Case Analysis: Walmart

Question One

Walmart’s strategy to locate its stores in small towns significantly contributed to the company’s competitive advantage. Firstly, the strategy supports the company’s low pricing strategy. By locating stores in small towns, Walmart was unlikely to face direct competition from other stores offering discounts; hence, it leveraged its low pricing strategy to gain a competitive edge against other competitors. Besides, locating stores in small towns helped the company benefit from the effects of locating a business in an optimal location: Case Analysis: Walmart.

According to Hill et al. (2020), locating an activity in an optimal location has two benefits for that activity. One of the benefits is that it lowers the cost for value creation, helping a business attain a low-cost position. Another benefit of locating a business in an optimal location is that it helps the business to differentiate its offerings, such that it can maintain premium pricing or keep prices low (Hill et al., 2020). In this case, Walmart differentiated itself by charging low prices.

Additionally, Walmart’s small-town strategy was futuristic. New businesses have the option of locating operations in areas where the population is high, hence ready markets, or in underpopulated areas where the population is expected to rise. New businesses that choose populated areas face high competition, since those areas are already occupied by market leaders. However, businesses that choose underpopulated areas establish a market leadership position, meaning that as the population grows, it grows around them.

Walton’s decision to pursue the small-town strategy meant that Walmart would be a leader in the retail business. In this regard, the company benefited from the first-to-market advantage as these small towns had a few existing players. Consequently, managers were assigned the role of marketing a few product ideas, a practice that has since yielded more dividends in the long term.

Question Two

Since its founding, Walmart has leveraged the saturation strategy. Instead of entering cities, the company built a ring of stores around the city and waited for customers to come. After opening a distribution center in an area, the company would establish multiple stores around that area until it became saturated. The saturation strategy has brought multiple benefits for Walmart. One of the benefits of saturation is effective management control and distribution (Hill et al., 2020).

Locating many stores around the same area means that one manager could manage multiple stores due to proximity. Besides, the strategy allows effective distribution due to proximity. For instance, if one of the Walmart stores runs out of fresh produce, yet another has surplus, it is easier to move stock from one store to the one experiencing a shortage.

Another benefit of the saturation strategy is that it saves an enterprise marketing cost. From the outset, Walton was clear that he wanted to spend as little as possible on advertising (Hill et al., 2020). By locating multiple stores around one area, the company benefited from marketing through word-of-mouth among its clients. A customer would mention that the Walmart store offers products at relatively low prices, and multiple customers would flock to other stores in the neighborhood.

Also, clustering stores in an area makes it extremely difficult for rivals to gain traction in the area. For instance, in the Springfield area in Missouri, Walmart has 40 stores within a 100-mile area (Hill et al., 2020). When K-mart entered the area and opened three stores, the retailer had a difficult time getting business because Walmart had already gained the loyalty of the majority of the customers owing to its low-pricing business model. Walmart’s low pricing model, combined with the clustering of stores, has contributed to its business success.

Question Three

Following the success of Walmart’s small-town strategy, the company has since employed a number of strategies to keep growing. One such strategy is market penetration, which entails selling more products to its current customers. To achieve growth, Walmart has enhanced its digital presence, enabling the company to increase its sales revenue (Zhang, 2024).

Most people love the convenience that comes with online shopping, hence the likelihood of more purchases. In the same breath, the low-cost strategy has enabled the company to penetrate the current market since customers access discounted wholesale packages of products.

Additionally, Walmart’s pursuit of the market development strategy has bolstered its market share. Market development entails entering new markets where the company did not previously have operations. As one of Walmart’s product development strategies, the company has opened stores in areas where it did not previously have stores. For instance, Walmart has established stores in Europe, Asia, Africa, and South America (Hill et al., 2020).

Apart from establishing new stores, Walmart has also bolstered its online presence through e-commerce to allow potential customers outside the US and other areas where the retailer has physical stores to order online. As the company pursues market development in new locations, the cost-leadership strategy gives it a competitive advantage.

Other intensive growth strategies include product development and diversification. Product development involves generating new products to sell to its current customers. Despite this strategy’s potential benefits, Walmart has not invested significantly in it.

On the other hand, Walmart’s diversification involves entering sectors and industries where the company does not have operations. For instance, between 2010 and 2020, Walmart acquired Vudu, a video streaming site. The primary objective of the acquisition was to utilize its existing business opportunities, such as the e-commerce opening.

Question Four

Walmart is one of the most controversial corporations in terms of labor practices. In its pursuit of a low-cost strategy, the retailer compensates its associates poorly. The employee pay, particularly for low-level is so poor that the company has been accused of keeping its employees below the poverty line (Lichtenstein, 2008).

In the same breath, Walmart has limited employee benefits, particularly health insurance coverage and overtime pay. Even though the retailer has managed to maintain its low-pricing business model through this strategy, it does so at the expense of employees who receive unsustainable compensation packages.

Moreover, the retailer’s anti-union stance has attracted criticism. The American federal labor regulations favor progressive collective bargaining agreements, which can lead to an increase in employees’ compensation to alleviate the effects of inflation (Lichtenstein, 2008). However, the company has strongly opposed such arrangements, effectively preventing its “associates” from joining labor unions to advance their labor rights.

Further criticism of Walmart centers around its impact on small businesses. As stated earlier, the small-town strategy is one of the company’s core strategies. By moving to small towns where rival businesses are relatively small, the company outcompetes them, leading to their closure (Hicks et al., 2012).

A key reason for Walmart’s crowding-out effect is the low-pricing strategy and favorable economies of scale (Hicks et al., 2012). Since other businesses are relatively small, they cannot compete against Walmart based on price, leading to their eventual closure. The clustering of stores makes it even worse, giving other businesses zero chance of competing with Walmart.

Question Five

In the face of increasing online shopping rivalry, particularly by global retailers like Amazon, Walmart requires a myriad of counter-strategies to stay competitive. Firstly, Walmart should move with speed to adopt an omnichannel tactic. Among others, the company should improve its online marketplace site to improve the customer’s shopping experience. For instance, making it possible for customers to receive personalized recommendations will enhance sales revenue (Hill et al., 2020).

Based on a customer’s shopping history, the site should be enhanced to capture these insights, allowing customers to receive personalized recommendations when they shop. Besides, Walmart can compete with Amazon directly by allowing third parties to sell through its online marketplace. Currently, Walmart only sells what is available in its store, implying that customers cannot access some products on the site.

Moreover, Walmart should make a concerted effort to leverage its brick-and-mortar stores. By the fall of 2017, Walmart had expanded its grocery pick-up service to about 1000 of its stores, offering discounts for products purchased online and picked from its stores (Hill et al., 2020). To beat Amazon, which lacks physical stores, Walmart should expand its e-commerce strategy by using its stores as local fulfillment centers.

Besides, the data gained from online shopping activity can help the company ensure that the inventory that customers order is readily available. One of the setbacks of online shopping is the long waiting time, which discourages customers from returning to an e-commerce site. By ensuring inventory optimization, Walmart will use existing stores as fulfillment centers to edge out Amazon, which lacks sufficient physical stores.

References

Hicks, M. J., Keil, S. R., & Spector, L. C. (2012). Mom-and-Pops or big box stores. Economic Development Quarterly, 26(4), 311–320. https://doi.org/10.1177/0891242412463817

Hill, C. W. L., Schilling, M. A., & Jones, G. R. (2020). Strategic management: An integrated approach: Theory and cases (13th ed.). Cengage Learning.

Lichtenstein, N. (2008). How Wal-Mart fights unions. Minnesota Law Review. https://www.minnesotalawreview.org/wp-content/uploads/2012/01/Lichtenstein_FinalPDF.pdf

Zhang, W. (2024). An analysis of Walmart based on its internal and external environment. Advances in Economics, Management and Political Sciences, 77(1), 142–147. https://doi.org/10.54254/2754-1169/77/20241609

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