To do our analysis, let's look at one of the giants: Walmart.
Walmart is famous for its ability to deliver “products that are so darn cheap you can’t believe it.” But there’s more to Walmart’s business strategy than low prices.
In a four-part series, the market research firm Packaged Facts examines critical aspects of Walmart’s business model and the factors that motivate consumers to shop there. Findings from the below reports to help explain how Walmart has built and maintained such a strong competitive advantage in multiple industry categories.
1. Strength in Both In-Store and Online Grocery Sales
Walmart is the largest grocer by sales in the U.S. According to Packaged Facts, 59% of grocery shoppers have purchased groceries from Walmart in the last 3 months.
To counteract rising competition from Amazon and other online retailers, Walmart has expanded its omni-channel experience with online ordering and in-store pickup. Packaged Facts estimates that Walmart’s “click-and-collect” grocery sales will grow a whopping 154% on average each year from 2017 through 2021.
Consumers that shop for online groceries at Walmart are drawn to low prices, one-stop convenience, brand selection, and curbside service. However, competitors may be able to exploit Walmart’s weaknesses in the future as online grocery shopping becomes more commonplace.
2. Broad Financial Services Offerings
Walmart is not only a leader when it comes to grocery sales, it also offers the broadest array of consumer financial services compared to other major retailers.
Financial services and related products generate about $1.6 billion in revenue, according to estimates by Packaged Facts. This number does not even include revenue made by Walmart’s partners, such as Green Dot, MoneyGram, Synchrony Financial, and Jackson Hewitt.
However, the biggest payoff for Walmart may be the role of financial services in boosting store traffic. When shoppers visit in-store bank branches, for example, they are likely to pick up a variety of other groceries and merchandise at the same time.
3. A Large Base of Customers That Buy Pet Products
Another area where Walmart shines is in selling pet products. More pet owners purchase from Walmart than any other retailer, according to Packaged Facts. Of the 67 million pet-owning households in the U.S, 43 million shop at Walmart.
When considering the sheer size of its customer base, Walmart has a significant lead over competitors such as Target, Kroger, and Costco, which only have a combined customer base of 35 million pet-owning U.S. households.
In addition, a significant portion of consumers are also purchasing more pet products from Walmart than they did a few years ago.
What draws so many pet owners to Walmart? Packaged Facts found that price, convenience, and brand selection were top considerations for consumers.
Wal-Mart Strength and Capabilities
The uniqueness of each company and the key to profitability is not through doing the same as other firms but rather through exploiting differences (Cohen, 2004). Mao Tse Tung (1978) says, “To achieve victory one must as far as possible make the enemy blind and deaf by sealing his eyes and ears, and drive his people to distraction by creating confusion in their minds.” It is all about having multiple strengths that will not only make it hard to imitate but also enable the company to exploit upon and create success.
2.1 Purchasing
The economies of size enable the organization huge opportunities to deal with many suppliers, all negotiation are done directly with the manufacturers only. These allow them to get low price goods. This is in line with their strategy of “Everyday Low Price”. Wal-Mart’s do not dependence solely on any one supplier and the international has increased it purchasing power through global procurement. Good rapport with her supplier.
2.2 Warehousing & Distribution
Being the world leader s in logistic, it has excellent logistics and distribution network. Majority of the purchases was directly shipped to Wal-Mart own distribution center then to the respective store. It efficient use of the trucks by grouping store together, proper route planning and packing it more tightly enable efficient delivery. The “remix” systems introduce was design to reduce inventories, speed deliveries to store and eliminate stock-outs. Wal-Mart largest distribution center in Baytown, give it greater control over its supplies this avoids the delays of products.
2.3 In-Store Operations
Wal-Mart retail store was based upon creating customer satisfaction through low prices, offering wide range of quality merchandise that are carefully tailored to customer needs and providing a pleasing shopping experience. The decentralization gives the store manager considerable autonomy in decision making, product range and pricing. “Greeter” was hire and employees are expected to be polite and friendly enhance the shopping experience. “Satisfaction- Guaranteed” program was also introduce to encourage customer loyalty, keep them attached to Wal-Mart.
2.4 Marketing
The strategy of “Everyday Low Price” makes their product value for money. It relies heavily on the word-of-mouth communication for advertising. These reduce of having to spend large amount of budget for advertising and promotion, 0.55% was spend for advertising it was three times lesser than its rival. Despite having a budget of over $2 billion for advertising, it was one of the world’s biggest advertisers.
The strength on marketing was also to instill the values that Wal-Mart projected traditional American virtues of hard work, thrift, individualism, opportunity, and community. It creates strong emphasis on patriotism and national causes, an American icon and making it a place to visit to buy value for money product.
2.5 Information Technology
Information and communication technology was the most important linking and integration of the entire Wal-Mart value chain. Using information technology to handle logistics, this helps the organization to solve the major issues of control, monitor and alert. It is use to for the daily managerial process, inventory control and data mining. It create data analysis to forecast, replenish and merchandise the product, at the same time providing them with information in understanding what the customer tend to buy and their needs. Speed is a crucial factor in creating competitive advantage (Cohen, 2004). Wal-Mart allows their supplier to have access to the systems, helps to keep the inventories in control, and the delivery of lowest-cost product to the customers.
2.6 Human Resources Management
Organizations can never success without its people (Noe et al, 2008). People are the important element, strength or assets to be successful to gain competitive advantage (Kermally, 2004). Communication is one of the vital areas it leverage upon to enhance its effectiveness.
Associate title is given to executive level and below employees. The organization relation with its associate bases upon respect, high expectations, close communication and clear incentive. Associates enjoy high degree of autonomy and are constantly inform of the organization performance. Benefits like company health plan and a retirement scheme for all employees with a years or more service. Together with profit incentive and stock purchase plan. It “open door” policy give people a channel to voice out concern to the managers for all levels, and allow managers to show concern for his or her workers. All these create a “Paradox” in generate enthusiasm among employees to support the strategy of Wal-Mart.
2.7 Organization and Management Style
Wal-Mart’s management style believes in executive work closely in touch with each other to provide information sharing and resolve issues face for the entire operation of the business. This close relation that is build between store managers and headquarter based on Sam Walton’s principles and values allow Wal-Mart to have fast response management system that is able to resolve issues or take action whenever it occurs. High expectations are the key to everything (Bergdahl, 2006).
Walmart Inc. Five Forces Analysis (Porter’s Model)
Walmart Inc. (formerly Wal-Mart Stores, Inc.) competes against major firms in the retail industry, such as Amazon.com Inc. and its subsidiary Whole Foods Market, as well as Costco Wholesale, Home Depot, and eBay Inc. The variety of competition compels Walmart to develop strategies to protect the business from the issues in its industry environment, such as the ones linked to external factors identified in this Five Forces analysis of the business. Michael E. Porter’s Five Forces analysis model is a strategic management tool that evaluates the effects of external factors that determine the competitive landscape of the industry. These external factors define the bargaining power of customers or buyers, the bargaining power of suppliers, the threat of substitution, the threat of new entrants, and competitive rivalry. In this case, the five forces refer to the retail industry, where Walmart focuses its operations. The company’s strategic direction is representative of strategic responses to competitive forces in the retail industry environment.
A Porter’s Five Forces analysis of Walmart Inc. shows the implications of the competitive rivalry or intensity of competition on the business and the retail industry. This condition of the industry environment pushes the company to explore strategic measures to manage the negative effects of competition. Considering that the retail market is saturated, Walmart is in a continuous process of improvement to counteract the impact of strong competition.
Five Forces Analysis of Walmart Inc.
In determining the degree of competitive rivalry in the retail industry, a basic consideration is market saturation. The retail services market is highly saturated. As a result, Walmart Inc. faces tough competition, which warrants strategies and tactics that build on the company’s strengths. The SWOT analysis of Walmart Inc. enumerates a number of strengths that the business can utilize to maintain its industry position despite aggressive competitors. Based on the external factors enumerated in this Porter’s Five Forces analysis, Walmart experiences the following intensities of the five forces in the retail industry environment:
Walmart Inc.’s strategic planning must prioritize competition and new entry in the retail industry. Based on this Five Forces analysis, the business needs to continually improve its capabilities to sustain its competitive advantages. Walmart’s generic strategy and intensive growth strategies establish the basic approaches to grow the business and keep it competitive. However, the company needs to develop additional enhancements. It is recommended that the company increase its investment in the automation of internal business processes, including its supply chain. This recommendation aims to improve overall efficiency and, as a result, improve cost effectiveness to satisfy Walmart’s corporate vision and mission statements. It is also recommended that the company further enhance its human resource management. Such improvement can contribute to workforce competencies that support business growth. These resulting improvements based on these recommendations can help counteract the effects of the strong forces of competition and new entry, which are the most significant issues determined in the results of this Five Forces analysis.
Intensity of Competitive Rivalry or Competition (Strong Force)
The intensity of competitive rivalry is strong in the retail industry. There are many firms of different sizes competing in this industry environment. The following external factors are the most significant considerations in Walmart’s strategic management of the strong force of competition:
Walmart experiences the strong force of these external factors that define the competitive rivalry in the retail industry environment. In Porter’s Five Forces analysis model, a large number of firms typically strengthen competition. In relation, the high variety of firms imposes challenges in developing Walmart’s competitive advantages, considering the diversity of approaches that these competitors use. Also, higher firm aggressiveness leads to stronger competitive rivalry. Thus, the company must remain aggressive to remain competitive. Walmart must keep growing to remain in its position as a major global retailer.
Bargaining Power of Buyers or Customers (Weak Force)
Walmart faces the weak intensity of the bargaining power of buyers in the retail industry environment. Based on Porter’s Five Forces analysis model, the large population of buyers makes it difficult for them to impose significant pressure on retail firms. Walmart is subject to the following external factors concerning the weak bargaining power of buyers or customers:
The large population of buyers exerts a weak force on Walmart and the retail industry. Individual buyers have negligible impact on the company’s global revenues. The weak force of buyer diversity and the weak force of small individual purchases further weaken the bargaining power of customers. Higher buyer diversity makes it more difficult for customers to collectively impose pressure on the company. In effect, the bargaining power of buyers is weak in influencing Walmart and other firms in the industry.
Bargaining Power of Suppliers (Weak Force)
The bargaining power of suppliers has weak intensity in the retail industry environment. There are many suppliers in the industry. Large firms like Walmart can easily affect these suppliers. Based on this condition, Walmart experiences the weak force of the bargaining power of suppliers, based on the following external factors:
This Porter’s Five Forces analysis of Walmart Inc. considers the large population of suppliers as having weak potential to impact the company. Individual suppliers have minimal influence on large retailers like Walmart. Also, there are many suppliers competing for limited space in retail stores. The high availability of supply makes it difficult for suppliers to impact the strategic growth of Walmart. Thus, the company faces the weak intensity of the bargaining power of suppliers. Walmart’s corporate social responsibility strategy helps in managing suppliers’ influence on the business.
Threat of Substitutes or Substitution (Weak Force)
The threat of substitutes or substitution has weak intensity in affecting the retail industry environment. Walmart offers a wide variety of goods and services that have a few or no substitutes. The following external factors impose the weak threat of substitution against Walmart:
Some substitutes to Walmart’s goods are readily available. However, the external factor of the low variety of substitutes makes it difficult for consumers to move away from products available from retailers like Walmart. Also, some substitutes are more expensive than the low-cost goods and services available at the company’s stores. In Porter’s Five Forces analysis model, the combination of these external factors lead to the weak threat of substitutes or substitution in Walmart’s industry environment.
Threat of New Entrants or New Entry (Strong Force)
Walmart Inc. must address the strong intensity of the threat of new entrants. New entry of retail firms is easily achieved even in the presence of giants like Walmart. Small retailers can enter the market and compete on the basis of convenience, location, specialty, and other factors. Based on this Porter’s Five Forces analysis, the strong force of new entry is broken down into the following component external factors:
It is costly to develop a new entrant’s brand. Nonetheless, some large new entrants have the financial resources to build a strong brand. This condition exerts a moderate force on Walmart Inc. The cost of establishing a new retail firm and the cost of running it are low to moderate. For example, small retailers have low costs of doing business relative to larger firms. This condition makes it possible for many smaller retailers to compete against Walmart. Initial capital outlay varies, but it is typically high in terms of funding for business space, human resources, and equipment, among other variables. Still, smaller new entrants can establish their operations with low to moderate capital outlay. These external factors in the context of the Five Forces analysis show that new entrants can keep operating and become potential threats to firms like Walmart.
Get Answers For Free
Most questions answered within 1 hours.