Running head: BUSINESS PROPOSAL

Final Proposal
Jacqueline Stafford
ECO 561
January 19, 2015
Mathewos Kassa

BUSINESS PROPOSAL

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Final Proposal

This proposal is focused on introducing a new product into an existing line of business
and to discuss how to create a good to raise the organization's revenue. Mentioned will be the
concepts of the elasticity of demand, market structure and profit maximization techniques which
would be helpful to further this good and also the barriers to entry. Pricing strategies and
product differentiation will be the other important topics which will also be discussed. I have
chosen the organization Walmart Stores, Inc. Walmart is a multinational retail store corporation
in the United States that operates chains of discounted department and warehousing stores
across the country. Based on Fortune Global 500 data, Walmart is the third largest corporation
and employs more than 2.2 million associates and is the largest retailing company in the world.
The company was founded in 1962 by Sam Walton and became incorporated and made its
debut in late 1969. Walmart was first publicly traded on the New York Stock Exchange in 1972.
The company is headquartered in Bentonville, Arkansas. To this day, the organization
possesses the distinction of being America's largest retail store.
Market Structure
Walmart first extended common stock to the public in 1970 and started trading on the
New York Stock Exchange on August 25, 1972. Walmart Stores, Inc. operates with an oligopoly
market structure and because of their excess of retailers to deal with. Walmart is a giant with a
monopolistic competition market structure. The company's size makes it powerful enough to
have driven smaller retail companies out of business and forced manufacturers to be more
efficient. Walmart's effects on its competitors are when one store opens in areas, three retail
competition stores will close its doors within two years.

BUSINESS PROPOSAL

Walmart consists of higher barriers to entry into the market once it penetrates the market, and
this makes the company more efficient than its competitors. Competitors fear Walmart's price
wars, cost advantages, and control over supplies.
Elasticity of Demand
The demand for Walmart is highly elastic for the main reason that today there are so
many customers that continuously shop at a department store that keeps its sales up to contend
with competitors. As the economy declined, the demand for discounted goods rise as buyers
may have less money to spend, but they still have a necessity for grocery and general
merchandise in their homes. Walmart offers discounted products in these areas that are
affordable and useful in homes across America. So, as demand for these items rises when a
weakened economy results in consumers need to spend less. This also leads to a decline in
supply when the economy reduces. As the demand for discounted goods such as what Walmart
offers, the supply is slowly depleted. Walmart's products are considered inelastic as well. Even if
the economy is in good shape, customers will still buy inferior goods because they are a good
value. Walmart products are inelastic and are not affected by price fluctuations.
Current Global Economic Conditions
Because Wal-Mart recognizes that society is living in a tough and unpredictable economy, they
are planning accordingly. Locations in Brazil and China has been closed due to poor performance
operations. Plans are anticipated in opening smaller stores internationally. Walmart International
added 19 million square feet of store space in the fiscal year 2013, after first setting goal growth of
30 to 33 million square feet, then lower the aim to 21 to 23 million per square feet.
If the economy is hurting, then consumers finances are hurting as well. If it economical pressure,
then customers may slow down their shopping trips, but many find a way to spend money. Walmart

BUSINESS PROPOSAL

sales have fallen and Walmart U.S. continues to remain optimistic about its profits although they are
not satisfied with its sales.
One way the business has decided to cut costs and keep good in stock is to use some of the larger
stores as distribution center for smaller stores. The supercenters are jewels for the business
because of selling groceries and merchandise in stores that are about 182,000 square feet.
Effect on Local Macroeconomic Indicators
Walmarts effects on the economy and the business world has been huge, considering the amount of
store chains throughout the United States. Its macroeconomic environment is known to be quite
difficult at times but the organization still strives high while it continues to be successful and stands
tall over any other retail chain. Its monopolized market strategy beats all smaller stores. The retail
sales that consists of many different consumer goods are generously priced lower than its
competitors which ultimately drives other businesses out and caters to its many customers. A
macroeconomic forecast, usually described in data charts, graphs, and/or report, which provides
macroeconomic activity over a period of time and predicting the future of the company. Areas
covered in the macroeconomic activity are goods and services, revenue, employment, production
and price levels, and monetary policy.
Economic indicators analyze the market economy and the presumption of if it is a positive or
negative market. In these indicators researched are economic growth and poverty and rates of
inflation. It is best to document those indicators to later determine if it will affect Walmarts
competition with other businesses in the industry. Main indicators to monitor are: Local and social
capital, mom and pop stores, cultural backgrounds, store traffic, political laws, technology advances.
Important demographic indicators such are rate of population, density, and unemployment rate.

Economy's Stage in the Business Cycle

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Walmarts has four stages of the business cycle that are controlled by forces of supply and demand.
These stages consists of:
1. Contraction A bear market caused by economical slow down.
2. Trough A recession when the economy hits rock bottom.
3. Expansion A bull market when the economy begins to come up again.
4. Peak Start of inflation when the economy is in a state of irrational exuberance.
Wal-Mart Stores Inc., Consolidated Statement of Financial Position, Liabilities and
Stockholders' Equity (quarterly data)
USD $ in millions

Oct 31,
2014

Jul 31,
2014

Apr 30,
2014

Jan 31,
2014

Oct 31,
2013

Jul 31,
2013

Apr 30,
2013

Jan 31
2013

Short-term borrowings

6,019

3,516

3,517

7,670

12,817

8,639

6,255

6,805

Accounts payable

39,65
6

36,828

36,347

37,415

39,221

36,701

36,770

38,080

Dividends payable

1,553

3,100

4,648

1,573

3,141

4,649

Accrued liabilities

18,77
3

18,237

17,807

18,793

18,606

18,616

17,282

18,808

383

511

1,966

966

255

116

2,318

2,211

4,874

4,659

3,287

4,103

4,147

4,692

5,967

5,587

302

301

300

309

315

309

311

327

70

89

87

Current
liabilities

71,56
0

67,152

67,942

69,345

77,021

72,214

73,552

71,818

Long-term debt,
excluding due within
one year

41,72
0

43,004

45,699

41,771

41,702

40,678

41,536

38,394

Accrued income taxes

Long-term debt due
within one year
Obligations under
capital leases due
within one year
Current liabilities of
discontinued operations

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Long-term obligations
under capital leases,
excluding due within
one year

2,767

2,695

2,742

2,788

2,841

2,907

3,015

3,023

Deferred income taxes

and other

7,789

8,311

8,164

8,017

8,298

7,989

7,694

7,613

Non-current liabilities
of discontinued
operations

Non-current
liabilities

52,27
6

54,010

56,605

52,576

52,841

51,574

52,245

49,030

Total liabilities

123,8
36

121,162

124,547

121,921

129,862

123,788

125,797

120,848

1,491

1,492

495

549

519

323

323

323

323

324

327

329

332

Capital in excess of
par value

2,223

2,208

2,111

2,362

2,364

3,432

3,399

3,620

Retained earnings

80,81
4

77,172

73,366

76,566

72,888

70,791

68,489

72,978

Accumulated other
comprehensive
income (loss)

(4,25
1)

(1,957)

(2,712)

(2,996)

(2,183)

(2,889)

(1,968)

(587

Total Walmart
shareholders'
equity

79,10
9

77,746

73,088

76,255

73,393

71,661

70,249

76,343

4,944

5,077

5,111

5,084

5,129

5,025

5,592

5,395

84,05
3

82,823

78,199

81,339

78,522

76,686

75,841

81,738

207,8
89

203,985

202,746

204,751

209,876

200,969

202,187

203,105

Redeemable
noncontrolling interest
Common stock

Nonredeemable
noncontrolling interest
Total equity
Total liabilities,
redeemable
noncontrolling
interest, and equity

Source: Wal-Mart Stores Inc., Quarterly and Annual Reports

How Current Credit Market Conditions Affect Your Planning or Operating Decision

BUSINESS PROPOSAL

Business operations and performance relies on worldwide economics. It poses a risk if current global
economic conditions postpones spending in response to tighter credit, unemployment, negative
financial news and decrease in income or assets. Demand could also play a part because it could
differ from company expectations. If renewed financial turmoil has an effect on the banking system
and financial markets and consolidation of the financial services industry, or significant financial
service institution failures, could be a new tightening in the credit markets, low liquidity, excessive
volatility in fixed income, credit, currency, and equity markets.

Increasing Revenue
In the United States, Walmart operates more than 4,900 retail locations. These chains
include 4,281 Walmart Stores and 640 Sam's Club warehouses which consist of Walmart's net
sales at more than $279 billion and Sam's Club more than $57 billion in fiscal year 2014.
Walmart has more than 6,100 retail stores in 26 countries outside of the United States. The
business annual salary for the fiscal year that ended January 31, 2014, the company increased
net sales by 1.6% to $473.1 billion. They came in the first place in the 2014 Fortune 500 list of
the world's largest businesses based on revenue.
Methods to increase revenue are to increase sales and marketing resources, provide
new products, new geographic locations, expand distribution channels, review pricing
strategies, diversify offerings, develop relationships with customers, and e-commerce business.
To implement these methods, a designated marketing and IT team will devise meetings,
communications, and presentations to display their ideas.
Prices Relation to Product Elasticity
Price elasticity of demand is critical to business, and economic concept that refers to the
relative change in quantity demanded to a change in price of a product or service. Elastic
demand means that even a slight change in the price of your goods or services can significantly

BUSINESS PROPOSAL

affect demand. Inelastic demand means not having the space to raise prices with a significant,
relative drop-off in demand. Elasticity of demand displays how well the customers accept
changes in pricing. If the cost to produce or acquire goods rises, then it helps to know how the
customers accept you are trying to pass on the costs to them even though prices are higher.
One purpose of elasticity is to establish price strategies so that it can be determined if there is
space to adjust higher or lower over time or if it is necessary to have the correct price from the
beginning.
Changes in Marginal Cost and Marginal Revenue
The understanding of marginal revenue can assist decision-makers on how to make
critical, informed decisions regarding changes in production. The marginal revenue helps to
analyze the potential benefits and pertaining to increasing production. It measures the additional
benefit, or revenue, accrued from producing an additional unit of product. The sum is equal to
the change in total revenue divided by the change in quantity.
Marginal cost is one of the basis for determining production, along with marginal
revenue. When the marginal revenue is the same as the marginal cost, profit is at its max. This
means that the organization is receiving all expected profits from production and is free from a
situation that causes revenue loss.
To use marginal cost and marginal revenue to maximize profit the company would need
to point out some of the ambiguities of assumption. Another is to determine the proper levels of
inputs and outputs and last is that marginal cost should equal marginal revenue. By using these
steps the company should be able to maximize profits by using the three constraints a firm
faces which are the production function, the demand curve, and the supply curve of resources.
Pricing and Non Pricing Strategies

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There is a limit to how much an organization can use price competition because it will
only go so far. The company uses a non-price competition which is a marketing strategy. The
company tries to distinguish its products or service from competing products on the same level.
By using non-pricing strategies, no methods are used based on the utilization of the price of a
product or service to draw in new customers and maximize profit from existing customers.
Non-price competition involves promotional expenditures (ex: advertising, coupons,
special orders, sales promotions). There are additional costs but it would be in the best interest
of the company to invest in this process because it is more profitable than selling at a lower
price and it avoids chances of a price war. The strategy is to promote innovation for the
company to distinguish their products but without adjusting prices or services. .

Strategies to increase revenue are:

1. Low Cost Producer Strategy goal is to produce products or services at the lowest
possible cost that provides the company with a cost advantage relative to its
competitors.
2. Differentiation Strategy process to accommodate consumers by satisfying their
needs. Since consumers focus on differentiated products and services, they are
willing to pay higher price. This strategy can draw in more customers and make the
company more competitive.
Wal-Mart has out done its competitors in the grocery business by utilizing its huge size to
promise low prices. The chain plans to use the same strategy to upend the market for organic foods.

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Their goal is to begin stocking shelves at many of their locations with canned vegetables, spice and
condiments, produced by organic food company Wild Oats.

Such products will not carry the same price markups found on other organic-label food.
Walmart can then continue its compete-on-strategy that has made it huge for cost-conscious
shoppers and difficult for retailers who often lower their prices for competition. The strategy of adding
organic products to its vast array of in store items has been in demand for customers according to

Jack Sinclair, executive vice president of grocery at Wal-Mart U.S.

Wild Oats Organic Marketplace is a strategy for Walmart to provide more healthy
products at a lower price than non-healthy products. For example, Organic Chicken Broth is
$1.98 for a 32 ounce can while Swanson costs $2.88. Also organic tomato sauce is 88 cents
while Bertollis 24-ounce jar is $2.48. In most stores, consumers pay more for organic products
than what Walmart charges. Walmart is able to decrease the cost of organic products because it
can buy food in huge quantities and tap its current distribution channels in a way that eliminates
middle men that would increase the costs.
Non-Pricing Strategies to Increase Barriers to Entry
Because Walmart is an oligopoly market structure, and a competitive market, non-pricing
strategies can have more effect on its customers. One strategy would be the limit pricing which
sets a low price and a high output so that competitors cannot make a profit at that cost.
Advertising would be another strategy because it advises consumers of product changes. Other
methods of use are branding that maintains market share without altering the price, enhanced
service quality longer opening hours and extended warranties. These methods are the best way
to apply maximization to consumer response and improve market performance.

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Advertising methods and promotions would be improving the sale of products, open
communication, increase employment, newspaper and TV ads and flyers. These processes
allows customers to have access to the company savings and this is passed on by word-ofmouth to others and this creates additional consumers for the business.
Even if Walmart does not produce tangible goods, it could still have related costs. Mixed
costs have a variable element and a fixed elementhence "mixed." The variable costs change
when the company gains or loses clients. The fixed costs stay the same whether the company
gains another client or not.
When setting prices, Walmart should set a price that is reasonable because whether too high or
too low it may have an effect on limiting the business growth. Or, it could pose problems for
sales and cash flow. The company should stay focused on pricing strategy and to set prices and
sales level that will allow the company to be profitable. Close attention should always be paid to
the competition.
Methods to use to minimize cost would be to obtain feedback from consumers, stay in touch
with the competitors strategies to match prizes, and maintain the marginal costs and marginal
revenue.

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References

(2009). Competitive Strategies to Increase Sales and Profits. Retrieved from:

http://www.businessplanhut.com/competitive-strategies-increase-sales-and-profits
(2014). Walmart: Corporate & Financial Facts: Retrieved from:http://news.walmart.com/walmartfacts/corporate-financial-fact-sheet
https://dominic92.wordpress.com/2010/02/10/wal-mart-and-its-oligopolistic-market-structure/
Hamel, G. (2015). The Importance of Marginal Revenue. Retrieved from:
http://yourbusiness.azcentral.com/importance-marginal-revenue-7900.html
Kokemuller, N. (2014). Small Business: What the Price Elasticity of Demand Shows and How
Substitutes Affect Elasticity. Retrieved from: http://smallbusiness.chron.com/price-elasticitydemand-shows-substitutes-affect-elasticity-74171.html
Long, N. (2014). Small Business: What Happens to Marginal Revenue When Output Increases.
Retrieved from: http://smallbusiness.chron.com/happens-marginal-revenue-output-increases34481.html

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Overly, S. (2014). Wal-Mart plans to bring its compete-on-price approach to organic food.
Heres how. Retrieved from: http://www.washingtonpost.com/business/capitalbusiness/wal-martplans-to-bring-its-compete-on-price-approach-to-organic-food-heres-how/2014/04/09/db1bab32c003-11e3-b574-f8748871856a_story.html