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Wallmart, Inc – The Rise to Low-Cost Leader

Executive Summary

Dated back in 1962, Samuel Walton and his brother J.L. Walton opened their first Wal-Mart

Discount City in Rogers, Arkansas. Its name quickly spread across many states and within only 7

years, 18 Wal-Mart stores emerged in Arkansas, Missouri, Kansas, and Oklahoma; the Walton

brothers officially incorporated these ventures as Wal-Mart Stores, Inc. Wal-Mart’s stock was

listed on the New York Stock Exchange in 1972 (1). The giant corporation operated under the

core philosophies of excellence in the workplace, outstanding customer service, and most

importantly, the lowest possible prices. Strategic decisions are those that aim at differentiating an

organization from its rivals in a way that is sustainable in the future, and Wal-Mart represents an

outstanding example. Among other retail outlets such as Target, Kmart, etc. Wal-Mart was soon

recognized nationally as the leader of the pack, selling everyday low-cost merchandise ranging

from the simplest household items to the more sophisticated electronic devices.

SWOT Analysis

Strengths: Wal-Mart has strong retail brand’s image, marketing, and human resource
management. Wal-Mart has outstanding reputation for selling merchandise at the lowest prices

comparable to others in the industry. Being a one-stop-shop, it offers convenience for busy

individuals and families because middle class families and low-income earners are Wal-Mart’s

primary targets.
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Weaknesses: Being the jack-of-all-trade retailer meaning Wal-Mart may not have the flexibility
of some of its more focused competitors. For example, it may sell general electronic devices

such as digital camera, SD memory, but may not list computer video cards, motherboard, CPUs,

etc. In addition, despite its devotion to IT development, it is often very hard to ensure top

operational efficiency due to its huge size. Although the company is global, its international

operation still only presents in about 14 countries, thus missing out huge amount of market share.

Opportunities: As mentioned above, Wal-Mart has incredible potential to expand into many
more countries if it really wants. That being said, a sound business plan and marketing strategy,

as well as knowledge about local regulation and consumers’ wants and needs, are still necessary

to be successful. Wal-Mart can aggressively acquire, merge with, or form alliances with other

global retailers. Two of the hottest new markets Wal-Mart should consider expanding into are

China and India because both are among the fastest growing countries in the world. With the

majority of population favor low price, Wal-Mart can acquire additional huge market shares.

Threats: Production and manufacturing costs have been lowering over the years due to
outsourcing opportunities. As a result, this leads to intense price competition. Also, Wal-Mart is

the biggest rival for the rest of the retailers. The major threat would be the union of other

retailers to fight against Wal-Mart, but it’s unlikely so. Barriers to entry are high because it’s

tough for new entrants to tackle an already established Wal-Mart. (2)

Wal-Mart Strategy Analysis

Wal-Mart managers believe that maximizing the effectiveness of its strengths while minimizing

and concealing its weaknesses may result in superior operational performance relative to its

rivals. By 2010, it is still the world’s largest public corporation, revenue in 2009 amounted to

$258 billion.

Wal-Mart Price Spin:

Wal-Mart is the master of illusion when it comes to convincing its competitors, consumers, and

suppliers to believe that its slogan has always been: “Always low prices”. In fact, recent

investigations and studies demonstrate that only about 15% and 20% merchandises at Wal-Mart

have lower prices than its competitors, while the remaining 80% actually have higher prices than

other retailers. Wal-Mart is very successful at marketing itself as the lowest cost retailer in the

industry by creating an illusion and embedding that perception into everyone’s minds. More

specifically, Wal-Mart makes consumers think that its prices are much lower than its

competitors’ prices using a concept called “price spin”, after countless advertising campaigns.

The principle here is that customers feel their expectations regarding price are met if they

perceive them to be met. For example, the first items that are placed in high-visibility spot in

every section of a store are very low-priced. This helps create a perception that since the prices

of these first items are so low, the rest in the store are also low.

Expectation shift and Mitigation:

Wal-Mart makes use of these two concepts exceptionally well. Wal-Mart understands that

customers have core expectations or needs such as: low prices, good quality, good customer

services, convenience, etc. Expectation shift means that the importance of a specific expectation
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can be increased, whereas mitigation means the opposite. For example, if two stores offering the

same products but one store reduces its prices dramatically, then prices become more important

for customers and they will shop at the cheaper place; thus, customer expectations have shifted.

In addition, because customers think that prices at Wal-Mart are already so low compared to

others, they tend to forgive Wal-Mart’s low performance in fulfilling other expectation such as

customer service; this is called mitigation. (5)

Role of Technology:

Consumers’ demands are changing everyday and “the complexities of achieving business

success through increased efficiency, effectiveness and competitiveness, combined with

innovative applications of modern technology, has heightened the awareness of both Technology

and business managers towards more strategically oriented approaches for planning and

management of any industry”. (3) When RFID Technology arrived, Wal-Mart quickly made use

of it and expanded its RFID capability to many facilities. By the end of 2007 fiscal year, 400

additional Wal-Mart stores were RFID enabled. E-commerce opened a new door for the

company to reach its customers. Wal-Mart took advantage of IT to create their own website for

consumers to have easy access of knowing the company as well as making purchase online.

Corporate Culture and HR Management

Employee empowerment and motivation become huge parts of Wal-Mart’s corporate culture.

Wal-Mart takes all of its effort to make employees feel like they are the driving force that lead

the company moving forward. “One of the facts proved about this motivation is the used of term

‘association’ instead of ‘employee’. Wal-Mart had agreed with J.C Penny by referring the
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employees as associates because it can make them feel more engagement with the company.

After that, Sam had suggested a new way of treating his associates by calling all levels of them

by their first name and displaying only the first name on the ID badge. Sooner, from hourly

associations to top managers or even the founder of the company is calling each other by their

first name only. Everyone in the company is getting more involves by calling the other’s first

name because it can create a family-oriented business instead of boss-oriented one. Because of

Sam’s belief that the company was built by the people, Wal-Mart had renamed its human

resource department as a ‘people department.’” (6) In addition, Wal-Mart takes one step further by

trying not to display the company perception of “for profit”. The company makes effort to help

their employee’s problems by hiring special psychologist team to counsel on their problems.

Recommendations

Recommendations for Wal-Mart are all about its growth potential. As mentioned above, Wal-

Mart needs to target external markets; this includes opening new stores in many other countries

in Eastern Europe and East Asian countries. However, the company should change its market

entry techniques so that it could focus on customizing its business objectives within each

country. “The retail giant needs to make product quality as part its major business strategy.

Quality in this regard refers to both the customer service and the nature of the products in its

stores. The company needs to reinforce an image of a community based organization. This

means that its employee practices should be enhanced and it should also maintain its low price

offering.” (4) Aside from expanding oversea, improving affluent consumers’ perception is also

very important because they usually think that Wal-Mart only offer low quality products, as

evident by its prices. Therefore, the company should create an area in the stores that focus on
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selling high quality, expensive merchandise. By satisfying both of these areas, Wal-Mart may

greatly increase its brand exposure internationally and enjoy a bigger market share as it attracts

more affluent consumers.

References
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(1)
Wal-Mart’s Key Dates. http://www.fundinguniverse.com/company-histories/WalMart-Stores-
Inc-Company-History.html
(2)
Wal-Mart’s Rival Threats. http://marketingteacher.com/swot/walmart-swot.html
(3)
Wal-Mart’s Marketing Effectiveness.
http://ivythesis.typepad.com/term_paper_topics/2009/06/walmarts-marketing-effectiveness.html
(4)
Wal-Mart’s Marketing Management. http://www.articlesbase.com/management-
articles/marketing-management-in-walmart-1919747.html
(5)
Wal-Mart Strategy. http://www.zenith-consulting.com/research/walMart/Wal-Mart-
Strategy.pdf
(6)
Wal-Mart: The Key to Success. http://walmart-
thekeytosuccess.blogspot.com/2007/11/strategy-for-managing-people-resources.html