718 with 5,358 in United States and 6,360 located internationally. Their satellite system which
collects sales data and analyzes it daily and enables managers immediately what merchandise is moving
slowly which helps them avoid overstocking and deepen the discounting. With these strong factors they
have been able to remain on the top. Moreover, Wal-Mart's competitive advantage includes Brand
equity, EDLP Pricing, supply chain, retail network, product range, customer service & its financial
performance.
Brand equity
Wal-Mart has maintained strong brand equity. A very large number of buyers like to buy from Wal-
Mart and trust the brand. Prices, product quality as well as customer service have played an important
role in managing such strong brand equity. Strong brand equity means higher popularity as well as
customer loyalty. Overall, the result is higher sales and revenue without having to spend much on
marketing. Advertising expenses was 1.5% of Discount store sales where it was 2.1% for direct
competitors.
Pricing strategy
The ‘EDLP’ or ‘Everyday Low Pricing’ Strategy adopted by Wal-Mart is the primary reason the the
customers have kept flocking to Wal-Mart over all these years. Lower pricing strategy has also helped it
overcome the competitive pressures and become the retailer of choice of United States. The middle class
customers want products at affordable prices and Wal-Mart suits the needs of United States middle
class. The price advantage offered by Wal-Mart is not just its primary attraction but also the core sure of
its competitive advantage. Other major competitors generally ran 50 to 100 circulars annually; Wal-Mart
offered 13 major circulars annually.
Supply chain management
For most suppliers, the purchases Wal-Mart makes represent a significant part of their annual sales. By
1993 Wal-Mart have become Procter and Gamble's largest customer, doing about $3 billion in business
annually, which is about 10% of P&G's total revenue. Moreover, Wal-Mart has focused on technology to
make its supply chain efficient and is also working to raise its level of supply chain transparency. Their
satellite system which collects sales data and analyzes it daily and enables managers immediately what
merchandise is moving slowly which helps them avoid overstocking.
Retail network
Through its large retail and e-commerce network, the company serves more than 270 million customers
every week. Wal-Mart has e-commerce sites operating under 65 banners in 28 countries. Apart from
bringing a very large assortment of products on affordable prices for its millions of customers, it has
also made them accessible through its large network of more than 11,700 retail stores and e-commerce
websites under 65 banners in 28 countries. In this way, the brand has been able to significantly expand
its user base globally.
Customer service
Customer service has always been an important focus for Wal-Mart. The company has always tried to
make shopping at Wal-Mart a superior experience. Apart from dedicated staffs that are trained well at
customer service, it is investing in more things which can make shopping at one of its stores a very
distinct and unique experience. Wal-Mart is investing in technology to make shopping experience more
pleasant than ever and more appealing to the modern shoppers.
Hence, with these series of efforts Wal-Mart has made which has served large number of customers
simultaneously, kept the company on the top. With continuous improvement in doing things and
reinventing the way of serving the customers can keep Wal-Mart on the top. Anyway, whatever the
number of sales it produces, the sophistication level of the system (in which it operates) is, everything is
geared towards creating human wellbeing. If it is this way, Wal-Mart will raise the height of its wall in
retail industry.
3. Should Wal-Mart replicate its domestic model in its original form in China? Why? Can it build
the same competitive advantage in China through its successful domestic mode?
Wal-Mart should not use the same strategy form in China. Because it is different in culture,
environment, legal and politics. The original might be success in US but the characteristic of Chinese
people is totally differently from US’s people. It is hard to build the competitive advantage as the same
as in United state because due to local supplier, distribution or supply chain is not the same as in USA.
Also, Wal-Mart might lack of technology in China, so the original (domestic US) model might not work
in China. Also in the eyes of ordinary consumers, Wal-Mart is still a ‘foreign superstore’ which hasn’t
melted itself into people’s daily life. Therefore, it has to adapt to work in an urban environment instead
of a rural, or suburban environment; and it needs to have a more upscale positioning in China. This
means that it cannot count only on low prices to sell.
4. Provide suggestions on potential strategies that Wal-Mart China should consider in going
forward.
Wal-Mart stumbled in its expansion efforts. Wal-Mart struggled to read the needs of Chinese shoppers
and tailor its stores to the market. International expansion can be very complex, it often requires detailed
analyses of factors present in the market.
Suggestions are they must understand the social environment and its components, including trends in
demographics, lifestyles, beliefs, and ideals, and principal values of the general population. To
understand discerning Chinese consumers as their buying decisions aren't always price driven. They
have to understand China is more inclined towards tailor-made products and a shopping environment
that reflects local preferences. Analyzing consumer behavior will help Wal-Mart to win Chinese
customers.
