Wal-Mart achieved cost leadership through various strategies such as locating stores in low-rent buildings, strict cost controls, and expansion. It later invested in infrastructure and distribution centers to standardize operations and realize economies of scale. Through bulk purchasing, low prices, and reinvestment of profits, Wal-Mart maintained its cost advantage. However, its size also presents weaknesses in flexibility and control. Opportunities exist in global expansion, but threats include intense competition and exposure to political risks abroad.

1. WAL-MART
COST LEADERSHIP
STRATEGY

3. COST LEADERSHIP

Lower cost of products or services relative
to what competitors have to offer

Broad target- offer full range of products
and services to wide range of customer
group, ample geographic area served

4. Positioning of firm
Achieving cost leadership

5. The commencement….

Stores set up in large buildings with
minimum rent paid

Not much emphasis laid on the interiors
No investment in standardized ordering
programs
 Not enough staff-store manager handled
the store and also its accounts
 Focused –Strict cost controls
-constant store supervision
-expansion into new territories


6. As Wal-Mart grew

Company invested in infrastructural
facilities

Became a Publicly-held company to access
more funds for expansion plan

After being equipped with funds it
reorganized its business activities

7. Re organizing business activities

Placed a Standard distribution system and
inter store communication system

Centralized distribution system
-retail hub(distribution center) and
spoke(store) system
o
Distribution center - Bentonville
Goods dispatched to stores by company
owned trucks
o

8. 
Cross docking technique used to eliminate
inventory handling cost.

Reduced its purchasing cost by procuring
goods directly from manufacturers on
tough negotiation
 Company achieved High level
standardization of products using mass
purchasing techniques, thus yield lower
per unit cost

9. Economies of Scale

Expansion strategy –build stores around
the distribution center(within a 300 mile
radius)

Popularity of store increased and lead to
word of mouth publicity thus reducing
spending on advertisement

10. EDLP
Setting up large discount stores in small towns
 Extremely Attractive to rural customers
 Branded merchandise priced attractively
 Catered to customers who bought
merchandise in bulk
 Recruited service oriented individuals
 Aiming at the average customers to gain
Broader target –high capacity utilisation
essential to realise cost advantage

11. Maintaining low cost through
reinvestments

Surplus generated was reinvested
Building facilities
Expanding into metropolitan cities
Membership club business
“Sam’s clubs”- offered goods in bulk at
wholesale prices- exclusively to its
members
o

12. Installed modern IT systems
-improve distribution efficiency
 Investment in cost saving technologies can
help achieve economies of scale making the
service competitive in market
•
Electronic data interchange(EDI) and SCS
-linked stores, distribution center and
suppliers P&G
 Lead to significant improvement in its
supply chain efficiency-inventory control
•

13. •
Point of sale(POS) and Retail Link
- massive databases
 Helped determine preferences of
customers

14. Industry Analysis
Porter’s five competitive
forces

16. Potential threat of new entrants

Cost advantage acts as an effective entry
barrier for entrants, who cannot offer the
product/service at a lower price

Access to distribution channels

Long term relationship maintained with
vendors and suppliers

17. 
Good financial position -Adequate capital

Economies of scale –lower per unit cost

Switching cost faced by new entrants

Establishing a new network of relationship

18. 
Discouraged competition since it was
impractical to build huge structures in
small cities

Tough for competitors to duplicate the
cost reduction techniques used by
Wal*Mart

19. Rivalry among competitors

Products priced 20% lower than those of
its competitors –high demand-snatch
market share from rivals

Exist barriers
Economic factors –huge investment in
business, high fixed cost of exist
Emotional factor-ancestral business
o
o

20. 
Industry growth-desire to be a market
leader leads to rivalry

21. Bargaining power of buyers
Large number of buyers
 Price sensitivity
 Buyers incentives -e.g.: Sam’s store
 Buyers volumes
 Products priced 20% low as compared to
other stores-low bargaining power of
customers
 Tough negotiation of buyers with suppliers
due to bulk purchase of product


22. Bargaining power of suppliers

Importance of volume to suppliersCentralized purchase of goods by walmart
and in huge quantities

23. Threat of substitute products

Substitutes are available but not a threat
cause of the company offers quality
products at the lowest possible price in the
market

24. WAL-MART
SWOT

25. Strengths.
A firm's strengths are its resources and
capabilities that can be used as a basis
for developing a competitive advantage.
 Wal-Mart is a powerful retail brand. It has a
reputation for value for money,
convenience and a wide range of products
all in one store.
 Wal-Mart has grown substantially over
recent years, and has experienced global
expansion

26. 
The company has a core competence
involving its use of information technology
to support its international logistics system
IT also supports Wal-Mart's efficient
procurement.

A focused strategy is in place for human
resource management and development.
People are key to Wal-Mart's business and
it invests time and money in training
people, and retaining and developing
them.

27. Weaknesses.
The absence of certain strengths may be
viewed as a weakness.
 Wal-Mart is the World's largest grocery
retailer and control of its empire, despite
its IT advantages, could leave it weak in
some areas due to the huge span of
control.
 Since Wal-Mart sell products across many
sectors (such as clothing, food, or
stationary), it may not have the flexibility
of some of its more focused competitors.

28. 
The company is global, but has a presence
in relatively few countries Worldwide.
In some cases, a weakness may be the flip
side of a strength.
 Take the case in which a firm has a large
amount of manufacturing capacity. While
this capacity may be considered a strength
that competitors do not share, it also may
be a considered a weakness

29. Opportunities.
The external environmental analysis may
reveal certain new opportunities for
profit and growth.

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.

30. 
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.

Opportunities exist for Wal-Mart to
continue with its current strategy of large,
super centres.

31. Threats.
Changes in the external environmental
also may present threats to the firm.

Being number one means that you are the
target of competition, locally and globally.

Being a global retailer means that you are
exposed to political problems in the
countries that you operate in.

32. The cost of producing many consumer
products tends to have fallen because of
lower manufacturing costs.
Manufacturing cost have fallen due to
outsourcing to low-cost regions of the
World.
This has lead to price competition, resulting
in price deflation in some ranges. Intense
price competition is a threat


33. THANK YOU
JONATHAN
 SHADAP
 MARINA
 LIZA
 JESSICO
 KIRK

Group 4