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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