Walmart Strategy

The experts say it is difficult to pursue both cost leadership and differentiation. Michael Porter views them as mutually exclusive strategies and a firm that attempts both is “stuck in the middle.” The appeal of differentiation is that it offers multiple opportunities for competitive advantage with a greater potential for sustainability than does cost advantage (p. 201-202). On the other hand, ultra-competitive markets often compel firms to pursue both. This is not the case for Walmart. With “everyday low prices” as its foundation, the company spends less on advertising and promotions than its competitors (p. 515). Reason being, Walmart possesses an industry wide cost advantage that is primarily driven by low input costs along its value chain, namely its distribution capacity and bargaining power. Moreover, Walmart has benefited from economies of learning manifested through organizational routines (e.g. Saturday meetings) as well as residual efficiencies from managerial effectiveness, strengthened by a frugal culture intolerant of superfluous expenses. Nonetheless, Walmart will need to build on its impressive advantages and innovate further in effort to remain on top.As one of the world’s largest retailers, Walmart offers a broad variety of food and general merchandise to consumers. The retail giant takes advantage of its efficient distribution structure and low cost sourcing to provide consumers with a one-stop shopping experience at everyday low prices. Walmart ultimately links efficiencies along its value chain to the customer in the form of savings. Hence, its slogan “Save Money, Live Better,” which harkens back to the frugal culture instituted by its founder Sam Walton. He learned early on that Walmart could establish a cost advantage by becoming a distributor in addition to a retailer, thereby cutting out the middleman and enabling geographical expansion. It got its start by opening stores in rural America, where other discount stores did not venture because of relatively small populations. When a critical mass of stores was established, Walmart would open a new distribution center. Now with stores in all 50 states and retail operations in 26 countries, the company operates under three segments: Walmart US (60% of 2012 net sales), Walmart International (28%) and Sam’s Club (12%).