Along with data and social insights, these data scientists are working to deliver a more personalized experience to its customers. Consumers have grown addicted to lower prices and the retailers offering the least prices are enjoying immense growth. A firm using this strategy mainly focuses on keeping the prices of its goods and services lower than the competitors. Wal-mart’s cost leadership strategy 1962, Sam Walton starts WAL-MART In 5 years expanded to 24 stores revenue more than 12.6 million in sales 1972, listed in New York Stock Exchange MARKETS OF WAL-MART (2003) o Total Sale of Wal-mart o Total Retail Area o Total Employers US $ 313 Billion 663 Million Sq.ft. The millennial customers are interested in three things. Its main website receives more than 100 million unique visitors every month and this number has kept growing every year. Without this deal, the legal barriers would have made entry difficult for Walmart. At the core of Walmart’s business model is price leadership. Of course, that cost leadership is a driving force and Sam Walton’s guiding principles of low-cost leadership can be super effective if well executed. This easy sharing of data is enabled by the private satellite system Walmart owns. All these factors have resulted in price deflation and a further drop in prices across the retail industry seems inevitable. Michael Porter’s model defines cost leadership as a generic competitive strategy that focuses on achieving low costs. All Rights Reserved. Size Advantages. However, not just Walmart but its rivals are also investing in e-commerce and several of them had also accomplished significant growth in sales and customer engagement through online channels. They are built to cover a circle of more than 150 miles radius and supports 90 to 100 stores. These drivers drive 700 million miles every year to deliver to the stores and clubs. For years, Walmart’s unrivaled customer research capabilities helped it dominate retailing. Among the several things that have helped Walmart grow its business is also its reputation for being the most customer-friendly brand. At the core of Walmart’s business model is price leadership. They have been effective in doing so as they have the cost advantage and they control their cost drivers and … In this way by eliminating suppliers and handing them over the responsibility to manage inventory in its warehouses, the brand managed smoother inventory flow with lower irregularities and better availability of products on the shelves. Walmart has also worked to connect the online and in-store experience and using its mobile apps and shipping options like Home free, site to store, pick up today, shop from the store and same-day delivery, the brand has made shopping even convenient for the customers. The number of Walmart stores internationally has grown fast. Overall Cost Leadership Porter defines “Overall Cost Leadership” as the strategy in which a company differentiates from others by having the lowest prices of the market. Walmart uses cost leadership strategies and differentiation. While the philosophy is still the same that was there since the foundation of the brand, the retail giant has kept modernizing its operations whose role in the efficient model of Walmart has grown bigger with time. Overall, the level of competition is going to be tougher and since some non-U.S. brands have also entered the industry with low-cost offerings, there will be even more competition. Walmart as one of the biggest retail store company in America runs a chain of large discount department stores. To acquire more growth, it is aggressively investing in improved customer experience. The situation has grown a lot better after Walmart made changes to its HR strategy. The product range on offer at these discount stores include electronics, apparel, toys, home furnishings, health and beauty aids, hardware, and more. Wal-Mart’s Cost Leadership Strategy 1. In this way, using price leadership and technological innovation, the brand has created a strong retail system that is more effective and efficient than the competitors. In store, Walmart is investing in … Today, it operates more than 11,300 physical stores and several e-commerce websites under 58 banners in more than 27 countries (Walmart Annual Report, 2019). The case examines in-depth the key elements of the cost leadership strategy followed by Wal-Mart. Strategies Behind the Low Prices at Walmart Low Cost Leadership. The company has grown by opening stores in smaller towns that surround a targeted metropolitan area and then saturating that are before they move into a new and saturates each territory. Each one of them employs around 200 associates and has a wide assortment of products on offer. One of the biggest reasons why Walmart success in the industry is because of the used of supply chain management. Cost Leadership is the strategy that focuses on making the operations more efficient and cutting costs wherever possible. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. However, based on its financial strength, Walmart can pay its employee higher wages and still retain a larger part of its profits. Customers have unique needs and Walmart is using a variety of services to fulfill these unique needs. The focus of Walmart is now on creating a seamless experience for its customers whether they are shopping from their mobile devices or inside the stores. Its transportation system has a fleet of 6,100 tractors, 61,000 trailers, and more than 7,800 drivers. Its international expansion has also happened fast and the most crucial thing is that Walmart despite being the leading retailer brand is concerned about competition. In this way, it has transformed the shopping experience for its customers. The pressure that used to be associated with a job at Walmart has also reduced. The question is – “what are the most important factors that are driving Walmart’s growth”? From Japan to Chile, its operations are spread far and wide and more than 800,000 of its associates serve more than 100 million customers a week. Several non-U.S. brands have also entered the market and some are also armed with a price advantage. In …show more content… Walmart hopes to become the leader in retail industry. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers. Wal-Mart’s Cost Leadership Strategy By : Group 2 2. The 4Ps are linked to the company’s strategic choices as one of the biggest retailers in the world. The innovation center of Walmart has some brightest minds working to create a seamless experience for shoppers whether they are shopping online, from mobile devices or in stores. Wal-Mart's success story is a classic example of a company, which became successful by rigorously pursuing its core philosophy of cost leadership, right from the day it began operations in 1962. Walmart has also focused on the use of technology for better results from its business. Walmart is one of the salient examples of a successful cost leadership strategy. They are convenience, low prices, and product quality. The brand sells a very large range of products and its focus always remains on selling products at the lowest prices in the market. https://opentextbc.ca/strategicmanagement/chapter/cost-leadership Its size and scale help it serve its customers more effectively and the use of cutting edge technology has helped it bring customer service to the next level. It grew its distribution network to bring more convenience to its e-commerce customers. Each of them is 1 million square feet in size or larger. In 2017, the retail giant had total 11,695 stores of which 6,363 were located overseas and 5,332 were located in the United States. It owns a private fleet of trucks and employs a team of skilled truck drivers. Walmart works closely with suppliers who dominate the brands in their industry and who provide full lines of products for Walmarts stores. Walmart markets its business as everyday low prices to attract customers (Annual … This has also led to higher cost-effectiveness and better savings which can be transferred to the customers in the form of lower prices of products. While smaller in size compared to the two previous formats, the neighborhood markets still cater to several important needs of the community. A large part of Walmart’s strategy is to meet with vendors and truly understand their vendors costs to learn how a vendor could cut down its costs in order to capture win-win relationships for both parties. They are 106,000 square feet in area and these stores are brightly lit, well arranged, and good looking shopping spaces focused at maximizing shopping pleasure. Summary. Use of bargaining power to grab the least prices from the suppliers (a very important strength for a large scale retailer that plays the most important role in its price advantage). Its competitive advantage has kept growing stronger with time and since the brand is now concerned for its social image, it is investing in employees, social responsibility, and community welfare. Walmart pioneered cross-docking in its supply chain strategy. It may result from scale/scope efficiencies, tight overhead control, careful selection of customers, standardization and automation. Its low prices strategy is really great in terms of customer retention and the reason is that American shoppers are somewhat obsessed with low prices. Another important factor that has a central role in Walmart’s business success is its innovative supply chain management. In conclusion, Walmart 's overall successful strategy of cost leadership/differentiation leads in creating high entry barriers for competitors. In implementing this strategy, a company must minimize costs and pass the savings on to the customer. For the millennials and the middle class, Walmart is their favorite shopping destination. All the required information from PoS (Point of Sale) data to warehouse inventory and the retail sales data is stored in the shared database from where it is relayed to all the participants in the entire system. Definition: Cost leadership is a term used when a company projects itself as the cheapest manufacturer or provider of a particular product or commodity in a competition. 1960s 1970s 1980s 1990s 2000s The PESTEL/PESTLE analysis of Walmart shows that the company has more opportunities than threats in its remote/macro environment. Also key to the cost-effectiveness of Walmart's supply chain strategy and distribution network is the positioning of its nearly 173 distribution centers, which … Researchers often highlight the role of innovative supply chain management in retail. Walmart is mainly known for … Thus, size and scale have helped Walmart achieve a strong competitive advantage. Together, these stores cater to the needs of a very wide range of customers from nearly all classes. What can we learn from Walmart? However, the way it has managed to keep its prices as low is the biggest challenge before its competitors trying to wrestle market share from Walmart. Walmart has also kept six disaster distribution centers that are placed strategically across the US and are stocked well that in case a natural disaster happens, help can be sent without any delay to the communities. © Copyright 2020 Heartrepreneur® LLC. This strategy gives them a competitive advantage over their rivals. Walmart’s overall strategy is cost leadership. Sam’s club employs around 100,000 associates in the US and the average size of each club is 134,000 square feet. Discount stores:  The first Walmart discount store had opened in Rogers, Ark. It is why the company has placed extra focus on operational flow and customer service across its stores. His influence on the organization's culture is … Seventeen years later, annual sales topped $1 billion. Prices can be an important differentiator and cost leadership is the biggest source of competitive advantage for Walmart. The Asian economy is growing at a very fast rate which makes China and India important markets for Walmart. Again in 2018 and 2019, Walmart’s growth story has continued. Inventory management is a crucial part of managing a great retail system. A large part of its target audience is made of the microenterprises that have less than seven employees. He graduated with a Hons. Sam’s club also supports their growth through business initiatives, philanthropy, research, and stakeholder engagement. Its financial clout also helps it bargain for very low prices from its suppliers. This was a smart step since poor reputation in terms of HR can translate into a loss of market share in the longer run. Abhijeet has been blogging on educational topics and business research since 2016. Walmart is one of the fastest growing companies and also has a high-profit rate and great financials. As a low-cost producer of retail services and related business outputs, Walmart is able to compete based … It targets families and entrepreneurs. Walmart is a company that experiments with different merchandise, changes displays, alters promotions, and shifts the store layout as well. The neighborhood markets are another store category of Walmart selling a wide range of products and had been designed keeping in mind the needs of the communities looking for pharmacy, affordable groceries, and merchandise. Wrestling market share from either Amazon or other players will be a difficult task for Walmart which is known for its aggressive customer acquisition tactics. The brand has led the U.S. retail market through its lowest prices. Walmart’s more than 150 distribution centers have played a central role in strengthening its business. These profits are then passed to the customers in the form of lower prices. According to Jhon Steen (2009), in order to accomplish such prices, Woolworths focus on two main points: Logistics and Economics on Scale. It reduced prices on key items in select markets. Its international wing operates 6,200 retail stores in 27 countries and under 67 banners. Let’s face it Walmart dominates many retail categories and competes against stores like Target and Kmart and Costco and Acme. An important part of Walmart’s supply chain management is its logistics management. It is in a bid to win market share away from its rivals Amazon, Target, and Costco. Most of them remain open 24 hours, and may also include specialty shops like banks, hair and nail salons, restaurants, or vision centers” (Walmart, 2017). The products and services it offers include high-quality bulk groceries, consumables, general merchandise, specialty services, including travel, auto buying, pharmacy, optical, hearing aid centers, tire and battery centers, and a portfolio of business operations support services. Aside from leveraging the most up-to-date technological advances such as the barcode and RFID, Walmart has pioneered a number of approaches that help it remain competitive in the price war against its peers. A tightly coupled system of strategy and structure is prone to break apart when external and internal shifts put pressure on the system. One of them is how it has been helping people save money. As part of its strategy to adapt to pandemic times, Walmart is making some major changes to the way it runs its Supercenters: The company … The firm must take a proactive approach to address threats. So, overall Walmart has grown better for America and now it is targeting the same success abroad. To arrive at such consumer-friendly rates, Walmart focuses on the strategy of low cost leadership. Wal-Mart fulfills its “everyday low prices” strategy by offering products more inexpensively and consistently than its competitors. The brand’s growth is driven mainly by its ‘everyday low prices’ strategy and the large assortment of merchandise it offers. Apart from it, the United Kingdom had 631, Canada 410, and Brazil 498 stores operational in 2017. In this way, Walmart has used its store mix to serve its customers well. Perhaps the most famous cost leader is Walmart, which has used a cost leadership strategy to become the largest company in the world. This makes the company best placed to survive a price war and generates … It is buying a controlling stake of roughly 77 percent in Indian e-commerce brand Flipkart to penetrate the Indian market. Net revenue grew to $500.3 billion in 2018 and $514.4 billion in 2019. Cost leadership aims at having the lowest costs in a market. Supercenters: Walmart adopted this store model in the year 1988. Its supply chain system is considered to be the most advanced and efficient in terms of technology. The brand is also investing in social and environmental initiatives in each of the markets it serves. Walmart has continued to retain the top position on the Fortune 500 list consecutively for several years. Live Better” communicate Walmart’s emphasis … Its acquisition of Flipkart, an Indian e-commerce brand was a key step in this direction to find faster growth in the e-commerce segment. The cornerstone of Walmart’s business strategy is its everyday low prices. Both stores have invested heavily in digital growth. Let’s face it Walmart dominates many retail categories and competes against stores like Target and Kmart and Costco and Acme. They would like to shop on their own terms and would not shop unless there is a big discount like 50 or 70%. WalMart’s strategy in cost leadership Efficiency in operations and distribution strategies: OD strategies have helped WalMart achieve low prices- WalMart opens the stores outside of large cities and within 200 miles of existing stores. Their concept is to attract the largest number of customers while providing the lowest-cost general merchandise. The focus is again on efficiency and on reducing empty miles. Each of these markets are around 38,000 square feet in size and have 95 associates working there. From the beginning, Sam Walton surrounded himself with the kind of people who had big ideas and weren't afraid to take risk and bring those ideas to life. A shared database between the company and its suppliers helps manage a better supply of inventory. There are several reasons that Walmart has proved good for America. Cost leadership, a concept by Michael Porter, illustrates a method to affirm and manage the competitive advantage.Cost leadership, basically, refers to the lowest cost of operation in the industry. Walmart could beat more of the competitive pressure given that it focuses more on groceries. Wal-Mart – July 2, 1962 by Sam Walton at Rogers, Arkansas US First discount store Core philosophy - cost leadership – offer better value for money Strategy : focus on stores at small towns : ELDP - the pricing strategy : Cost leadership Strategy : Massive expansion strategy : Global sourcing strategy Corporate Strategy: The main reason behind the success of Walmart is that the company believes and concentrates on the strategy of single business, i.e. Walmart’s overall strategy is cost leadership. Sam Walton was responsible for Walmart's cost-leadership strategy that continues to guide the company to this day. These discount stores are smaller in size compared to the super-centers. These are generally 182,000 square feet in area and employ around 300 associates. With its large team of drivers, Walmart constantly works to ensure that they move merchandise in a responsible and sustainable manner. The shipping centers employ more than 600 people each who upload and unload more than 200 trailers every day. Many of them will not shop unless there is a discount or sale attached. Table 6.1 Business-Level Strategies; Competitive Advantage: Cost: Broad Target Market: Walmart’s cost leadership strategy depends on attracting a large customer base and keeping prices low by buying massive quantities of goods from suppliers. Today, it operates more than 11,300 physical stores and several e-commerce websites under 58 banners in more than 27 countries (Walmart Annual Report, 2019). The brand has led the U.S. retail market through its lowest prices. Investopedia notes four factors that have driven the growth of Walmart’s modern retail model. Since then, it has spread throughout the U.S. and to several other parts of the globe. This strategy can be highly successful; however it is very difficult to employ as it requires minimising costs and passing the savings to the customers. This way, it achieves three things – minimum wastage of time by driving minimum empty miles, low fuel consumption and maximum merchandise delivery with least environmental impact. Cost leadership strategy is a strategy that an organization competes on the basis of having the lowest cost in its industry. The chain has often put smaller retailers out of business when they enter a new market. A cost leadership strategy is marketing a company as the cheapest source for a service or good. They offer a large range of products fresh produce, meat and dairy products, bakery and deli items (prepared food), household supplies, health and beauty aids, and a pharmacy. There are several great facts to know about Walmart’s logistics strategy. Leadership. Another strategy that few of the organizations use is to increase their purchasing power. Getting Ahead With Business Level Strategy, Heartrepreneur® Radio | Episode 26 | The Business of Inspiring with Corey Poirier, Walmart Cost Leadership Strategy Examined. Scale, size, technology and shopping convenience have helped Walmart generate the advantage which you call popularity or brand loyalty. Walmart’s cost leadership generic strategy for competitive strategy, along with the company’s intensive growth strategies, influences the definition of this marketing mix. Walmart has elevated and been guided by leaders like these, who constantly inspire us to achieve the next level of success. In other words, Walmart pursues cost leadership business strategy enabled by the economies of scale derived by the company in a significant extent. Strategic managers in the organization make a concerted effort to lower business costs in order to achieve a competitive advantage. However, to achieve this kind of advantage is not as easy because Walmart too had to cut down on overhead and operational costs. The highest percentage of its stores outside the U.S. are located in Mexico where there are 2,411 Walmart Stores  (2017). Walmart Inc.’s generic strategy is cost leadership. Moreover, India has a very large retail market and plenty of scope for Walmart. concepts including discount stores, Supercenters, Sam’s Clubs and Neighborhood markets. Wal-Mart’s adoption of a cost leadership strategy attracted price sensitive customers to purchase the lowest priced goods in the market. This is a discussion of the business strategy of Walmart and how it has helped the brand prosper and find robust growth. The retail market of the U.S. has kept growing hyper-competitive. It has a global e-commerce segment with its base in Silicon Valley, California that leads all the online and mobile innovation for Walmart. Now, Walmart is looking for more growth and a larger share of the retail pie in the US as well as abroad. Neighborhood markets: A crucial thing that Walmart has always focused on is addressing consumer needs on a larger scale and without compromising on convenience. The cost leadership strategy means marketing a company’s products and services as the cheapest. (Walmart, 2017.). It is difficult to deploy the strategy because the management must constantly work on reducing cost … method to reduce costs and produce the least expensive goods in a market or industry in an effort to gain market share Earlier they were subjected to very high-pressure work conditions and paid lower salaries. Its online sales in the United States have also grown fast driven by the company’s investment in technology and customer experience. Around the world, Walmart sells high-quality goods and fresh and nutritious food at low prices and thus saves its customers precious money. To achieve its mission, Walmart applies cost leadership strategy. They have been effective in doing so as they have the cost advantage and they control their cost drivers and constantly seek efficiencies out of their supply chain. With a stronger competitive advantage, the brand has been able to penetrate the market deeper. In recent, years it changed its HR strategy and grew more focused on employee welfare. Walmart: Cost Leadership. Walmart is in the lead position and it is now even aggressive about prices and sales. The company’s presence in India will be a formidable challenge for the existing big and small retail brands there. Sam’s club is an important brand of Walmart of which 650 are in the US and 100 in foreign nations. From grocery and entertainment to several more, Walmart provides a large assortment of products. The primary generic strategy that Walmart has used to build sustainable competitive advantage is the cost leadership strategy. Walmart has also managed a more effective and efficient supply chain system by managing a direct relationship with the manufacturers. contact: support@notesmatic.com, admin@notesmatic.com, 2017, the retail giant had total 11,695 stores, http://corporate.walmart.com/our-story/our-business, http://www.businessinsider.in/Wal-Mart-is-making-3-changes-so-people-will-want-to-shop-there/articleshow/46305680.cms, https://www.cnbc.com/2016/05/19/wal-marts-low-price-commitment-should-send-shivers-across-retail.html, http://www.investopedia.com/articles/personal-finance/011815/how-walmart-model-wins-everyday-low-prices.asp, http://www.businessinsider.com/why-walmart-can-pull-off-everyday-low-prices-while-everyone-else-keeps-failing-2012-9?IR=T, https://www.reuters.com/article/us-flipkart-m-a-walmart-official/walmart-buys-controlling-stake-in-indias-flipkart-for-16-billion-idUSKBN1IA1HJ, What You Need To Know About Marketing for Your New Business, Easy Ways Businesses Can Incorporate Sustainability. In order to buy in volume at attractive prices, the company built their own warehouse to store an extensive range of products upholding Wal-Mart… Now, it is working even aggressively for achieving business growth and maintaining lower prices. In this way, the leading retail brand has been able to maximize its efficiency using such optimization techniques. Its fleet is one of the largest and safest. By bunching stores together in … In foreign markets, Walmart has done acquisition as well as store expansion and carries products that will match the tastes and preferences of the local buyers there. In 2017, it has invested even more into lowering its prices and that has helped it generate better revenue, more than $485 billion. However, owing to high pressure from various sources in recent years, it made several improvements to make its image in the market and among its customers better.