Wal Mart Stores Inc
Abstract
Explores the marketing strategies employed by Wal-Mart Corporation and their efforts to compete in the “new” economy.
Includes an assessment of Wal-Mart’s expressed and apparent positioning and value proposition based upon internal documents, public relations statements, web page and advertising.
Includes an assessment of Wal-Mart’s competitive position and strategy.
Includes an assessment of Wal-Mart’s marketing mix.
Introduction
The new economy, characterized by sophisticated technology, global communication and “knowledge as a commodity” demands a great deal from organizations that intend to remain competitive. Wal-Mart corporation does not just compete in their field, they dominate it.
Wal-Mart is the largest retail operation in the world today. According to the Wal-Mart corporate website at http://www.walmartstores.com, the company’s net sales totaled $191.329 billion for the fiscal year ending January 31, 2001. This makes Wal-Mart the fourth largest company in the United States of America. The size and consistent profit generation of Wal-Mart Corporation make it a logical choice for the study of marketing techniques employed by successful businesses.
Definitions
Marketing mix:
How much is spent and what percentage of marketing dollars go to advertising instead of other types of more highly targeted marketing communications. (Hill and Rifkin, 1999)
New Economy:
The way that business is conducted, characterized by a dozen or so themes: a) knowledge as a commodity b) digitalization c)virtuality d) molecularization e) networking f) disintermediation g)hyper media h) innovation i) customer as product designer j) immediate, k) global and l) discordant. (Tapscott, 1997)
Organizational Culture:
A common perception held by the organization’s members; a system of shared meaning. (Robbins, 2001)
Discussion
Method
To assess an organization’s marketing strategies we look at three separate aspects of its approach to reaching the public. First, an examination of the company’s expressed or apparent position and value proposition are studied. This is accomplished using various documents, including, but not limited to internal documents, public relations statements, web pages and advertising.
Next, a study of the company’s competitive position and strategy is conducted. This includes the dimensions of their competitive strategy and methods of maintaining their competitive advantage.
Discussion (continued)
Method (continued)
Finally, an assessment is made of the company’s marketing mix. Marketing mix is a measure of the funds that have been allocated to advertising instead of other types of more highly targeted marketing communications, which types of advertising they were and in what proportion they were selected.
Wal-Mart’s Value Proposition and Expressed Position
Value Proposition
The retail world is tough. Wal-Mart competes with stores like K-Mart, Target, Caldor, Bradlees and Woolworth. The last three of those operations are out of business and K-Mart is presently undergoing Chapter 11 reorganization. Target has managed to remain afloat, but has not seen growth anywhere near that of Wal-Mart. Why? All of these retailers sell basically the same things. Yet, Wal-Mart consistently outperforms all of the others. The answer lies in the Wal-Mart value proposition and marketing activities.
The Wal-Mart value proposition is really simple – the key to the market is price (Treacy, 1995). Wal-Mart calls this policy EDLP which stands for Every Day Low Price. The premise is indeed simple. Consumers don’t need to wait for a sale to shop at Wal-Mart because they are getting the lowest price available there every day (Gilliam, 1993). Anyone who has ever visited a Wal-Mart store knows that they are huge and carry a wide variety of merchandise. Thus, people find shopping at Wal-Mart to be very efficient. They make one stop, have all of their needs met and get the best price.
Discussion (continued)
Wal-Mart’s Value Proposition and Expressed Position (continued)
Expressed Position
Wal-Mart’s Value Proposition becomes their Expressed Position through every interaction they have with the public. Their few television and radio commercials, magazine ads, even the signs in their stores proclaim EDLP. Since Wal-Mart’s stated strategy is to have the lowest price everyday, the company does not need to spend a great deal on advertising. Wal-Mart does not need to run sales regularly or have specially priced items in its weekly circular. In fact, Wal-Mart’s advertising budget is generally one-third of the industry standard (Sparks, 1994). A quick check of the past few Sunday papers in my recycling bin notes a number of K-Mart and Target circulars, but nothing from Wal-Mart. Yet, I know where to go for the best price and the widest variety of merchandise.
Oddly enough, many retail companies try to compete on a basis other than price. They do not want to be commoditized and considered the low-price leader in a marketplace. However, Wal-Mart is incredibly successful by making itself into a commodity. Wal-Mart does not want to have a strong relationship with its customers. They don’t care to build brand loyalty or image. Wal-Mart is simply recognized as the place to go for the best price.
Discussion (continued)
Wal-Mart’s Value Proposition and Expressed Position (continued)
Realizing the Dream
When working with its suppliers, however, established relationships need to be much stronger. To Wal-Mart, a supplier is not merely a commodity provider, but a true partner that helps contribute to the company’s business issues. This distinction is unique. Wal-Mart markets itself to the consumers one way and markets itself to the suppliers another. Wal-Mart is known among suppliers for negotiating tremendous price breaks. Wal-Mart does this by researching every aspect of a supplier’s product. They look into details like the cost of ingredients, packaging, shipping and advertising. They then come up with an assessment of product’s cost. The price Wal-Mart will pay for it is negotiated from there.
Wal-Mart can handle suppliers in an aggressive manner because it sells a huge volume of each supplier’s product. Suppliers know this and realize that they are reaching a very broad audience by having their products on Wal-Mart’s shelves. Even though a supplier may not make its usual margin when dealing with Wal-Mart, they will almost certainly make up for it in volume.
Wal-Mart doesn’t stop at negotiating price. Wal-Mart also works with its suppliers to ensure that the items it sells are of the highest quality. According to the Wal-Mart Corporate Website, Wal-Mart has a third-party testing laboratory, Consumer’s Testing Lab, run a battery of tests on all apparel, food-related and electronic products. At its discretion, Wal-Mart can request testing on any product it sells. In this way, the company can assure its customers that they are buying only the highest quality items.
Discussion (continued)
Wal-Mart’s Value Proposition and Expressed Position (continued)
Core Beliefs
The concepts and practices of Wal-Mart can be found right in a statement of its three core beliefs. These are the beliefs that Sam Walton founded the company upon and they remain in practice today. They are as follows:
Respect the Individual
Service the Customer
Strive for Excellence
Conclusion
It is easy to see from the success that Wal-Mart has had over the years that its marketing approach has worked well with consumers. We can reasonably expect Wal-Mart to maintain its success for the foreseeable future.
Wal-Mart’s Competitive Position and Strategy
Competitive Strategy
Wal-Mart’s competitive strategy is based on three dimensions: high product availability, a wide variety of goods, and pricing philosophies. They maintain their competitive advantage through the previously stated dimensions as well as by utilizing economies of scale, promoting excellent store management and minimizing head-to-head competition.
According to Wal-Mart’s 10K report, their competitive strategy is dedicated to providing a wide variety of products and services delivered with excellent customer service at everyday low prices. Wal-Mart’s corporate culture focuses on both cost reduction and willingness to change. The company is committed to growth, innovation and alliance.
Discussion (continued)
Wal-Mart’s Competitive Position and Strategy (continued)
Overhead Reduction Strategy
As most shoppers at Wal-Mart know, Wal-Mart prides itself on making its products available to the customer at low prices. However, that does present obstacles because the costs of managing transportation, inventory, facilities, and information are very high. Wal-Mart uses cross-docking and internal distribution systems to control and reduce those costs.
Cross docking is the order management and replenishment process that Wal-Mart uses. Order management and replenishment of the stores are entirely computer-assisted through the POS (point of sales) system. This system takes into account the sales and the available merchandise on the store shelves (Daudelin, 2001). The orders are then downloaded to the distribution centers and depending on the destination, the stores may get their inventory within 24 hours. This system allows the stores to know exactly what their inventory is for each product.
Product Diversification Strategy
Wal-Mart strives to provide its customers with a large selection of products. Their 10K reports that the Wal-Mart stores and Supercenters are divided into over 40 departments and include apparel, electronics, automotive accessories, pharmaceuticals, groceries and more. Since 1996, Wal-Mart has focused on providing customers with a customized selection of merchandise for each store, based on the location of the store and the consumers who shop there (Annual Report, 2000).
Discussion (continued)
Wal-Mart’s Competitive Position and Strategy (continued)
Product Pricing Strategies
The three pricing philosophies that Wal-Mart uses are referred to as:
Every Day Low Price (EDLP)
Rollback
Special Buy
Every Day Low Price (EDLP)
They believe that because you work hard for every dollar, you deserve the lowest price they can offer. Wal-Mart continues to be the low-cost leader in the industry because every move they make is driven by cost. EDLP’s are the driving force behind the business, whether the company is planning to purchase new equipment, or offering products for sale. According to Callon (Unknown),
The corporate culture ensures that every employee is on the look out for potential cost saving ideas and the company provides the means for implementing those ideas, no matter how large or small they may be. Increasing productivity and lowering the cost of running the business has translated into a net sales increase.”
While most retailers’ value proposition is customer service, Wal-Mart improved its service, but made their value proposition everyday low pricing.
Discussion (continued)
Wal-Mart’s Competitive Position and Strategy (continued)
Product Pricing Strategies (continued)
Rollback
Wal-Mart has an ongoing commitment to pass even more savings on to the consumer by lowering the Every Day Low Prices whenever feasible.
Special Buy
Wal-Mart has items with the Special Buy logo. This is intended to denote an item of exceptional value. It may be an item they carry every day that includes an additional amount of the same product or another product for a limited time.
These pricing philosophies have allowed Wal-Mart to differentiate itself from competitors.
Economy of Scale
Wal-Mart relies on its economies of scale to stay competitive. Economies of scale are defined as the numerous competitive advantages, such as the ability to buy in bulk quantities, that large-scale organizations enjoy, thereby reducing per-unit costs (Web Dictionary of Cybernetics and Systems). Wal-Mart has over 2,000 stores, in all 50 States and abroad allowing them to buy in bulk and cut special deals with their suppliers.
Discussion (continued)
Wal-Mart’s Competitive Position and Strategy (continued)
Company Culture
This company stays competitive through its management practices. As previously stated Wal-Mart’s company culture emphasizes respect for the individual, customer service, and striving for excellence. With this credo in mind Wal-Mart has decentralized its management practices. The responsibility lies in the hands of the employees since they are closest to the consumer (Callon, Unknown).
Corporate personnel provide leadership, placing the emphasis on providing the things needed to be successful through the organization. Callon, (Unknown). says that the combination of those things translates into low resistance to change and very high productivity levels, that will ultimately benefit the consumer.”
This culture has made the company unique and identifiable to customers, and a strength in terms of competitive edge gained through the recognition of the Wal-Mart name (Callon, Unknown).”
Competition Strategy
Another way that Wal-Mart remains competitive is to minimize its head-to-head competition. Callon (Unknown) suggests that in the past, Wal-Mart’s strategy has been to saturate an area in order to minimize its competition. Now, however many of the Wal-Mart stores do face direct competition because it has chosen to expand into other areas. This, according to Callon (Unknown), has led to increases in price pressure and has promoted the need for more advertising, which focuses on price comparison. This focus on advertising though, has led to some bad publicity.
Discussion (continued)
Wal-Mart’s Competitive Position and Strategy (continued)
Competition Strategy (continued)
Wal-Mart has had to face some judicial proceedings to agree to not misstate competitors’ prices. This means that Wal-Mart must try to pay more attention to its competitors. Callon (Unknown) states that, “Kmart and Target are becoming increasingly more competitive as they learn from Wal-Mart’s successes.” I would agree with that statement with the exception of the recent Kmart filing for Chapter 11 Reorganization.
Conclusion
Wal-Mart has various strategies to remaining competitive. However, it must continuously revaluate those strategies in order to keep moving forward. Wal-Mart’s corporate culture focuses on both cost reduction and willingness to change, policies that they must continue. The company is committed to growth, innovation and alliance; these also are necessary attributes. If they become too comfortable with their success it will allow the competition to catch up and eventually pass Wal-Mart as the leader of low cost products at a high quality.
Discussion (continued)
Wal-Mart’s Marketing Mix
Advertising Media
Customer Service
A quick call to the Wal-Mart Customer Service hotline, 1-800- WAL-MART (1-800-925-6278) reveals a list of advertising media that Wal-Mart Corporation utilizes. These are as follows:
Newspapers Television Circulars
Direct Mailing Radio Internet
Yellow Pages Magazines
There the ease of determining Wal-Mart’s marketing mix ends. Following the options for each of the above media brings one to the recorded greeting at the office of the Wal-Mart representative in charge of that medium. No information is available as to the funding apportioned to any individual form of advertising.
Several calls to the corporate marketing department failed to produce any useful results. Each representative that I spoke to denied that there was any report on Wal-Mart’s Marketing Mix. When pressured further, one representative, identified only as Richard, admitted that they had the numbers but would not release them to the public. The exact quote was “Well, yeah, we’ve got that, but we’re not gonna give it to YOU.”
Each call ended in either “Try the Website” or “Call the research line.
Discussion (continued)
Wal-Mart’s Marketing Mix (continued)
Advertising Media (continued)
Website
Wal-Mart’s Corporate Website www.walmartstores.com contains a wealth of information about Wal-Mart Corporation, past, present and planned. There one can find a detailed history of the company, a list of company officers, links to Shareholder Reports, Career Opportunities and more. What one can not find; however, is a report of the Corporations Marketing Mix. Two links provided promising leads: the link to the company’s Shareholder Reports and the link on How To Get Research Information.
The Wal-Mart homepage link on link How To Get Research Information led to a page containing information that included Quarterly Sales Reports, Securities and Exchange Report FORM 10-Q, Stock Split History, Annual Reports, Wal-Mart Timeline, Retail Divisions, Wal-Mart Stores, Inc. at a Glance, Recent Awards and Recognition, Commitment to Communities, Commitment to People: Diversity and Responsible Employment, and the Wal-Mart Good Works Programs.
Nowhere on the information page was there any reference to Marketing, much less Marketing Mix. The trail was not dead, because that page did provide a phone number: (501) 273-4800 to order a research packet.
Discussion (continued)
Wal-Mart’s Marketing Mix (continued)
Advertising Media (continued)
Research Packet
The research packet consisted of Shareholder Reports and United States Securities and Exchange Commission Form 10-K’s from 1997 through 2001.
The 10K report provided a great deal of information, including many financial statistics but no mention was made of Marketing, Advertising or Marketing Mix.
The Shareholders Report (2001) provided a limited amount of useful information. Advertising Costs, according to this report were $574 million in 2001, $523 million in 2000 and $405 million in 1999.
Additional Information
Searches on the World Wide Web and through the UMUC Business databases provided similar results: there is a plethora of data on or about Wal-Mart, but none of it includes information on Wal-Mart’s Marketing Mix.
During research an interesting datum surfaced: Wal-Mart Corporation has stopped providing scanner data to market-research firms (Neff, August 2001). This has created a backlash from it’s competitors, who are seeking to shut out Wal-Mart from consumer information gained by other companies. ACNielson, the leading marketing research firm has added a poll of households in Wal-Mart dominated areas to it’s information gathering tool bag. (Longo, 2001).
Wal-Mart corporation certainly must have foreseen this backlash, weighed the consequences of its actions and found that the advantages of keeping its sales data secret are worth the disadvantages of losing the information input from other sources.
Discussion (continued)
Wal-Mart’s Marketing Mix (continued)
Conclusions
From the scarcity of information about Wal-Mart’s marketing mix, it can be concluded that Wal-Mart considers it to be highly valuable information and key to their continued domination of the market place.
It is apparent, from Wal-Mart’s withdrawal from participation in market place research that they recognize that they are the leaders in retail sales, that they wish to protect this lead and that they consider any joint ventures with competitors to be counter to those desires.
Overall Conclusions
Wal-Mart’s marketing approach has worked well with consumers.
Wal-Mart can reasonably expect to maintain its success for the future.
Wal-Mart has various strategies to remaining competitive.
Wal-Mart must continuously revaluate those strategies in order to keep moving forward.
Wal-Mart’s corporate culture focuses on both cost reduction and willingness to change.
Wal-Mart is committed to growth, innovation and alliance.
If Wal-Mart becomes too comfortable with their success it will allow the competition to catch up and eventually pass Wal-Mart as the leader of low cost products at a high quality.
Overall Conclusions (continued)
Wal-Mart considers their Marketing Mix to be highly valuable information and key to their continued domination of the market place.
Wal-Mart recognizes that they are the leaders in retail sales, that they wish to protect this lead and that they consider any joint ventures with competitors to be counter to those desires.
References
Callon (Unknown). Will Wal-Mart hit the wall? Retrieved January 25, 2002 on the World Wide Web: http://www.cse.ucsc.edu/walmartlb.htm.
Daudelin, A. (2001). Supply chain management the Wal-Mart way. Supply Chain & Logistics Journal, Unknown. Retrieved January 25, 2002 on the World Wide Web: http://www.infochain.org/quarterly/Sp01/WalMart.html.
Gilliam, M. (1993, August). Wal-Mart’s era of greatness. Discount Merchandiser, 33, 8. 70-72.
Hill, S. and Rifkin, G.(1999). Radical marketing: From Harvard to Harley, Lessons from ten that broke the rules and made it big. New York: HarperCollins,
ISBN 0-88730-905-4
Longo, D. (2001, October), ACNielson Unveils Wal-Mart Solution.
Retail Merchandiser 41 10, 10
Neff, J., (2001, August). Rivals shut out Wal-Mart. Advertising Age, 72 35, 8
Neff, J., (2001, October). Private party at Wal-Mart. Advertising Age, 72 44, 8
Petzinger, Jr., T. (1999). The new pioneers: The men and women who are transforming the workplace and the marketplace. New York: Simon and Schuster. ISBN 0-684-84636-5
Robbins, S. (2001). Organizational behavior. Upper Saddle River, NJ: Prentice Hall. ISBN 0-13-016680-4
Senge, P. (1994). The fifth discipline. New York. Currency Doubleday.
ISBN 0-385-260905-4
Sparks, D. (1994, December). Life after Sam. Financial World. 52-54.
References (continued)
Tapscott, D. (1997, November-December). Strategy in the new economy. Strategy & Leadership.
Treacy, M. (1995, September). Success through cannibalism. Marketing Magazine, 100. 17.
United States Securities and Exchange Commission (2001), Form 10-K/A, Washingtion
Wal-Mart Stores, Inc., Hoovers Business Resource, 2002 ed.
Wal-Mart Stores, Inc., Wal-Mart Stores Annual Report, 2000 ed.
Wal-Mart Stores, Inc., Wal-Mart Stores Annual Report, 2001 ed.
Wal Mart Stores Inc