SVKM’s Narsee Monjee Institute of Management Studies

Bengaluru

Post Graduate Diploma in Management

STRATEGY MANAGEMENT

Submitted To

PROF. JANAKI ANANT

WALMART: The High Cost of Low Price

Submitted by
Prachit Ojha
A042
1. Strategy of Walmart:
Walmart Inc., world’s largest retail corporation, primarily focuses on servicing their
customers with products and goods that are available at the lowest price as compared to
other market retail stores. They even challenge their customers that if they can find a
product at cheaper rate than Walmart, they will offer the same for free.
Their main strategy is Low Cost Leadership and intensive integration of Technology in
their day to day operations as well as in understanding the general behaviour of their
customers. Through the implementation of technology Walmart not only understands
buying pattern of the customers but also the knows which goods are most needed on day
to day basis and offer them at cheapest rates. Thus, this strategy is known as “Everyday
Low Prices (EDLP).
Technology has also helped Walmart in clearing their inventory fast and more efficiently
with the usage of RFID tags. By offering cheapest rates, Walmart bank of the loyalty of
their customers. They compensate the losses incurred due to cheaper rates by selling large
quantities of products. These losses are very low as compared to the huge volumes of
sales across different domains and emerging out as market leader withstanding tough
competition in retail space.

2. Porters 5 force model:

Threat of Competitive Forces: High

There are numerous players in the retail industry competing on various parameters like
pricing, variety of products being offered, after sales services and quality of customer
support. These competitors are on a constant lookout for growth opportunities.

Bargaining power of suppliers: Low

There is an availability of number of quality suppliers for the retailer to select from and
the switching costs from one supplier to other is also very low. Moreover, the supply of
the materials is in higher quantities which further reduces the bargaining power of
suppliers.

Bargaining power of buyers: Low

Walmart itself claims that they are selling the products at cheapest rate and they will offer
it for free if customer finds the same product at a cheaper rate as compared to Walmart.
This reduces the bargaining power of buyers.

Threat of substitutes: Low

Due to the wide range of the goods that are being offered by the Walmart under one roof,
many retailers and shops to shut down or go into losses. Also, they are the low cost
leaders in the market which further reduces the threat of substitutes.

Threat of new entrants: High

The threat of new entrants is high as with every passing day a new retailer is coming into
the market with almost similar strategies as of Walmart and product differentiation. This
is primarily because capital required to enter is moderate and the cost of developing the
brand is also low.
3. Customers Value Proposition:

Walmart’s customer value proposition is to ascertain low prices for its customers by
providing them with an assortment of products of various domains and to maintain
customer satisfaction. Walmart has succeeded in achieving it by developing efficient
supply chain and efficiently moving its inventory. It also keeps track of the growing and
changing needs of the customer and according to which it configures its operations and
offerings. It maintains good network of both physical and online stores with a sufficient
inventory so that the product is reachable to the customer.

4. Value Chain Analysis:

Primary Activities

1. Inbound Logistics: Inbound logistics include the suppliers that supply to Walmart.
There are large number of suppliers which supply to Walmart. Thus, they have a low
bargaining power. More than 50 percent of Walmart’s products come from overseas
suppliers. It forms a strategic partnership with its suppliers for maintaining efficient
supply chain and moving inventory. It also uses technologies like RFID and cross
docking for inventory management.

2. Operations: Walmart runs its operations across the globe. Its operations include
chain of supermarkets, hypermarkets, super centers, warehouse clubs, grocery and
department stores. It operates in 27 countries and has around 11277 retail stores and
clubs under 55 different names and 10 e-commerce websites worldwide.

3. Outbound Logistics: Cross docking forms the major part pf Walmart’s outbound
logistics. Once the product is received from supplier it is cross docked and then
further sent to distribution centers. As soon as the shelves in stores start getting empty
the suppliers get the notification and they send the goods to the stores whenever
required. It helps in minimizing the inventory, transportation costs and replenishment
time.

4. Marketing and Sales: Walmart spends a good part of its profits on marketing and
advertisement. Its market strategy is to build its brand name as the one stop shop
destination for large variety of goods at a very competitive prices through various
channels. Walmart’s slogan says “Save Money Live Better” is well supported by its
market strategy and its motto of saving buyer’s money.

5. Service: Stores are open on all days in a week. Walmart follows cash & carry form of
service which helps it to achieve higher sales volume and faster moving inventory. It
maintains a quick response rate to customer queries and good after sales customer
support too. Almost all Walmart stores around the globe looks similar which eases
customer’s shopping experience and it also maintain consistent prices in all its stores.
Support Activities

1. Infrastructure: Walmart has huge infrastructure which includes its stores,

management, human resources, supply chain and distribution centers. It also invests
on technology, improving supply chain and financial capital well. It expands its
infrastructure every very now and then according to market demand.

2. Procurement: It maintains a strategic partnership with its suppliers and customers. It

makes sure that there is good link between inbound and outbound logistics for
maintaining efficient supply chain and inventory turnover.

3. Human Resource Management: Walmart offers a good pay to its employees which
keeps them motivated in servicing the customers. They have been accused in past for
not providing good health benefits in order to its customers to maintain its
competitive prices. But they provide other incentives and profit sharing to its
employees. Also there is frequent interaction between the higher management and
general workforce of Walmart.

4. Technology: Walmart invests heavily on technology for its success in low cost and
efficient operations. Every item is tagged with RFID codes. Walmart follows a
Uniform Product Code (UPC) and satellite network feature enables it to scan the
barcode at the time of sale and the information is sent to warehouse where the
inventory is updated. It follows cross docking and also follows Just-in time inventory
which reduces idle inventory and improves replenishment cycle.

Customer value proposition and value chain analysis are in line with each other as both of
them are customer oriented and primarily focuses on maintaining low cost leadership in
the market with the help of technology.

5. WALMART: The High Cost of Low Price:

The movie, as the title suggests, focuses on the hardships Walmart faces in maintaining
the low cost leadership in the market. It begins with a speech from its President and CEO
Lee Scott specifying the company has it record sales again and did a phenomenal business
again this year. The movie then delves into the various ironies as Walmart being branded
as company which cares for its customers and employees, yet its employees and local
businesses were affected largely by the retail giant.

The movie focuses on problems faced by the local businesses and retailers like H & H
Ace Hardware due to entry of Walmart in the market. Due to Walmart’s competitive
prices, there was a huge loss in business for them and it ultimately lead to shutting down
of the decades old family business. Local retailers mostly either merged with Walmart or
got shut down.

The movie highlights the issues experienced by the workers and employees of Walmart in
guaranteeing the customers the lowest prices. Walmart forces its workers for long shifts
and even multiple shifts in a single day. Workers had to work for as long as 70 hours a
week. This lead to low work life balance and they did not have much time for their
personal lives and families. Apart from working hours, salaries that were offered to the
workers was also very meagre. This was Walmart’s strategy right from the inception
where Sam Walton enforced workers to take salaries that are sufficient just to fulfil their
day to day needs. Walmart never promised lucrative salaries as their main aim is to
maintain low prices for the customers which came at an expense of employees’ salaries.
Even after facing a lot of criticism over it, Walmart follows the same strategy even today.

The company also provide very less incentives, perks and allowances. One of the major
misfortune for the employees is that Walmart didn’t provide any medical allowance,
mediclaim or insurances, which is basic necessity for any person. Walmart enforced
workers to take insurance schemes that are provided by the government. Walmart claims
that it government’s responsibility not companies to take care of its citizens and it would
further help government to generate income. But Government schemes take time to avail
and usually the claim government schemes offer is low as actually required for the
treatment. Moreover, in a way Walmart is maintaining low prices at an expense of
taxpayers’ money.

Walmart also prohibits formation of unions to demand fair wagers for its workers and
better working conditions. Over the years, salaries of employees have increased but it
hardly compensates for the inflation and overall growing prices. The movie also shows
that company stored harmful chemicals like fertilizers and pesticides for its basic
operations but this polluted the water bodies, which in turn led to fatal diseases in local
citizens who consumed that water. Few communities even protested against opening of
Walmart stores in their locality so that they don’t have to face these hardships.

The movie raises an important question of Is it really justified for Walmart to maintain its
leadership at cost of peoples’ basic necessities and general well-being? In my opinion
Walmart may be lauded for its low prices, but if these prices comes at such high cost for
its employees and other people, then their strategy is not as successful as it looks.