Walmart: Everyday Low Prices Strategy

Wal-Mart is the world’s largest retailer stores emerged in Arkansas, USA since 1962 by Sam Walton with his belief that the future of retailing lay in discounting, focusing on value drivers: price and service, convenience and a wide rage of product all in one store. The successfully of implementation is to adapt innovative practice selling the brand with slogan ” Every Day Low Prices” (EDLP) mixed with other philosophies into its pricing.

In early days, One of the key strategy was concerned on small town locations: open discount stores in small town and spread out its stores and filling un-served gaps avoiding from competition radar. As, Wal-Mart saturated its market and effectively barred new competition.

With the prospect of low price policy, Wal-Mart is relentless cost control. Non-stop of reducing of their price parallel with cost control. Including of being the partnership with suppliers, they claimed that it helped the suppliers improve inventory management and efficiency as win-win partnership. Another core competence is logistic management. Wal-Mart very early demonstrated commitment to technology in the industry. Being the earliest to adopt satellite technology connection the chain to one big network. Moreover, Wal-Mart has been seeking for the continuing development by adoption RFID in the system.

In term of service, Wal-Mart understands the art of motivating its employees from all level to perform their best. For instant, under the “ten-foot rule”, any member of staff within ten feet of a customer must offer them assistance. Its labor relations are exceptional. Workers are not plain employees but “associates”, eligible for a share of the profits and stock options in the company. This has created a famously loyal and highly competitive workforce.

Now, Wal-Mart is facing a change to their business in China. Over the past few years China’s retail industry and its distribution and logistical infrastructure have opened up significantly with decreased government regulation. For Wal-Mart this will mean a large change in its business strategy and it will now look to profitably expand with China’s booming economy. In order to set a new strategy Wal-Mart will need to identify what issues it will face in the short and long term. One such issue is the fact that the business model used in America will not directly transplant to China. For example, in the U.S., Wal-Mart places stores in small towns to gain a competitive advantage. China, on the other hand, will not support such a structure. In China, the economic growth has been concentrated exclusively in coastal regions supporting urbanites.

The U.S. business model also uses Wal-Mart’s distribution, logistics, and IT networks to gain economies of scale and competitive advantages. China does not have the infrastructure for Wal-Mart to gain the same scale economies and advantages. Instead, Wal-Mart China will need to find alternative ways to turn core competencies into competitive advantages. Other issues Wal-Mart China faces are differences in consumer preferences habits between American and Chinese consumers, increasing competition among foreign and domestic firms, and overcoming local protectionism obstacles.

SWOT Analysis of Wal-Mart

(S)trengths

• 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.
• The company has a core competence involving its use of information technology to support its international logistics system.
• Wal-Mart has a lot of suppliers, since the company claimed that it had always treated its supplier as partners and also helps suppliers improve inventory management and efficiency.
• Wal-Mart has a competitive strategy. For example everyday low prices (EDLP) or Always Low prices, this helped to drive the concept of EDLP and drew a million customers to its door.

(W)eakness

• The biggest obstacle Wal-Mart faced in Mainland China was lack of an information-technology network with suppliers making the purchase and distribution difficult.

(O)pportunities

• 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. 
• New locations and store types offer Wal-Mart opportunities to exploit market development. They diversified from large super centres, to local and mall-based sites. 
• Opportunities exist for Wal-Mart to continue with its current strategy of large, super centres.

(T)hreats

• Very high competition in china market, especially the local brand.
• The Buying behavior of Chinese consumers, Chinese consumers always compare the different of the price before they make a purchase.
• Regulatory restrictions, in china the constraints on a foreign retailer’s operation directly limited the regional expansion of Wal-Mart stores and the efficient use of distribution centers.
• Local protectionism, it is serious problem faced by many multinational firms trying to expand operations through china.
• The Infrastructural Deficiency, Wal-Mart distribution system depended on transportation, but china transportation were no well connected and were serious fragmented.

Case Questions:

Why is Wal-Mart successful in the US? What are Wal-Mart’s competitive advantages and its sources?

Wal-Mart has the critical strategy such as Every Day Low Prices (EDLP) to capture demand of consumers and brand reputation and trust of customers make Wal-Mart become outstanding firm.

Two key developments made the success possible:

Distribution: Wal-Mart set up highly automated distribution centres, cutting down on delivery time and costs.

Inventory flow: The company’s computerized inventory systems gave managers real-time information on their stocks, speeding up the re-ordering of goods.

The competitive advantages of Wal-Mart are technology, being the earliest to adopt satellite technology connection the chain to one big network. Besides, Wal-Mart has been seeking for the continuing development by adoption RFID in the system. Using the inventory management over the competitors and a lot of suppliers that deal with Wal-Mart. Also, the main successful of Wal-Mart is cost-control. Wal-Mart can control and avoid unnecessary cost very well, therefore Wal-Mart can offers a low price than competitors to consumers as a result of economic of scale.

2. Should Wal-Mart replicate its domestic model in its original form in China? Why? Can it build the same competitive advantage in China through its successful domestic model?

Wal-Mart should not use the same strategy form in china. Because it is different in culture , environment, legal and politics. The original might be success in US but the characteristic of Chinese people is totally differently from US’s people. It is hard to build the competitive as the same as in United state because due to local supplier, distribution or supply chain is not the same as in USA. Also, Wal-Mart might lack of technology in china, so I think the original model might not work in china

3. Provide suggestions on potential strategies that Wal-Mart China should consider in going forward.

Creating Guanxi

Conducting marketing expansion research: a critical role in global success.

It permits the company to take into account different environments, attitude and market conditions and hence to minimize risks.

To get information for possible business expansion

To monitor the political climate

To review various ways of market

To evaluate the business partners

Alternatives

Wal-Mart has many options when determining what strategy to set going forward in China’s newly deregulated market.   One such option is to accept defeat.   Wal-Mart has attempted to transplant its American business model in other countries such as Germany, South Korea, and Japan and realized huge failures.   Japan is consistently a “loss making” operation for Wal-Mart, and Wal-Mart has already completely retreated from Germany and South Korea due to its inability to..

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