Walmart's cost leadership strategy and low-income consumer challenges

Wal-Mart

Key Issues/Problem Statement: How can Wal-Mart's low cost strategy remain competitive?

Root Cause(s): Wal-Mart targets low-income consumers. When forced to raise the price of essentials like food, sales go down. Sales are also down at the end of the month when consumers are running low on their funds and waiting for their paychecks.

Wal-Mart will continue to pursue a cost leadership strategy.

Advantages/Disadvantages: Advantages include the fact that there are many price-sensitive consumers and Wal-Mart's main attraction is the prices of its goods, not the quality and uniqueness of its merchandise. But low-cost strategies can be challenging when low-income consumers are forced to drastically cut back on their purchasing because they are more affected by higher prices and economic downturns than high-income consumers.

Recommendation: Wal-Mart should focus in the items its core consumer base needs the most (such as groceries and other necessities) and keep these prices at rock bottom. It can raise the prices of some of its other goods and services (such as electronics and toys bought by more middle-income consumers) to support these subsidized items.

Case Problem Questions:

1. Wal-Mart uses the generic strategy of cost leadership. It offers a wide variety of goods and services to consumers at the lowest prices possible it can sustain while still making a profit. Even when it must raise the price on certain goods and services, such as food, it will lower the price on other items like technology to encourage consumers to continue to shop at the store (although this particular decision is somewhat problematic). Wal-Mart does not offer a particularly interesting or ambient location in which to shop, but focuses on marketing according to price alone.

2. Unfortunately, the idea of becoming a global company, understanding business challenges, playing a leadership role, and having a strong organizational culture does not really constitute a 'strategy.' A strategy really means what value the business offers to consumers (uniqueness or low prices, for example) and how it will support that strategy (such as operating on an economy of scale). Instead, the so-called strategy that has been developed merely seems like empty, generic words. There is no 'game plan' as to how Wal-Mart will achieve these objectives, and these statements could be made about any company. There is no detail as to how Wal-Mart's cost leadership strategy will be sustained or how it needs to be reformed in the coming decades.

3. The CEO must be concerned about this because it is reflective of a larger organizational strategy that is likely to fail. Wal-Mart originally was trying to clean up the appearance of its stores by down-scaling the amount of items it stocked: however, because this resulted in a reduction of the goods and services consumers wished to buy, it was ultimately not an effective strategy.

4. Wal-Mart must keep prices lowest for the most in-demand necessary goods that its low-income consumers wish to purchase: instead of subsidizing the price of high-tech items, it should be focusing on keeping the prices of groceries and other basics low.

Case study: Malcolm

Key Issues/Problem Statement: Malcolm is an extremely ambitious young man who has prepared himself his entire life for assuming a leadership position within the corporate hierarchy. However, rather than focusing on the needs of the company he is serving, Malcolm is solely focused upon his own advancement and career prospects, which ultimately does not impress the corporate leadership.

Root Cause(s): Malcolm is very much part of a millennial 'me' generation: instead of asking what he can do for the company, he asks what the company can do for him. He has little interest in fulfilling his duties and is more focused upon getting a showy and impressive position.

Solution(s): Malcolm must reevaluate his priorities and make a commitment to succeed at the position he does have, rather than constantly thinking about the position he wants to have in several years.

Advantages/Disadvantages: Malcolm is a committed worker who has prepared himself for the workforce. He has learned foreign languages, obtained an MBA, and clearly has a strong work ethic. However, he must learn to apply that work ethic to making actual accomplishments, versus simply using his credentials to obtain better and better positions. Malcolm must establish a 'track record' at the company.

Recommendation: Malcolm has to 'buckle down' and apply himself at his current position. Malcolm should not be promoted until he demonstrates competence at his current position.

Case Problem Questions:

1. All too often, people think that leadership is 'all about them' -- in other words, that being a leader is synonymous with self-promotion. The ideal of the great, charismatic leader who transforms an organization a la Steve Jobs has become very popular in the cultural imagination. However, for most people, the demands of leadership are far more mundane and practical. A leader inspires through example, by taking an interest in the task at hand, and above all by doing his job well. Malcolm does not show true leadership, he merely shows that he is ambitious and can 'talk a good game' about leadership positions. He needs to look deep within himself to discover what constitutes true leadership.

2. It is critical that Malcolm establish his real credentials to lead, if he wants to achieve an executive position. He must hone his abilities at actual tasks rather than simply ask to be promoted higher and higher in the hierarchy. Malcolm must show that he can work as hard as he demands of his employees. He should make a commitment to delivering real, concrete achievements and document them so when he applies for a promotion he has concrete evidence that he has made a contribution to the organization. He should also seek to establish connections with the people whom he is leading, not simply company higher-ups. If his support staff believes in his commitment to them, they will be more willing to follow his example.

3. Jessica's comment seems quite justified given that throughout the narrative on Malcolm it is not clear what values Malcolm believes in or why he is so ambitious, other than a sense of self-aggrandizement and an egotistical desire to be the best. Unlike Steve Jobs or other great business leaders, Malcolm does not seem to have a personal vision that is driving his striving and ambitions.