WAL-MART CASE STUDY ANALYSIS
▪ Information Technology :
They have a strong information technology system as implemented EDI, Information system, UPC at POS, Satellite system, Pick to light system, Vendor management inventory system which was not implemented by any other competitor. ▪ Supply Chain (Strong). They had a long term relationship with the supplier as there was no non sense negotiator as they eliminated the manufacture representative from negotiation with the suppliers. ▪ They were focused on Human resource and development as associates were considered a key to success for Wal-Mart.
▪ They were not globally known so it would be difficult for them to create a brand name globally.
▪ They can further expand globally where they can explore new areas and markets where no body else is reaching.
▪ They are facing competition in local markets.
▪ Competitors may imitate their strategy.
▪ Intense Price Competition
▪ Legal and political issues
▪ Wal-Mart commits to deliver quality products with the lowest price ▪ Store Managers are given authority to lower prices based on the local competition. ▪ Stores are built in border of large cities and communities with the warehouse appearance that giving them the competition advantages in leasing and maintenance costs.
▪ They were differentiating in a way they have an Excellent Inventory System o Focus particularly on eliminating less profitable products and reducing the variety of products in a given category. o Restructure the flow of goods from manufacturer to the store shelf. The higher quick turnover results in more turns and therefore less inventory.
PORTER FIVE FORCE MODEL
Threat to Entry ' LOW
BARRIER TO ENTRY - HIGH
Economies of Scale is high: IT can deter entry by forcing the entrant to come at last scale and risk strong reactions from existing firms and accept a cost disadvantage, both undesirable options. Wal-Mart is enjoying Eco of scale because of Cross docking system which helps in giving "Every day low prices"
Access to Distribution Channels is high: major player have already had a strong access to the distribution channels as new entrant will have to build a strong relationship and they can't penetrate easily
Fixed cost is high. New entrant requires huge capital requirements to open up a new retail store. Wal-Mart average discount store size was 185,000 sq. feet
Expected Retaliation for New Entrant-High
Wal-Mart operating cost is low because of Economies of scale they can easily push the entrant out of business because of its lowest prices to the customers. ▪ Well established players can fight back.
▪ And they have good Distribution and vendor relations ▪ Industry growth is slow
Industry Rivalry ' HIGH
▪ In Discount stores: KMART, TARGET, CALDOOR
▪ In Warehouse Clubs: Price clubs, Costco
▪ Supercenters: Meijer, Fred Meyer
▪ Industry growth is slow as the economy is stagnant, which has increased the competition. ▪ Products lack switching costs: easy for customers to switch to other stores where they get lower price
Pressure from substitutes ' LOW
▪ Customers can find substitutes from specialty stores to get variety of products but they will not be able to get products at low prices set by Wal-Mart.
Bargaining Power of Buyer ' MEDIUM
▪ WMT's pricing philosophy is to provide “Everyday Low Prices” to consistently draw consumers who trust WMT will provide the lowest price available and concurrently avoid erratic price changes due to promotional activity. And the competition in the whole industry is on lowest prices no one has undifferentiated products. ▪ Switching cost is low as they can find alternative suppliers.
Bargaining Power of Supplier...
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