Business strategies Wal-Mart uses and how they differentiate their services and products.
There are 3 generic business strategies and they consist of
- The Focus strategy,
- The Differentiation strategy,
- and Overall Cost leadership strategy.
The Focus strategy is usually defined as focusing on offering products and services to a particular market segment or buyer group, within a segment of a product line, and/ or to a specific geographic market. The Differentiation strategy is defined as offering a product or service that is perceived as unique in the marketplace. Wal-Mart‘s business
strategy is Overall Cost Leadership, offering their customers great quality service and products at a lower price than their competition. Overall Cost Leadership is defined as offering the same or better quality product or service at a price that is less than what any of the competition is able to do. In achieving this goal it relies on superior Supply Chain Management through automation and supplier relationships, that ensures products are available to their customers when they need it. The items offered are broken down into products and services, products. Products would be privately labeled brands such as, “George, Metro 7, Mainstays, as well as national brands such as Tide or Levis. Services that they offer would be tire changes, oil changes, and photo printing.
There are 5 market forces that govern the way supply chains operate and how Wal-Mart reduces both buyer and supplier power.
The five forces are
- buyer power,
- supplier power,
- threat of substitute products and services,
- threat of new entrants,
- and rivalry among existing competitors.
Wal-Mart follows the five forces business strategy.
Buyer Power - is affected by how big your purchasing power is and how much revenue you constitute to your suppliers as well as other things. For instance Wal-Mart has a lot of power with suppliers becau
se it buys so much of their inventory and is thus a large percentage of those companies revenues. It is no surprise then that these companies have lived and died with Wal-Mart's orders and would do anything to protect their business with them. Buyer power constitutes about 55% of the five forces model that Wal-Mart uses, since the Company’s sole purpose is to ensure that its customers are, “Saving Money, Living Better”. Buyer power would also include their employees. Wal-Mart was the first national chain to institute employee discounts. It considers its employees as "associates" and gives each employee respect. Wal-Mart also gives them support through an open door policy. Wal-Mart also provides great job security (Wal-Mart rarely fires anybody - thay may cut their hours though....) Wal-Mart's intent is to create happy employees which transfers to happy customers. More then that, Wal-Mart employees are fiercely loyal. Did you know that 15% of all product sourcing comes from employee suggestions, and employee purchases account for 8% of all purchases! That amounts to billions of dollars comming from its own workforce.
Supplier power - Wal-Mart ensures that its suppliers come from a diverse group and that it never relies on any particular single supplier in any given fine line or product category. Furthermore, Wal-Mart is always turning over suppliers, and introducing new products in each product category. This diversity is passed on to consumers, and makes their shopping experience more exciting. The average Wal-Mart store has about 80,000 SKUs on sale. A few years ago Wal-Mart changed its merchandising policy by cutting the amount of items sold by each Wal-Mart store by 25%. The idea was to carry more inventory of established products. This proved to be less successful. It is the diversity of merchandise at store level that keeps consumers comming back again and again. This represents 35% of Wal-Mart's marketimg strategy.
Threats of Substitution - Because Wal-Mart is always sourcing new products and new vendors, the threat of competition to suppliers is enormous. Here is how Wal-Mart uses the threat of competition to its advantage. Vendors are considered "partners". As such they are "protected" and have first right of supply to the company. For example, if you are selling Wal-Mart scented candles, and Wal-Mart has found an alternative supplier of less expensive merchandise, they will then ask if you can match the prospective new competitor's prices. Because Wal-Mart usually represents between 20% and 50% of most suppliers purchases, it doesn't take long for the supplier to price match. The threat of competition acts like a guillotine over each supplier's head.
Threats of new entry To create entry barriers, Wal-Mart employs exhaustive market research on what customers are actually purchasing. They then ensure that they are able to deliver, and become the only store chain offering that product at a price the customers and afford. An example would be Norelco razors. Wal-Mart's supplier relationship with their supplier is that they get new models 60 days in advance of other retailers. Furthermore Wal-Mart does away with accessories like supplying a case with the razor, so Wal-Mart not only has the product first, but also has the product at the lowest possible price.
Rivalry - is how c
ompetitive an industry is. For instance, if there are lots of companies selling essentially the same products, there will always end up being a price war which will severely hurt the company' profits. Wal-mart has such low prices that it has made it tough for competitors to make a profit. Actually what Wal-Mart does is target about 100 items that consumers need on a daily basis, usually consumable products like Tide. They then take very little profit on those products and offer them at prices significantly lower than the rest of the market. This way consumers have the illusion that the other 80,000 items are also at the lowest possible price. In fact, they use their private lable brands to make proce comparisons difficult. Also it will have specific lines of products developed by national manufacturers, for example Levis Jeans. If you purchase a pair of Levis at your local Wal-Mart, you will notice that the jeans come from "the Signature Series..." In fact the jeans are made for Wal-Mart in factories over-seas to Levis specifications. They wind up with a product line that costs 65% at retail of what Target sells Levis jeans for. And Levis can get away with it , and still have Target as a customer because strictly speaking Wal-Mart is not selling the same product.
There are 3 generic business strategies and they consist of
- The Focus strategy,
- The Differentiation strategy,
- and Overall Cost leadership strategy.
The Focus strategy is usually defined as focusing on offering products and services to a particular market segment or buyer group, within a segment of a product line, and/ or to a specific geographic market. The Differentiation strategy is defined as offering a product or service that is perceived as unique in the marketplace. Wal-Mart‘s business
strategy is Overall Cost Leadership, offering their customers great quality service and products at a lower price than their competition. Overall Cost Leadership is defined as offering the same or better quality product or service at a price that is less than what any of the competition is able to do. In achieving this goal it relies on superior Supply Chain Management through automation and supplier relationships, that ensures products are available to their customers when they need it. The items offered are broken down into products and services, products. Products would be privately labeled brands such as, “George, Metro 7, Mainstays, as well as national brands such as Tide or Levis. Services that they offer would be tire changes, oil changes, and photo printing.There are 5 market forces that govern the way supply chains operate and how Wal-Mart reduces both buyer and supplier power.
The five forces are- buyer power,
- supplier power,
- threat of substitute products and services,
- threat of new entrants,
- and rivalry among existing competitors.
Wal-Mart follows the five forces business strategy.
Buyer Power - is affected by how big your purchasing power is and how much revenue you constitute to your suppliers as well as other things. For instance Wal-Mart has a lot of power with suppliers becau
se it buys so much of their inventory and is thus a large percentage of those companies revenues. It is no surprise then that these companies have lived and died with Wal-Mart's orders and would do anything to protect their business with them. Buyer power constitutes about 55% of the five forces model that Wal-Mart uses, since the Company’s sole purpose is to ensure that its customers are, “Saving Money, Living Better”. Buyer power would also include their employees. Wal-Mart was the first national chain to institute employee discounts. It considers its employees as "associates" and gives each employee respect. Wal-Mart also gives them support through an open door policy. Wal-Mart also provides great job security (Wal-Mart rarely fires anybody - thay may cut their hours though....) Wal-Mart's intent is to create happy employees which transfers to happy customers. More then that, Wal-Mart employees are fiercely loyal. Did you know that 15% of all product sourcing comes from employee suggestions, and employee purchases account for 8% of all purchases! That amounts to billions of dollars comming from its own workforce.Supplier power - Wal-Mart ensures that its suppliers come from a diverse group and that it never relies on any particular single supplier in any given fine line or product category. Furthermore, Wal-Mart is always turning over suppliers, and introducing new products in each product category. This diversity is passed on to consumers, and makes their shopping experience more exciting. The average Wal-Mart store has about 80,000 SKUs on sale. A few years ago Wal-Mart changed its merchandising policy by cutting the amount of items sold by each Wal-Mart store by 25%. The idea was to carry more inventory of established products. This proved to be less successful. It is the diversity of merchandise at store level that keeps consumers comming back again and again. This represents 35% of Wal-Mart's marketimg strategy.
Threats of Substitution - Because Wal-Mart is always sourcing new products and new vendors, the threat of competition to suppliers is enormous. Here is how Wal-Mart uses the threat of competition to its advantage. Vendors are considered "partners". As such they are "protected" and have first right of supply to the company. For example, if you are selling Wal-Mart scented candles, and Wal-Mart has found an alternative supplier of less expensive merchandise, they will then ask if you can match the prospective new competitor's prices. Because Wal-Mart usually represents between 20% and 50% of most suppliers purchases, it doesn't take long for the supplier to price match. The threat of competition acts like a guillotine over each supplier's head.
Threats of new entry To create entry barriers, Wal-Mart employs exhaustive market research on what customers are actually purchasing. They then ensure that they are able to deliver, and become the only store chain offering that product at a price the customers and afford. An example would be Norelco razors. Wal-Mart's supplier relationship with their supplier is that they get new models 60 days in advance of other retailers. Furthermore Wal-Mart does away with accessories like supplying a case with the razor, so Wal-Mart not only has the product first, but also has the product at the lowest possible price.
Rivalry - is how c
ompetitive an industry is. For instance, if there are lots of companies selling essentially the same products, there will always end up being a price war which will severely hurt the company' profits. Wal-mart has such low prices that it has made it tough for competitors to make a profit. Actually what Wal-Mart does is target about 100 items that consumers need on a daily basis, usually consumable products like Tide. They then take very little profit on those products and offer them at prices significantly lower than the rest of the market. This way consumers have the illusion that the other 80,000 items are also at the lowest possible price. In fact, they use their private lable brands to make proce comparisons difficult. Also it will have specific lines of products developed by national manufacturers, for example Levis Jeans. If you purchase a pair of Levis at your local Wal-Mart, you will notice that the jeans come from "the Signature Series..." In fact the jeans are made for Wal-Mart in factories over-seas to Levis specifications. They wind up with a product line that costs 65% at retail of what Target sells Levis jeans for. And Levis can get away with it , and still have Target as a customer because strictly speaking Wal-Mart is not selling the same product.
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