Revisions are needed on the paper I submitted for school. I have uploaded a file titled default.pdf which explains. Any section that scored less than a 3 needs to be revised. Please read teachers comments. Aspects B3, B5, C2 - C2f, D1 and D2 require addre

School of Business and Public Administration

The Department of Marketing

Presented by

STUDENT NAME

Research Advisor:

PROFESSOR NAME

Washington, D.C

2015

Table of Contents

Introduction: ……………………………………………………………………………….3

Chapter One – Retail Industry Analysis and Wal-Mart Stores, Inc.

1.1 Existing Rivalry 4

1.2 Threats 5

1.3 New Entrants 8

1.4 Bargaining Power of Suppliers 8

1.5 Bargaining Power of Buyers 9

Chapter One Summary

Chapter Two – Marketing Strategies of Wal-Mart Stores, Inc.

2.1 Product 11

2.2 Price 11

2.3 Promotion 12

2.4 Placement 12

Conclusion ………………………………………………………………………….13

Appendix A …………………………………………………………………………14

Bibliography ………………………………………………………………………..1

Introduction

I am doing this research paper to evaluate the company Wal-Mart and provide new marketing strategies to help with nourishing their current success in the retail industry. Wal-Mart is the largest retail company in the world. It is a retailer of consumer goods founded in 1962 by Sam Walton. The company obtains profits through volume, with a low-cost strategy. It’s “Every Day Low Prices” business plan is supported by aggressive pricing policies, a state-of-the-art retail and supply chain distribution system, advanced inventory management systems, and little promotion and advertising efforts. The large success of the company led to global expansion that began in the early 1990’s. The company offers its merchandise through many e-commerce websites such as walmart.com and samsclub.com. Wal-Mart US, Sam's Club (a membership only club) and the international segment are all managed by Wal-Mart. The company's revenues also come from Sam's Club membership fee revenues, tenant income and financial services income.

In the US, there are three different types of retail formats; discount stores, supercenters and neighborhood markets. The stores in the US provide branded and private label goods sections including grocery, entertainment, electronics, apparel, health and wellness, home furnishing, and house wear. They also provide financial services including money order sales, wire transfers, check cashing and bill payments. Wal-Mart takes pride in providing the highest quality of customer service. There is always a greeter welcoming as you are coming in to the store and thanking you as your leaving. Wal-Mart has transformed from discount store to neighborhood supermarket. The company has just recently opened two stores in Washington, DC. There is a third one under construction and three more are still in the planning process. I am extremely excited that I don’t have to a distance from my home anymore to be able to shop there.

Chapter One: Retail Industry Analysis and Wal-Mart Stores Inc.

1.1 Existing Rivalry:

Rivalry among competitors is fairly weak. Wal-Mart’s number one competition comes from wide-ranging merchandise retailers. Warehouse clubs and supermarket retailers also present competitive pressure. Discount retail industry is extremely big and is growing and changing every day. The top competitors compete both nationally and internationally. There is substantial competition on pricing, location, store size, layout and overall image. In general merchandise retailing, Wal-Mart’s primary competitors are Target and Kmart. Retail superstores such as Circuit City and Bed, Bath, and Beyond, also provide retail competition.

A survey found that the majority of customer's favored Wal-Mart over stores like Target and Kmart. They say that Wal-Mart offered lower prices, better variety and selection, and good quality. The needs of consumers are an important economic feature in all competitive environments. Also, Wal-Mart’s Sam’s Club competes harshly with Costco. Costco has fewer warehouses but greater sales and revenues. Costco customers also shop at Costco more frequently than Sam’s Club customers and, on average, spend more each visit as well. Costco’s dominance may be the result of better innovation. Costco offers luxury items and was the first to sell fresh meat and produce, and gasoline. This is important because innovation is a key factor in assessing competitors in an industry.

Wal-Mart is also in direct competition with large supermarket retailers. Production capacity in the grocery industry is quite populated and Wal-Mart poses a serious threat to many supermarket retailers, both large and small. Kroger, Albertson’s, and Safeway are all finding it very difficult to compete with Wal-Mart’s low prices. Being the largest retailer in the world, Wal-Mart’s position is very strong. Rivalry among competitors is fairly weak. The market is crowded but Wal-Mart has the lowest costs, prices, profits, and market share. The threat of substitute products is also weak. Wal-Mart exerts a great deal of effort in making sure they are innovative and meeting customer demands.

1.2 Threats:

An analysis of Wal-Mart’s strengths, weaknesses, opportunities, and threats, also known as a SWOT Analysis, is imperative in order to understand Wal-Mart’s strategy. “Wal-Mart Stores operated retail stores in various formats across the world. In the United States, the retail formats operated by Wal-Mart include discount stores, supercenters, neighborhood markets, market side, and Sam’s Club. The company is the largest retailer with unprecedented scale and clout which will enable it to maintain its market position and continue to gain market share from competitors. However, with over two million employees, rising labor and healthcare costs will significantly affect Wal-Mart’s profitability.” (IBIS World) Wal-Mart Stores operates numerous retail store formats in the following countries: Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico, and the UK.

Strengths:

Wal-Mart is a market leader with a competitive advantage. It is the second largest by revenue and the largest retailer in the world. In January 2010 they have earned more than $400 billion in revenue, $24 billion in operating income, 8,500 stores, and nearly 1 billion square feet of space. There is no competitor of comparable size. Today Wal-Mart operates over 11,000 retail units in 27 countries. The company can share its fixed costs over many products, which makes Wal-Mart one of the cheapest places to shop at. Wal-Mart can use its resources, such as distribution facilities, information systems, knowledge and other capabilities and skills, more efficiently and effectively over a large number of locations. The company can identify better ways of performing tasks, managing stores or hiring new employees and can achieve huge gains by implementing them on its vast network of stores. Due to its size, Wal-Mart can exercise its power over the suppliers by requiring lower prices from them. The company can also affect the competition by selling the items at a loss, thus, driving the competition out of the market. If the company would have only a few stores, its new practices may give little advantage over the rivals. Wal-Mart can also engage in many experiments within the stores or new store formats without a risk of losing substantial amount of profits or revenue.

Weaknesses:

One of Wal-Mart’s weaknesses is Target’s superior merchandising capabilities to appeal more to the customers as the US economy revives. Target still leads in merchandising and Wal-Mart’s product assortment although available at lower prices might be less appealing to the customers as the economy recovers and consumers start spending. Its merchandising is enabling Target to charge a premium and increase its margins. Wal-Mart has geared up efforts to compete with Target on merchandising.

Opportunities:

To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe or the Greater China Region. The stores are currently only trade in a relatively small number of countries. Therefore there are tremendous opportunities for future business in expanding consumer markets, such as China and India. New locations and store types offer Wal-Mart opportunities to exploit market development. They diversified from large super centers, to local and mall-based sites.

Threats:

Being that Wal-Mart is the largest retailer it is the target of completion locally, and globally. Being a global retailer means that you are exposed to political problems in the countries that you operate in. Two million employees increase exposure to increasing wages and high health care costs. In July 2009 the United States increased minimum wage to $7.25 per hour, causing increased costs. Rising labors costs, coupled with a large labor base, threaten Wal-Mart’s efficiency and performance since rising costs may grow quicker than revenue. Inflation and rapid changes in commodity prices threaten Wal-Mart’s profit margins and fierce competition results in Wal-Mart lowering prices in order to remain competitive.

Deflation, along with a weak pricing environment and an increasing Producer Price Index, demonstrate the serious threat to profit margins and the importance of developing new ways to reduce costs by working with suppliers and operations. A market analysis report estimated that for every new Wal-Mart super enter that opens, two local supermarkets will close, which is why Wal-Mart is facing severe resistance from several groups when it plans to open new stores. Wal-Mart’s threat to local stores and markets has resulted in local authorities deterring Wal-Mart’s expansion plans. It is becoming increasingly difficult for Wal-Mart to open new stores as the resistance increases. This is affecting the new investments and the time to open new stores for the company.

Wal-Mart opened its first two stores December of 2013. The new stores will provide access to a full grocery selection, fresh produce, bakery, delicatessen, organic food items, full-service pharmacy and $4 prescription program, as well as a broad assortment of general merchandise including apparel and electronics. The company hired approximately 300 associates for each store. Wal-Mart provides a benefits program to eligible full- and part-time associates. For example, it provides a variety of affordable health and well-being benefits including health-care coverage with no lifetime maximum.

The Washington, D.C., city council voted in July 2014, to impose a $12.50 living wage on large retailers. If the bill was passed Wal-Mart threatened that it would scrap plans to build three stores in the District that have not yet begun construction. Wal-Mart had reportedly promised District officials that it would pay an average of $12.39 or more, so the fact that $12.50 was a reason to pull out sheds more than a little doubt on the corporation's claims.

1.3 New Entrants

The retail industry is an industry that isn’t hard to enter into. It is extremely big and it grows every day. The Grocery/Discount Retail industry’s threat of new entrants are very low. New Firms would face with the task of beating the prices of whole sale giants immediate upon entry. Given the economies of scale; brand recognition, service, and variety of product offerings that Wal-Mart; target and others continue to improve on each day. It seems very unlikely. Also, existing firms could afford to temporarily drop prices even lower in order to force new competition out of the market.

1.4 Bargaining Power of Suppliers

The more powerful a seller is relative to the buyer, the more influence the seller has. This influence can be used to reduce the profits of the buyer through more advantageous pricing, limiting quality of the product or service, or shifting some costs onto the buyer. Suppliers are powerful if they are concentrated or differentiated. If there are only a few suppliers or one in the market, the suppliers will have more leverage because of the lack of available alternatives.

Extensive costs involved in switching suppliers are if customers are less likely to switch suppliers if there are large costs associated with switching. Suppliers can forward integrate: If a supplier has the power to or threatens. The pressure of suppliers for Wal-Mart is low because they hold so much of the market share, and they offer a lot of business to manufacturers and wholesalers. This gives Wal-Mart a lot of power because by Wal-Mart threatening to switch to a different supplier would create a scare tactic to the suppliers. Wal-Mart does deal with some large suppliers like Proctor & Gamble, Coca-Cola who has more bargaining power than small suppliers. Many well-known companies rely on Wal-Mart for more than 20% of their revenue. Wal-Mart, as the number one supplier-retailer of most of our consumer goods, exercises great power over their bottom line and exercises this power over almost all the consumer goods industries in the U.S. following the strategy of keeping prices low (experts estimate that Wal-Mart saves shoppers at least 15% on a typical cart of groceries), Wal-Mart is constantly pushing its suppliers to cut prices.

1.5 Bargaining Power of Buyers

Wal-Mart is a very powerful buyer. It has enormous reach and reaches thousands of end users. It also buys in large quantities and controls how a customer accesses the brands and products that it stocks. This means that Wal-Mart can dictate prices, delivery times and product quality from its suppliers. Suppliers cater to this pressure by basing their operations close to Wal-Mart headquarters and allowing easy access to the company’s purchasing departments to test products and negotiate terms. Wal-Mart can easily switch suppliers which gives the company additional power to dictate terms. In certain cases, Wal-Mart can also integrate vertically. Because of Wal-Mart’s buying power, it holds the upper hand over suppliers and is able to influence the suppliers’ prices. A split customer base allows more leeway for a supplier to ignore difficult customer requests.

The individual buyer has little to no pressure on Wal-Mart. Consumer advocate groups have complained about Wal-Mart’s pricing techniques. Consumers could shop with a competitor who offers comparable products at comparable prices, but the convenience is lost. Customers do not have to bargain with Wal-Mart for low prices, higher quality or more services because Wal-Mart has already established these issues in its business philosophy. Wal-Mart has many pricing philosophies including “Every Day Low Price”, “Rollback”, and “Special Buy” to ensure that its customers get the lowest price possible. Because of low switching costs in the retail industry there tends to be a lack of customer loyalty. Not so for Wal-Mart, because its price advantage seems to be the most important factor for customers.

The Marketing Mix (4P’s)

To effectively market a product or service there are four things you need to get right: Product, Price, Place and Promotion. These four elements are known as the marketing mix or the 4Ps. The four elements should be viewed as one unit and structured to support each other; Otherwise a firm's marketing strategy will be confusing and uncoordinated.

Chapter two: Marketing Strategies of Wal-Mart Stores, Inc.

2.1 Product:

Wal-Mart has a broad range of products like groceries, electronics, music, books, furniture, movies, toys, sports items, healthcare products, pharmaceutical products, jewelry, and clothing for men women and children. Wal-Mart is a multinational retailer. It has every product and brand that a person needs. Consumers are becoming increasingly conscious abut there health. Wal-Mart is working to offer more fresh produce and organic options. The company is also is working to integrate its physical stores with the digital business. This includes letting customers pick up online orders in stores and providing text reminders from the pharmacy.

Price:

Wal-Mart business model doesn’t include manufacturing of any product; it obtains products across the globe in large quantities in order to enjoy benefits of economies of scale. This makes price of Wal-Mart to offer products at 15% lower price than other retailers. Wal-Mart uses different pricing concepts to get the attention of the customers and force a purchasing behavior through discount strategies. Sam Walton coined the term “Always low prices” and “Everyday low prices”; according to this each product is offered at different discount prices based on the time and demand of the hour. The consumer electronics are offered at a very low price compared to other retailers.

Promotion:

Wal-Mart has its own in-store promotional activities which includes sales promotions through product bundling and its pricing strategies. The online store of Wal-Mart earns major revenues from through customers placing online gifts. The pricing strategies adopted by Wal-Mart like “Everyday low prices”, “value of the day” increases the sales turnover. The online store uses strategies to pull customer by attractive slogans like ‘Grab it before it’s done’ which pushes customer to take a purchase decision immediately before the deals get expired. Outside of its own in-store promotion Wal-Mart relies on word-of-mouth advertising to win over consumers in larger cities.

Placement:

Wal-Mart’s strategy has been to plot stores outside of large cities and within 200 miles of existing stores. Wal-Mart seeks to meet different customers’ needs with four distinct retail options; these include discount stores, supercenters, Sam’s Clubs, and neighborhood markets. Each store concept has a specific range of store size, total employment, and estimated sales. Worldwide, Wal-Mart’s store count was estimated at 11,156 stores as of October 31, 2014. There are 4,987 stores, or 45%, in the US1. The net store count increased by 2,740 stores from fiscal year 20102 to October 31, 2014. There was a net decline of 409 in the mid-sized discount store count in the US. The retailer concentrated on the larger supercenter format and smaller Neighborhood Market stores in the US. Wal-Mart’s smaller-sized Neighborhood Market stores average 40,000 square feet in size. The stores are located predominantly in locations with a higher population density—like urban areas. Due to their small size, they take less time to get off the ground. However, the smaller stores generate significant sales volumes. 105 smaller stores opened in fiscal year 2014. It plans to open another 170 stores in fiscal year 2015. Another 180–200 new stores are scheduled to open in fiscal year 2016. Through this format, Wal-Mart is targeting revenue of $17 billion by fiscal year 2017. The company also increased Neighborhood Market’s speed to market by 50 days. This improved the revenue and project return metrics like the net present value, and the internal rate of return.

Conclusion

After analyzing Wal-Mart and the industry in which it is operating, strengths, opportunities, weaknesses and threats were identified. For Walmart to continue to achieve bigger success and continue its profitable sales the company should exploit its strengths, utilize opportunities, and improve weaknesses and remove threats therefore references associated with each section should be carefully considered and adopted.

Bibliography

1. Internet. 123helpme.com