Walmart's marketing strategy and competitive advantages in retail

Marketing Strategy of Wal-Mart Retail Chain: An Analysis

Wal-Mart's history is an example of innovation, leadership and success in a company. It began as a single store in Rogers, Arkansas in 1962 and has become the world's largest retailer (Slater, 2003). Wal-Mart is often looked to as the industry trendsetter. The company enjoys annual revenues of over $100 billion, 3,200 stores and nearly one million employees around the world.

Wal-Mart operates each store, from its products to the technical equipment that helps speed up checkout times, with a single philosophy: provide everyday low prices and excellent customer service (Slater, 2003). Its rock bottom prices eliminate the need to spend money on frequent sales promotions, and its sales are more predictable.

Wal-Mart has invested a great deal of money in its unique cross-docking inventory system (Slater, 2003). Cross docking allows the company to achieve economies of scale that reduce its costs of sales. This system allows goods to be continuously delivered to stores within 48 hours and often eliminating inventory processes. As a result, Wal-Mart can stock its shelves much faster than its competition. In addition, Wal-Mart leverages its buying power by purchasing in bulks and distributing the goods itself. Wal-Mart guarantees everyday low prices and considers the company to be the one stop shop."

This paper addresses the success of Wal-Mart's existing marketing strategies, in an effort to determine which areas could be improved and how the company can increase its future levels of success.

Wal-Mart's Existing Strategies

In today's global marketplace, business is more competitive than it ever has been, and if companies want to stay in business, they must consider their business leadership role more often, provide things that competitors don't, and search out for information concerning new marketing strategies (PRIMEDIA, 2002).

Sam Geist, a former national marketing expert involved in the competitive garment industry, and Warren Greshes, a former owner/operator of a nationally recognized sporting goods chain, argue in their seminars that there is no room for error in business strategies and practices (PRIMEDIA, 2002).

Geist and Greshes encourage those who attend their conferences to consider their own business by looking at various industries. They encourage businesses to examine the philosophy behind successful companies' practices and strategies, and ask several self-examining questions (PRIMEDIA, 2002):

1. Do you know, or do you just think that you know, what your business is really about?

2. Who are your real customers?

3. Are you really marketing your total package of products and services to them?

4. Are you differentiating your company from your competition?

5. What is your customer's point of reference?

Clothing

Wal-Mart sells a wide variety of clothing, ranging from socks and t-shirts to coats and dress clothes. The stores also sell a wide variety of shoes and boots to customers.

Pharmaceuticals, Cosmetics, and Prescription and Non-prescription drugs

Wal-Mart sells both prescription and non-prescription pharmaceuticals including both various brand name and generic varieties. The stores also sell a large selection of personal care products, including soaps, shampoo, toothpaste, mouthwash, etc. Wal-Mart also has a department dedicated to cosmetics including brand name perfumes and make-up.

Food Items and Groceries

Wal-Mart has a full selection grocery store in its Super centers. These departments have their own bakery, meat shop, and deli shop offering consumers the same selection and quality of a large grocery store.

Household Products, Maintenance, and Automotive

Wal-Mart has a large variety of small appliances including items like toasters, blenders, microwaves, and small refrigerators and freezers. It also has household products like detergents and cleaners. Wal-Mart offers household repair and remodeling products including drills, saws, paint and wallpaper for customers who are handy. The automotive department offers a wide array of preventative maintenance and car care products for consumers.

Electronics and Toys

Wal-mart offers various electronic products, including home computers, televisions, radios, and CDs. It also has a good selection of brand name toys in its toy department.

Bulk Items

Wal-Mart sells a lot of bulk-packaged items through its Sam's Club stores. They offer a larger quantity of product for a lower price to consumers and small businesses.

One of main aspects of Wal-Mart's marketing strategy involves understanding who its customers are (Mano, 2002). For the retail store, the customers are mainly working middle class people. They come to Wal-Mart stores to buy the items that they need because they know that the prices are low and the service is good. The retail sector makes Wal-Mart a majority of its revenues and profit year after year.

Sam's Club is a network of warehouses that customers pay a yearly membership fee to be a part of. As a member, customers get discounts on products and can purchase bulk-packaged items at low costs. Sam's Club warehouses are the second largest sales generating operations of Wal-Mart Stores, Inc. Individuals and small businesses are Sam's Clubs main customers.

Wal-Mart has made numerous efforts to appeal to families. For example, the company has installed check-out lanes free of racy magazines like Cosmopolitan, in a recent change in Wal-Mart's marketing strategy (Kleder, 2002). As a result of this family-friendly marketing strategy, all sexually-suggestive materials, like Cosmopolitan and Glamour magazines and the Sports Illustrated Swimsuit Edition, will either removed from check-out lanes or covered with blinders, so as to not offend customers -- especially those shopping with children.

Robert Knight, director of the Culture and Family Institute, praised Wal-Mart's move to respect the concerns of shoppers turned off by the sexual magazines. "Many Wal-Mart shoppers like their check-out lanes fast, not racy," Knight said (Kleder, 2002). "This is a small step to help families, but a very positive small step."

According to Brown, traditional Wal-Mart stores would have at least two such sex-free checkout lanes, while Wal-Mart Superstores (larger stores that combine merchandise with full grocery offerings) would have at least four (Kleder, 2002). "Our actions here are in direct response to similar feedback we have received on this issue from others, as well as direct feedback from our customers," Brown wrote. "At the same time, we also have to respect the fact that many of our loyal customers expect us to carry these magazines."

"This goes to show that the issue was taken very seriously by those executives entrusted with the company's 'family-friendly' image," said Knight

Strategic Marketing Theory in Relation to Wal-Mart

Strategic marketing theory holds that there are two major components to a company's marketing strategy (BRS, 2004):

how an enterprise will address the competitive marketplace how management will implement and support day-to-day operations.

In today's competitive marketplace, a strategy that ensures a consistent approach to offering a product or service in a way that will outsell the competition is of utmost importance (BRS, 2004). However, in addition to defining the marketing strategy, companies must also have a well-defined methodology for the day-to-day process of implementing it. It is of little value to have a marketing strategy if a company lacks either the resources or the expertise to implement it. In Wal-Mart's case, a strong foundation gives the company a competitive advantage in its industry.

Companies today are faced with the crucial choice of choosing a marketing strategy that will be most effective in the market. This means choosing one of the following 'generic' strategies (BRS, 2004):

COST LEADERSHIP STRATEGY is based on the idea that companies can produce and market a good quality product or service at a lower cost than your competitors. These low costs should translate to profit margins that are higher than the industry average. Some of the conditions that should exist to support a cost leadership strategy include an on-going availability of operating capital, good process engineering skills, close management of labor, products designed for ease of manufacturing and low cost distribution.

DIFFERENTIATION STRATEGY is one of creating a product or service that is perceived as being unique "throughout the industry." The emphasis can be on brand image, proprietary technology, special features, superior service, a strong distributor network or other aspects that might be specific to your industry. This uniqueness should also translate to profit margins that are higher than the industry average. In addition, some of the conditions that should exist to support a differentiation strategy include strong marketing abilities, effective product engineering, creative personnel, the ability to perform basic research and a good reputation.

FOCUS STRATEGY may be the most sophisticated of the generic strategies, in that it is a more 'intense' form of either the cost leadership or differentiation strategy. It is designed to address a "focused" segment of the marketplace, product form or cost management process and is usually employed when it isn't appropriate to attempt an "across the board" application of cost leadership or differentiation. It is based on the concept of serving a particular target in such an exceptional manner, that others cannot compete. Usually this means addressing a substantially smaller market segment than others in the industry, but because of minimal competition, profit margins can be very high.

Geist and Greshes point out the effectiveness of Wal-Mart's spending on infrastructure (PRIMEDIA, 2002). "Any Wal-Mart can have a holiday weekend, be completely sold out of merchandise, and by Monday morning the shelves are completely restocked. Go into almost any of Wal-Mart's competitors on a Monday and see what their shelves look like," said Geist.

The speakers are very positive regarding the success that Wal-Mart has enjoyed regarding its growth and the effectiveness of its marketing strategy, observing that the company capitalizes on differentiation (PRIMEDIA, 2002). "You can't just be happy selling items as everybody else in today's marketplace," Greshes said. "You can't be relaxed and in the middle somewhere. The middle is dead. There is no middle in today's business environment. You have to differentiate yourself from your competition."

Being the lowest cost provider is not a successful differentiation strategy (PRIMEDIA, 2002). Companies with competitive products and prices are abundant in today's marketplace. "You have to brand and differentiate your company as the best service or product supplier to customers, from their point of reference."

Strategic marketing theory suggests that Wal-Mart has three basic components to its marketing strategy, and the choice of major strategy depends on the company's distinctive assets. The following are the best choices for the company's strategic marketing plan:

Low cost: Lower prices and expenses, or create flexible programs that allow consumers to save even more.

Differentiation: Appeal to the entire market through differentiation. Wal-Mart differentiates itself through its one-stop shop approach.

Niche: Appeal to a narrow segment of the market by developing a focused strategy (industry, location, etc.). Wal-Mart is a broader company, so concentrating on a niche would not be effective.

To be successful in the future, Wal-Mart should focus on the first two marketing strategies. As noted above, marketing decisions should be based on its distinctive assets and resources. Positioning is an integral part of implementing the chosen strategy, but to correctly position itself, the company must know its customers (current and potential). This knowledge involves a customer analysis that considers differences across age, gender, citizenship, and demographics.

Conclusion

To the general public, Wal-Mart means low prices and name brand quality products (Slater, 2003). The company's success and foundations cannot be credited to the current CEO Lee Scott but rather to its famous founder Sam Walton. Wal-Mart's formula for success focuses on its r relationship with customers, employees, and technology that assist in forming relationships with their suppliers. As a result of this simple strategy, Walmart is the top discount retailer in the world.

Wal-Mart's success in the United States can be credited to Sam Walton's aggressiveness in buying in bulk for less, passing the savings on to the customers, and expanding to new market areas (Slater, 2003). Walton found way to sell things cheaper, alter the economy, change the way customers shop, outgrow other retailers and enjoy success while making billions of dollars in the United States.

Walton's innovative idea was keep the prices lower while increasing the customer base. His strategy was to establish global relationships and worldwide communications (Slater, 2003). The first Wal-Mart was opened in Rogers, Arkansas in 1962. Walton, during his lifetime, received the nation's highest honor, The Medal of Freedom. His achievements helped the company expand around the globe.

Walton died in 1992 at the age of 72, and left behind his ideas for the continued success of the company (Slater, 2003). Wal-Mart executives carry on the legend of Walton's innovations as change the retailing landscape internationally exactly the same way they changed it in the United States. The company uses numerous retail formats, including discount stores, super-stores that feature a full line of groceries and general merchandise, and Sam's Club, a warehouse operation offering goods in bulk. Its strategies have resulted in enormous success.

One of Wal-Mart's major strengths is its management (Mano, 2002). The company's management team has enable it to be "competitive yet efficient at controlling costs." Because it is so large, Wal-Mart has a low cost structure, in comparison to other large discounters. Because Wal-Mart buys in bulk, it is able to get discounts that many of its competitors do not. As a result, consumers benefit, as Wal-Mart passes the savings to the consumer. In terms of marketing, this helps them to remain the number-one choice for consumers. Its management and clever marketing strategies have made Wal-Mart the largest retailer in the world and No. 1 among Fortune 500 companies.

Wal-Mart's superior inventory management is one of its major strengths as much of its efficiency and low price is based on this. As result, Wal-Mart can market itself as a one-stop shop with rock bottom prices.

Wal-Mart is not without its weaknesses. In terms of marketing strategies, the Internet is the wave of the future (Mano, 2002). Wal-Mart lacks a large Internet presence and, as a result, may lose market share to other "online" retailers. Wal-Mart needs to increase efforts to improve its Internet site usability and offerings.

The only other weakness is that as Wal-Mart expands to include every city, small and large, the company will have to carefully assess the possibility of competition between its stores and marketing inefficiencies.

According to Mano (2002): "To try and boost its Internet presence, Wal-Mart has been working on a more comprehensive Internet site to offer more products for purchase over the Internet. During this process they have teamed with America Online, allowing Wal-Mart to have its own Internet Service Provider and helping it sell more goods over the Internet. Internet sales will continue to help Wal-Mart maintain its market share."

For example, when Walmart.com warned visitors last year that the online store would close several weeks for remodeling, they may have lost some customers (Zellner, 2004). Other e-tailers managed to run their old sites while preparing new ones, so it was unacceptable that Wal-Mart did not. The huge discounter seemed to be handing its online competitors a golden opportunity.

However, competitors who mistake Wal-Mart's slow and steady approach for a lack of commitment will be disappointed, argues Walmart.com CEO Jeanne P. Jackson. "This is a marathon. It's not a sprint."

Walmart.com, formed by Wal-Mart and venture-capital firm Accel Partners, is creating a retail- and tech-savvy management team while building a reliable technology platform (Zellner, 2004). But the site has yet to prove that Wal-Mart can provide a reliable, easy-to-use Web site with flawless shipping and customer service. Last year, Wal-Mart warned online customers that it could not guarantee Christmas delivery of goods ordered after Dec. 14. This undoubtedly scared off customers.

Wal-Mart's staying power has the potential to be a big draw in the online world (Zellner, 2004). James W. Breyer, managing partner at Accel Partners, which holds a stake in Walmart.com, says he plans to build up the site's capabilities by purchasing other online outfits. The melding of "bricks and clicks" will be the best strategy for Web profitability. However, demands innovation and seamless execution.

According to Mano: (2002): "As Wal-Mart is expanding in overseas markets, it will face the threat of global uncertainty. With skilled management and proper planning Wal-Mart should be able to diversify most of these risks away by using proper hedging instruments and choosing countries that accept the type of business Wal-Mart is. By choosing countries that are more developed, and theoretically stable, Wal-Mart should lower its risk even more as it expands."