Wal-Mart\'s SWOT Analysis and Generic Business-Level Strategy

Wal-Mart's SWOT Analysis and Generic Business-Level Strategy

Walmart's SWOT Analysis

Wal-Mart's SWOT Analysis and Generic Business-Level Strategy

Wal-Mart's SWOT Analysis and Generic Business-Level Strategy

Wal-Mart

Wal-Mart is the world's leading corporation in the retail industry. It operates in 27 countries of the world with 69 well-recognized brands. With this huge scale of operations and vast business network, Wal-Mart serves a large number of customers with numerous product categories in its retail stores, departmental stores, and discount stores. It is also considered as the fastest growing business corporation in the Global retail industry. It has a huge supply chain network with highly reliable suppliers, distributors, and promotional firms from all the corners of the world. Wal-Mart has always pursued growth strategies for its business operations in the Global market. At present, it is the largest employers in the world with a total workforce of more than 2.2 million employees. It is headquartered in Bentonville, United States while regional headquarters, offices, and retail stores in all the operating continents of the world. It was established in 1969 by Sam Walton and soon grew as a large scale retail chain in the local market. It entered the Global market through self-owned and franchised retail stores and directly affected the sales performance of existing retail giants (Wal-Mart, 2012).

SWOT Analysis for Wal-Mart

SWOT Analysis consists of both internal and external analysis of a certain brand or the whole business corporation. The internal analysis entails the assessment of a company's strengths and weaknesses which exist in its internal operations and capabilities. In contrast, the external analysis gives a depiction of the company's business environment outside its workplace and operational setup (Kurtz, MacKenzie, & Snow, 2010). It includes the potential opportunities which it can avail to become more competitive and successful in its industry and the possible threats which it has encounter to stay on the safest end in an uncertain business landscape (Hill & Jones, 2012). This section presents the SWOT Analysis for Wal-Mart Corporation in the Global context:

INTERNAL ANALYSIS

Strengths

Weaknesses

Wal-Mart is the largest retail store chain in the world. Therefore, it enjoys a large customer base and sound industry position among its competitors.

In addition, Wal-Mart has a strong supply chain network which consists of suppliers, distributors, promotional agencies, and business development firms from all the corners of the world. Wal-Mart has built these strong supply chain relationships through its highly efficient operational setup and competitive commissions which are paid to these supply chain members (Wal-Mart, 2012).

Wal-Mart also enjoys the largest customer base in the world's retail industry with an average serving of 200 million customers per week. It has 69 well-established brands in different product categories (Wal-Mart, 2012).

The sales volume and financial figures of the company have always been showing a positive trend which is a good sign for its stakeholders. In order to keep its stakeholders in their full confidence over its performance, Wal-Mart never compromises on the quality of its products or customer services. It promotes and shelves the top quality brands of the world in addition to locally manufactured products in every target country. It always keeps a huge stock of these international and local brands so as to make them available every time the customers want them.

Due to its large product range and highly-efficient customer services, Wal-Mart has won great appreciation by its customers all over the Globe. Its largest customer base in the world consists of brand loyal customers who always prefer to make their purchases from its retail stores.

In addition to these operational strengths, Wal-Mart also enjoys sound financial position and strengths. It has the largest market share in the retail industry at home country as well as in the international market. Wal-Mart does not make attractive revenues through high profit margins. Instead, it keeps them at their lowest so as to attract the customers with the least-pricing strategy. With the huge customer base, Wal-Mart is able to earn handsome returns over its investments. Customers also prefer it because they are able to get their favorite products at a price which is the lowest in the market.

Another big strength of Wal-Mart is the size of its target market and business network. Wal-Mart is a huge retail store chain which sells all kinds of consumer products at its retail stores and departmental stores. Therefore, it targets all age groups and income classes for its different product categories.

One of the biggest weaknesses exists in the Wal-Mart's strategic management decision. Wal-Mart has expanded its business operations to all the corners of the world, but a large number of stores are franchised to private investors which only give a proportion of their sales revenues to the company. On the other hand, there are various retail chain brands that operate in the same regions with self-owned retail and discount stores (Hitt, Ireland, & Hokisson, 2011). This business expansion strategy is a big hurdle in the competitive growth of the company. The self-owned and self-managed retail stores can give the strongest market standing to the company against its other industry rivals (Kurtz, MacKenzie, & Snow, 2010).

Another weakness of Wal-Mart exists in its industrial relations. Wal-Mart has one of the highest employee-turnover in the industry. This weakness has raised numerous questions and critics to the company's social responsibility and business ethics. The high employee turnover not only affects the productivity of other employees, but it also impacts the company's operational performance in a negative way (Barley, Bragg, Dawson, Shah, Sillanpaa, & Sleeper, 2012).

One weakness that arises due to the franchised business operations of Wal-Mart is the decreasing sales volume and brand loyalty of the customers. The franchisee investors are not able to maintain the same high quality customer services and superior operational performance as the parent company does. Due to this factor, customers have lost their loyalty with this brand and have switched to other competitor brands (Hitt, Ireland, & Hokisson, 2011). Wal-Mart will have to take it as a critical situation for its sustainability in the international markets. Moreover, these franchisee investors are not keeping as low profit margins as the parent company which makes the products equally priced at Wal-Mart as compared to other large and small scale retailers. This thing affects the purchase decision of the customers who prefer Wal-Mart due to its low-pricing strategy (Barley, Bragg, Dawson, Shah, Sillanpaa, & Sleeper, 2012).

EXTERNAL ANALYSIS

Opportunities

Threats

Despite having a number of weaknesses and drawbacks in its strategies and operational setup Wal-Mart still have great potential opportunities in the market which it can avail to grow its business in a competitive and effective fashion.

The biggest opportunity for Wal-Mart is to target the new potential markets in the world where there is a room for establishing a well-recognized international brand (Kurtz, MacKenzie, & Snow, 2010).

Wal-Mart should preferably go for making investments through self-ownership. However, it can invite franchisee investors or potential partners for joint venture in high risk markets (Hitt, Ireland, & Hokisson, 2011).

In order to cater the changing needs of the consumers, Wal-Mart should enhance its product ranges and keep more variety of the existing products and brands.

Wal-Mart can also go for horizontal and vertical integration in order to strengthen its market position and achieve cost leadership in its industry (Barley, Bragg, Dawson, Shah, Sillanpaa, & Sleeper, 2012).

Competitors are the biggest threat for Wal-Mart. The large scale multinational retailers and the small scale local retail and departmental stores provide the same branded products at competitive rates. Therefore, Wal-Mart finds it harder to compete on the basis of pricing and product categories. However, it can take advantage of its huge scale of operations and larger business presence as compared to other retailers (Kurtz, MacKenzie, & Snow, 2010).

The marketing and promotional activities of the other retail giants are also a big threat for Wal-Mart's sales and profitability. These retailers promote their products by offering attractive discounts which are sometimes not possible for Wal-Mart to offer to its customers.

The inflationary pressures and severe economic conditions in the target countries also impact the company's business operations in a negative way. These severe economic conditions impact the purchasing power of the consumers. As a result, they restrict themselves from buying high quality and expensive products. These conditions also affect the costs of operations, marketing, and R&D expenses of the company.

Wal-Mart's Generic Business-Level Strategy

1. Cost Leadership Strategy:

The three generic business level strategies of Wal-Mart are Cost leadership strategy, differentiation strategy, and focus strategy. The major focus of Wal-Mart is towards achieving cost leadership in its business operations. This is possible if it controls the costs of operations up to the maximum possible extent. This strategy can also help it in ensuring high profit margins on its investments. The cost leadership strategy is the most difficult strategy for a business organization to pursue. This is even more difficult to achieve when the business organization aims to penetrate in the international markets or wants to strengthen its existing international presence against its industry rivals (Wal-Mart, 2012). In its Global operations, Wal-Mart has also entered into a price war with its competitors which offer different brands at discounted prices. Wal-Mart, on the other hand, always ensures that its retail stores sell the highest quality products for those customers who are more quality conscious than price sensitivity (Hitt, Ireland, & Hokisson, 2011).

2. Differentiation Strategy:

The second generic business strategy of the company is differentiation strategy which entails the company's efforts to differentiate the attributes of its products from those of its industry rivals. Wal-Mart operates in the retail industry. Therefore, it has to keep a wide range of all kinds of products at its retail and discount stores. Being the largest retailer in the world, Wal-Mart has maintained the biggest stock of products which never creates the shortage of products at these stores. At the same time, the competitors of Wal-Mart also try to match this huge scale of operations and promote the same high quality brands in their stores. The most significant strategy which differentiates Wal-Mart's operations from those of its competitor retailers is its focus on customer services - during and after their purchase. Wal-Mart provides superior customer services to its customers which helps it in building long-term relationships with these customers (Kurtz, MacKenzie, & Snow, 2010).

3. Focus Strategy:

At the narrow market segments, Wal-Mart focuses on achieving cost leadership as well as differentiation of its products from its competitors. To achieve this target, Wal-Mart conducts marketing research in that particular market segment and analyzes the type of consumer response, community behavior, and competitive environment which it may face in that market. The focus strategy enable Wal-Mart to keep up pace with the changing consumer needs and offer only those products which are demanded the most. Wal-Mart also aims to achieve brand loyalty through this narrow segmented focus strategy (Hill & Jones, 2012). That is, the customers are targeted by offering the highest quality products as well as superior customer services in all the retail stores and departmental stores of the company. After enjoying a pleasant shopping experience at Wal-Mart stores, the customers become brand loyal and always prefer to make their future purchases from this reliable and well-recognized retailer.

PRODUCT MARKET STAKEHOLDERS

Strengths

Weaknesses

Opportunities

Threats

A large customer base (more than 200 million customer servings per week)

Lack of discount offers (as compared to other industry rivals)

Introduce more product categories into the product lines (new brands and product variations)

Changing consumer preferences (changing life styles, status symbols, earning and spending patterns, etc.)

Competitors' strategies (marketing efforts, strategic moves, etc.)

CAPTIAL MARKET STAKEHOLDERS

Strengths

Weaknesses

Opportunities

Threats

Trust of investors

Highest market share

The largest retailer in the world with respect to unit sales (Wal-Mart, 2012)

Franchising operations (a large number of retail stores are not self-owned)

Expand to potential target markets in the world through self-owned retail stores and discount stores

Multinational industry rivals with self-owned stores

Promotional strategies of competitors

ORGANIZATION STAKEHOLDERS

Strengths

Weaknesses

Opportunities

Threats

Strong supply chain network

Strong business presence in 27 countries

High employee turnover

High costs of operations

Failed to achieve cost leadership

Make more brand loyal customers (Kurtz, MacKenzie, & Snow, 2010)

Improve industrial relations in order to motivate the employees and decrease their turnover

Expanding operations of the competitor brands

Competitive compensation packages offered by the competitor brands.

Wal-Mart's Potential for Success

From the SWOT analysis with the strategic input from different stakeholder groups, it is clear that Wal-Mart has various potential opportunities in its markets which it can avail to become successful in its industry and achieve its strategic objectives. Wal-Mart has to focus on three generic business level strategies; cost leadership, differentiation, and focus in both large scale and narrow segment areas. In order to achieve the cost leadership, Wal-Mart will have to analyze the areas where it can save costs and increase its profit margins. The potential areas where Wal-Mart can find room for cost reduction include marketing and promotion, supply chain and distribution, and Research & Development (Hitt, Ireland, & Hokisson, 2011).

The second business level strategy can be achieved by focusing on what consumers expect from this retail giant. Wal-Mart always maintains a large stock of products from all product categories. It can improve its customer acceptability if the products are stocked and shelved according to their demand and acceptability. For example, the high demand products should be made available to the consumers all the time and must be placed on the high shelves. The company should also make greater amount of expenditures to promote these products to their potential target consumers. In contrast, the low demand products should be placed in middle and low shelves and should be stocked in lesser quantities at bigger stores only. These strategies will help the company in keeping the consumer preferences on the top priority and designing the marketing programs accordingly (Hill & Jones, 2012).