WAL-MART

COST LEADERSHIP STRATEGY

COST LEADERSHIP

Lower cost of products or services relative to what competitors have to offer

Broad target- offer full range of products and services to wide range of customer group, ample geographic area served

Positioning of firm

Achieving cost leadership

The commencement…. Stores set up in large buildings

with minimum rent paid

Not much emphasis laid on the

interiors No investment in standardized

ordering programs Not enough staff-store manager

handled the store and also its accounts

Focused –Strict cost controls -constant store

supervision -expansion into new

territories

As Wal-Mart grew Company invested in

infrastructural facilities

Became a Publicly-held company to access more funds for expansion plan

After being equipped with funds it reorganized its business activities

Re organizing business activities Placed a Standard distribution

system and inter store communication system

Centralized distribution system -retail hub(distribution center)

and spoke(store) system

o Distribution center - Bentonvilleo Goods dispatched to stores by

company owned trucks

Cross docking technique used to eliminate inventory handling cost.

Reduced its purchasing cost by procuring goods directly from manufacturers on tough negotiation

Company achieved High level standardization of products using mass purchasing techniques, thus yield lower per unit cost

Economies of Scale

Expansion strategy –build stores around the distribution center(within a 300 mile radius)

Popularity of store increased and lead to word of mouth publicity thus reducing spending on advertisement

EDLP

Setting up large discount stores in small towns

Extremely Attractive to rural customers

Branded merchandise priced attractively

Catered to customers who bought merchandise in bulk

Recruited service oriented individuals

Aiming at the average customers to gain

Broader target –high capacity utilisation essential to realise cost advantage

Maintaining low cost through reinvestments

Surplus generated was reinvested o Building facilities Expanding into metropolitan cities Membership club business“Sam’s clubs”- offered goods in bulk

at wholesale prices- exclusively to its members

• Installed modern IT systems -improve distribution efficiency Investment in cost saving

technologies can help achieve economies of scale making the service competitive in market

• Electronic data interchange(EDI) and SCS

-linked stores, distribution center and suppliers P&G

Lead to significant improvement in its supply chain efficiency-inventory control

• Point of sale(POS) and Retail Link - massive databases

Helped determine preferences of customers

Industry Analysis

Porter’s five competitive forces

Potential threat of new entrants

Cost advantage acts as an effective entry barrier for entrants, who cannot offer the product/service at a lower price

Access to distribution channels

Long term relationship maintained with vendors and suppliers

Good financial position -Adequate capital

Economies of scale –lower per unit cost

Switching cost faced by new entrants

Establishing a new network of relationship

Discouraged competition since it was impractical to build huge structures in small cities

Tough for competitors to duplicate the cost reduction techniques used by Wal*Mart

Rivalry among competitors Products priced 20% lower than

those of its competitors –high demand-snatch market share from rivals

Exist barriers o Economic factors –huge

investment in business, high fixed cost of exist

o Emotional factor-ancestral business

Industry growth-desire to be a market leader leads to rivalry

Bargaining power of buyers Large number of buyers Price sensitivity Buyers incentives -e.g.: Sam’s

store Buyers volumes Products priced 20% low as

compared to other stores-low bargaining power of customers

Tough negotiation of buyers with suppliers due to bulk purchase of product

Bargaining power of suppliers

Importance of volume to suppliers-Centralized purchase of goods by walmart and in huge quantities

Threat of substitute products

Substitutes are available but not a threat cause of the company offers quality products at the lowest possible price in the market

WAL-MART

SWOT

Strengths.A firm's strengths are its

resources and capabilities that can be used as a basis for developing a competitive advantage.

Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store.

Wal-Mart has grown substantially over recent years, and has experienced global expansion

The company has a core competence involving its use of information technology to support its international logistics system IT also supports Wal-Mart's efficient procurement.

A focused strategy is in place for human resource management and development. People are key to Wal-Mart's business and it invests time and money in training people, and retaining and developing them.

Weaknesses.

The absence of certain strengths may be viewed as a weakness.

Wal-Mart is the World's largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control.

Since Wal-Mart sell products across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors.

The company is global, but has a presence in relatively few countries Worldwide.

In some cases, a weakness may be the flip side of a strength.

Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness

Opportunities.

The external environmental analysis may reveal certain new opportunities for profit and growth.

To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe or the Greater China Region.

The stores are currently only trade in a relatively small number of countries. Therefore there are tremendous opportunities for future business in expanding consumer markets, such as China and India.

Opportunities exist for Wal-Mart to continue with its current strategy of large, super centres.

Threats.

Changes in the external environmental also may present threats to the firm.

Being number one means that you are the target of competition, locally and globally.

Being a global retailer means that you are exposed to political problems in the countries that you operate in.

The cost of producing many consumer products tends to have fallen because of lower manufacturing costs.

Manufacturing cost have fallen due to outsourcing to low-cost regions of the World.

This has lead to price competition, resulting in price deflation in some ranges. Intense price competition is a threat

THANK YOU

JONATHAN SHADAP MARINA LIZA JESSICO KIRK

Group 4