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When Sam Walton founded the first Wal-Mart in 1962, the idea of bringing in a discount-shopping store into rural America was almost unheard of, except for the local five and dime stores. When Walton noticed that he had a lot of competition from regional discount chains, him and his wife Helen traveled the country to study other new retailing concepts, and were convinced that it was the wave of the future. With Walton's vision, Wal-Mart grew to be a multi-billion dollar, international company, operating about 4,600 stores around the world.
Wal-Mart competes in many industries that include: 5331- Retail-Variety stores, 5411-Grocery stores, 5311-Department stores, 5812-Eating Places, 5399-Miscellaneous General Merchandise store, and 5912-Drug stores and Proprietary stores. Since there are several industries to choose from, our group chose to go with retail-variety stores, SIC code 5331. These establishments are primarily engaged in the retail sale of a variety of merchandise in the low and popular price ranges. Sales are made on a cash and carry basis, with the open-selling method of display and customer selection of merchandise.
Wal-Mart's milestones began in 1962 when the first Wal-Mart was opened in Rogers, Arkansas. Seven years later the company incorporated as Wal-Mart Stores, Inc. Then a year later they opened the first distribution center and home office in Bentonville, Arkansas, and also went public on the New York Stock Exchange. Several years later, in 1988, the first super center was opened. Then in 1991, the first international unit was opened in Mexico City.
By the turn of the century, Discount Store News had named Wal-Mart "Retailer of the Century" and made Fortune magazine's lists of the "Most Admired Companies in America" and the "100 Best Companies to Work For." They were also ranked on Financial Times' "Most Respected in the World" list. In 2002, Wal-Mart became number one on the Fortune 500 list and was presented with the Ron Brown Award for Corporate Leadership, a presidential award that recognizes companies for outstanding achievement in employee and community relations.
Wal-Mart Stores, Inc. does not have a formal mission statement. This is because Kim Ellis, the Public Relations Coordinator, said that they believe the customers are more interested in other aspects of the business, and they, the company, are focused on meeting their basic consumer needs.
Since Wal-Mart does not have a mission statement our group has created a mission statement that they might use. It discusses all nine components of a mission statement.
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Our first responsibility is to provide all consumers the best products and services with guaranteed satisfaction under one roof. Wal-Mart provides a wide array of products like toys, electronics, groceries, jewelry, ladies, men, and children's apparel, and hard goods at reasonable prices. We will continue to offer scholarships to deserving high school graduates in hopes of providing students with a well-deserved education. Consumers have been conveniently provided with on-line shopping, but also with the concept of "one-stop shopping." The Wal-Mart team is devoted to everything that Wal-Mart has accomplished as a universal competitor. We are dedicated to recruiting, rewarding, and retaining employees of good moral standing by providing benefits for excellent performance, providing clean environments to work in, and by providing equal opportunity for all individuals. We will continue to offer the highest quality products at the lowest price to strive to be the best in the retail industry.
Components of Mission Statement
In the mission statement we target our customers by saying: "Our first responsibility is to provide all consumers the best products and services." Their customers are their number one priority. Customers keep Wal-Mart in business, so of course they would want to offer them their best products and services. The mission statement targets products or services by saying: "Wal-Mart provides a wide array of products like toys, electronics, groceries, jewelry, ladies, men, and children's apparel, and hard goods." Wal-Mart has so many different types of products and services that a list of the basic departments needed to be listed. These products are their main service.
Their concern for public image is stated: "We will continue to offer scholarships to deserving high-school graduates." Wal-Mart intends to make the future better. They want to see more high-school graduates go on to college and make something of themselves. By offering scholarships, it helps these graduates to pursue their dreams for a better future.
The mission statement mentions technology in that: "Consumers have been conveniently provided not only with the use of on-line shopping." On-line shopping is becoming the main way for a lot of people to do their shopping. Technology is making on-line shopping as easy as possible so people do not have to leave the privacy of their own homes and, in turn, they get to spend more time with their families.
The mission statement aims at markets by saying: "Wal-Mart is accomplished as a universal competitor." Wal-Mart has stores worldwide. They have conquered the international market. They are the number one retail-variety store in the world.
The mission statement shows a concern for employees by saying: "We are dedicated to recruiting, rewarding, and retaining employees of good moral standing." They want their employees to know that they actually have a reason for coming to work. Without employees, Wal-Mart would not exist. They show their employees that they care about them and their needs.
The mission statement talks about self-concept with the statement: "By providing benefits for excellent performance, providing clean environments to work in, and by providing equal-opportunity for all individuals." Wal-Mart hires anyone who is capable of doing their job. You see this each and every time you walk into a Wal-Mart or see a commercial on television.
The mission statement talks about their philosophy in that "We will continue to offer the highest quality products at the lowest prices." Wal-Mart's slogan is low prices everyday. If a competitor has a product at a lower price Wal-Mart will match it, just so they can live up to their philosophy.
The mission statement talks about the concern for survival, growth, and profitability in that they "Strive to be the best in the retail industry." Wal-Mart does this each and everyday by opening new stores and having the lowest prices. Hardly anyone goes to a store and buys a product at a higher price when they know they can get it for less. This is how they are striving to be the best.
External Analysis: Opportunities
An opportunity available to the industry is the free trade zone. When the government enters into new trade agreements with foreign countries, businesses in the United States have the ability to offer products from these countries in their stores. This simply increases the markets available to retailers.
Social, cultural, demographic, and environmental
An opportunity facing the industry is that customers want ease of shopping. To provide the ease of shopping the industry is guaranteeing that the customers will find what they want when they want it. This is supported by convenient presentation and the right level of service every time the customer shops.
Political, legal, and government
An opportunity facing the industry is that the Asian market is virtually untapped by the retail world. By having an untapped market it gives a huge opportunity for companies to expand. It promises unlimited potential for growth and profits.
An opportunity facing the industry is that internet shopping is growing. To take advantage of internet shopping, the industry is focused around the customer. The customer receives friendly site designs, efficient order fulfillment, fast delivery and professional customer response. They process returns, refunds, and rebates quickly.
An opportunity facing the industry is that the value of money is weakening. The weakening value of money will help the industry because it reduces the ability of foreign manufactures to offer discounts.
External Analysis: Threats
A threat is that the economy is very slow right now. There is no way of preventing it and no way to change it. This impacts all businesses and causes profit margins to be reduced as price-cutting ensues to attract more consumers.
Social, cultural, demographic, and environmental
A threat is customer theft. Manufacturers are fighting back against customer theft by embedding paper clip sized antitheft tags, called electronic article surveillance labels, inside products and packaging. Called source tagging, the process offers several major benefits. For one, merchandise tagged on the factory floor during manufacture or packaging lets retail employees spend less time in the storeroom applying labels and more time on the show floor helping customers. Also, high-theft merchandise previously displayed behind glass can now sit out in the open, boosting sales significantly.
Another social, cultural, demographic, and environmental threat is employee theft. Along with antitheft labels there are radio-frequency circuits that are hidden in packages and go unnoticed. The only time they will go off is when the bar code scanner does not deactivate the circuit, which means they stole it. This helps to prevent the two forms of employee theft, which are sweat hearting and sliding. Sweat hearting is when the employee charges the customer less than the actual price and sliding is when the employee covers the barcode at the point of sale.
Political, legal, and governmental
A threat is the Chinese regulations. China has one of the largest populations in the world; however, the Chinese government does not take kindly to opening their country to foreign establishments. Also, there is rampant corruption among the Chinese, and they have no generally accepted accounting principles.
A threat facing the industry is that technological advances may make the products obsolescent. As technology advances, products being sold today are gone tomorrow; this provides less products for retailers to sell.
A threat is that the industry is not following consumer taste. To overcome the threat of not providing consumers wants the industry is expanding rapidly in the urban centers while traditional "wet markets" are being edged out as the middle-class enlarges and young people flock to the cities.
Competitive Profile Matrix
A competitive profile matrix identifies a firm's major competitors and its particular strengths and weaknesses in relation to a sample firm's strategic position. The ratings are as follows: 1 major weakness, 2 minor weaknesses, 3 minor strengths, and 4 major strengths. (Figure 1 in the appendix)
Compared together, Wal-Mart, Target and Kmart are very close competitors. They are all retail-variety discount stores making their existence known throughout the world, except Target, which you cannot find globally. These three companies are constantly vying for the reputation as the lowest priced retailer.
In the competitive profile matrix, the most critical success factor would be advertising with a weighted score of 0.25. Advertising for these competitors is very critical if they want to compete against each other for the best quality products at low prices. With this, Target was scored the highest with a rating of 4 while both Wal-Mart and Kmart are rated as a 3. This is because Target does a lot more advertising then Wal-Mart and Kmart.
The next most critical success factor is global expansion with a weighted score of 0.20. This is somewhat important if you wanted to keep up with the competitors. Wal-Mart was found to be rated the highest with a 4 with Kmart was rated next with a 3, and finally Target rated as a 2. Wal-Mart was ranked the highest because they are found around world, while Kmart was ranked next because they are only found in a few other countries. Target, ranking last, does not have any global branches. This is only a minor weakness because they really do not have to go globally because of how well they are keeping up with the competitors within the United States.
Price competitiveness and financial position are ranked next on the competitive profile matrix with a weighted score of 0.15 each. Wal-Mart, ranking the highest in both cases with a 4, is above all competitors. This is because they price reasonably with lower prices then all the competitors and their financial position is great. Target is ranked next with a rating of 3 in both price competitiveness and financial position. Target is known to have somewhat high prices and people tend to see that and want to go shopping elsewhere like Wal-Mart. Their financial position is not that great with the minor strength, but they are keeping up with their major competitor, Wal-Mart. Finally, Kmart is found to have a rating of a 3 in price competitiveness, and a rating of 2 in financial position. This is because Kmart does keep up with the prices of competitors, but they do get pricey in some areas. Their financial position is a minor weakness because of the Martha Stewart scandal and their bankruptcy. Her products were being sold a lot until the scandal came out. Now they are pricing her products really low just to get the inventory sold.
Next, product quality and customer loyalty is found on the competitive profile matrix to have a weighted score of 0.10. Target is found to have a rating of 4 in product quality. In customer loyalty they have a rating of a 3. This is because products found in Target tends to be top brand products, but at the same time, customers see these products somewhere else for a lower price and they tend to go to that place instead. Wal-Mart is ranked next with a rating of 3 in both product quality and customer loyalty. Wal-Mart may not have top brand products but the quality is fairly good.
Customer loyalty is also ranked as a 3 because some people do like to get better products no matter how much it costs. Kmart, ranked last with a 2. This is because they do not carry quality products. People tend to go other places for what they want because of the better selection and quality.
Finally, the last critical success factor is market share with a rating of 0.05. Wal-Mart and Target are both ranked 3 while Kmart is ranked 1. This is about right because as indicated by the total weighted score, Kmart is the weakest with 2.55. Target's total weighted score was in between but closer to Wal-Mart's score of 3.15, and Wal-Mart's was the strongest weighted score as 3.50.
In conclusion of the competitive profile matrix, Wal-Mart as a competitor rises above both Target and Kmart.
External Factor Evaluation
An external factor evaluation matrix identifies the industry-wide opportunities and threats. Weights are assigned to the various opportunities and threats based on how well the subject company is responding to the threats and opportunities. The ratings are as follows: 1 = poor response, 2 = average response, 3 = above average response, and 4 = superior response. (Figure 2 in the appendix)
The main opportunities that we identified were increasing internet shopping, ease of shopping, free trade zones, the Chinese market, and the value of the dollar. The main threats that we identified were technology making products obsolete, customer and employee theft, slow economy, the Chinese regulations, and not offering what the consumer wants.
The opportunities were weighted .15 for internet shopping, .10 for ease of shopping, .10 for free trade zones, .10 for Chinese markets, and .05 for the weak dollar. The threats were weighted .10 for technology making products obsolete, .20 for customer and employee theft, .05 for the slow economy, .10 for the Chinese regulations, and.05 for not offering what consumers want.
The weights and are representative of the importance the opportunities and threats presented to Wal-Mart. They were determined by considering the impact that each one has on the industry and how well Wal-Mart is conditioned to react to the situations presented. We felt that the most important factors were internet shopping, and customer and employee theft. These two factors are paramount to the industry and all of its counterpart's success. If these factors are not addressed by the industry, bankruptcy is sure to follow.
We rated each of the opportunities and threats based on how well Wal-Mart has been positioning itself in the market. Wal-Mart's website has been a huge success with it contributing additional revenue to the bottom line; we rated this as a 4. The response to consumer demand for one-stop shopping has also been a success. The fact that you can buy a vast majority of everyday needs such as groceries, clothes, personal care products, electronics, among many other products shows the commitment Wal-Mart is making to the one-stop shopping idea. We also rated this 4.
We felt that Wal-Mart's continued expansion into foreign countries to be above average and thus rated it a 3. Because China is heavily regulated, we rated their response to the opportunities available in China a 2. This is still a very good score because it is very difficult for any firm to expand into China.
Wal-Mart's reaction to the dollar weakening has been above average because of its worldwide coverage. They have been able to take advantage of this economic factor with ease and we rated it a 3.
The response to threats has been equally impressive. While technology is constantly making products obsolete, Wal-Mart has been able to position itself to be a positive avenue for selling all of the newest and innovative products. Wal-Mart suppliers definitely have a great opportunity for sales because of the vast audience that patronize Wal-Mart. We rated this as a 3.
Employee and customer theft is inevitable in all industries. This was ranked as a 2 because Wal-Mart uses the same devices that the entire industry uses. The slowing economy has been a sour point to all industries as well. Wal-Mart has been able to limit its exposure by offering low prices and maintaining its market-leading share. We ranked this factor a 4.
Again, because China is such a tough market to enter, we ranked their response to Chinese regulations a 2. The idea that companies offer products that consumers do not want is not uncommon. There have been thousands of products that have flopped after being introduced. Wal-Mart has been able to circumscribe their exposure by offering thousands of products across many different areas. We ranked their response to this a 4.
The final score, 2.80, that was obtained from the external factor evaluation matrix shows that Wal-Mart is above average when reacting to opportunities and threats.
Internal Analysis: Strengths
Wal-Mart's policies and practices are designed to ensure an environment that is equitable and inclusive. To that end, Wal-Mart solicits feedback from all of their employees, annually, regarding their opinions of their work experience and the company's implementation of Wal-Mart's basic beliefs and values. In addition, they provide training on working with people, leadership skills, equal employment opportunities, diversity and sexual harassment prevention.
Wal-Mart is committed to providing all employees state-of-the-art training resources and development time to help achieve career objectives. They have a number of training tools in place that keeps then out in front of the competition, including classroom courses, computer-based learning, distance learning, corporate intranet sites, mentor programs, satellite broadcasts, skills assessments, and job announcements. These tools are successfully increasing advancement opportunities for women and minorities. Wal-Mart has been ranked among Training Magazine's 'Top Training 100' companies for two consecutive years. Respect for the individual, one of Wal-Mart's company's three core values, is reinforced throughout their training process.
Wal-Mart is committed to the customers and communities they serve. Wal-Mart hires locally, representing the diversity and uniqueness of everyone's hometown. As the demographics of the nation have changed, so has the family of Wal-Mart's employees. More than 15 percent of their employees are over the age of 55, and they are the nation's largest employer of Hispanics and African-Americans.
Wal-Mart also uses its respectable financial position to attract and retain employees by offering stock ownership and profit-sharing programs. These programs are available to all full-time employees of Wal-Mart and make a significant impact on the earnings of employees. They are allowed to purchase shares of stock at reduced prices, which allows them an immediate appreciation of their portfolio. With the profit-sharing program, the employees receive bonuses at the end of the year based on the success of the overall company. These also provide a significant amount of compensation to their employees.
Wal-Mart also has very strong community-based initiatives. They have continually gave college scholarships for high school seniors, raised funds for nearby children's hospitals through the Children's Miracle Network Telethon, provided money and manpower for fund raisers, school benefits and churches, Boy and Girl Scouts, park projects, police and fire charities, food banks, senior citizen centers, and more. They also educate the public about recycling and other environmental topics with the help of a "Green Coordinator," a specially trained employee who coordinates efforts to make an environmentally responsible store. Along this same line, Wal-Mart has created Environmental Demonstration Stores in Lawrence, Kansas; Moore, Oklahoma; and City of Industry, California. These stores serve as a "test tube" for environmentally friendly building materials and experimental methods for conserving energy and water.
Finally, the corporate structure of Wal-Mart is very well rounded and managed with three core values: respect for the individual, service to their customers, and striving for excellence. The management of Wal-Mart is the backbone to the entire company and these core-values have propelled Wal-Mart to the top of their industry and have allowed Wal-Mart to be the world's largest company.
The nature of Wal-Mart's marketing is in its Every Day Low Price (EDLP) campaign. This is what makes Wal-Mart successful. Sam Walton devised a system for which price setting was to be followed. Sam wouldn't allow management to hedge a price at all. If the list price was $1.98, but Wal-Mart had paid only 50 cents, they would mark it up 30 percent, and that's it. Sam's philosophy was "No matter what you pay for it, if we get a great deal, pass it on to the customer."
The other major campaign Wal-Mart employs is the Rollback. This occurs when Wal-Mart lowers the already lowered Every Day Low Prices. This has really been a successful way for Wal-Mart to increase its patrons. When consumers shop, they are always looking for the best deal, since Wal-Mart already offers low prices, when they rollback prices, they are able to out-price all of their competition.
Stemming from the management's core values, Wal-Mart has been known for their customer oriented approach. Wal-Mart maintains one of the best satisfaction guaranteed programs, which promotes customer goodwill. One can return virtually any product to Wal-Mart without any problems. They simply take the product back and promptly refund the price of the product, nearly no questions asked. They also promote goodwill among consumers by employing a tactic, which Sam created known as the "Ten Foot Rule." This is simply the idea that if a customer comes within ten feet of an employee, they are required to greet them and ask if they can help them in any way. This is also evident through employees getting to know customers on a first name basis.
Finally, perhaps the single most important marketing aspect of Wal-Mart is that they create the ideal one-stop shopping experience. Wal-Mart is organized into ten distinct divisions. These include: Wal-Mart stores, SAM'S CLUBS, Neighborhood Markets, International, walmart.com, Tire & Lube Express, Wal-Mart Optical, Wal-Mart Pharmacy, Wal-Mart Vacations, and Wal-Mart's Used Fixture Auctions. Through these divisions, Wal-Mart offers thousands of products. The Wal-Mart stores contain groceries, clothes, healthcare products, toys, electronics, bedding, sports and recreation, automotive, among other items. Because of this conglomeration of products, the typical consumer can go into any Wal-Mart and walk out without having to stop at another store for anything that they could need.
Since 2000, Wal-Mart's revenue has consistently increased. In 2000, they had revenues of $165,013 billion and in 2002 their revenue had increased 24% to $217,799 billion. This is astronomical growth in revenues considering the overall size and scope of Wal-Mart. Top be able to consistently grow revenues in such a large organization is simply amazing.
The increase in revenues has also been very kind to their cash flow. In 1997, Wal-Mart had a positive cash flow of $4,044 billion and in 2002 this number had increased to a positive $9,961 billion. This growth also had an impact on Wal-Mart's net income, which is to say that they were able to control their expenses while continuing to grow and expand their operations. In 1997, their net income was a not-so-paltry $3,056 billion, and in 2002, only five years later, Wal-Mart more than doubled their net income to $6,671 billion.
The strength of Wal-Mart is also shown through its ratios. Nearly all of Wal-Mart's ratios are strengths when measured against the industry averages. Through our ratio analysis, we have shown that Wal-Mart is the best-equipped company to succeed in the marketplace. (The ratio analysis can be found as Figure 3 in the appendix)
Another area of strength is Wal-Mart's stock price. Figure 4 shows the price of Wal-Mart's common stock from October 2000 until the end of 2002. The price has fluctuated, but it has only fluctuated between $45 and $65. Including dividends, an investment in Wal-Mart would perform well.
Perhaps the strongest aspect of Wal-Mart is in its access to distribution networks. Wal-Mart uses a system known as cross-docking. This is simply the process of continuously delivering goods to warehouses where they are sorted and distributed to their stores within one day. This enables Wal-Mart to take advantage of economies of scale with shipping trucks with full loads. This also gives Wal-Mart the ability to increase the speed of deliveries, a faster response to market demands, and a low inventory. This system has allowed Wal-Mart to decrease its sales cost by 2 to 3 percent over the industry. This savings is then priced into the products with the earlier discussed EDLP programs.
This system is maintained through the most important aspect of Wal-Mart, its employees. With over one million employees worldwide, Wal-Mart definitely has the manpower to move goods. This is also facilitated with a proprietary satellite-based communication system that enables managers and point-of-sale systems real-time information on the needs of each store.
Research and Development
Wal-Mart does not engage in any research and development.
Computer Information Systems
As discussed in the production/operation section, Wal-Mart uses a sophisticated system of satellite-based communications. They also offer a safe, secure and complete website where consumers can purchase all of the same products found in the store. The website is strength because it is not only a means for purchasing products, but is also a very thorough informational site. Consumers can log onto www.walmartstores.com and do company financial searches, find employment, learn about the grassroots of Wal-Mart, email the company about problems, and learn about any recalls of products sold through Wal-Mart.
Internal Analysis: Weaknesses
The biggest weakness that Wal-Mart has in the management area is that it does not have a formal mission statement. While they do have core values, they do not explicitly tell their employees or consumers what their business is. This is a fundamental aspect of a company and it provides not definition and direction, but it gives a company a statement on which to rely on to stay strong and focused.
Another weakness is that there are few females in top management and there are few minorities employed. With such a societal demand for equality, Wal-Mart is lacking in this category. This is not a very good ethical decision for Wal-Mart to be making. They are really hurting their corporate image by maintaining this position.
The other area that Wal-Mart lacks in is with unions. Currently, Wal-Mart does not have any union involvement. This is a problem because of the perception of treating employees poorly. Unions are created to provide bargaining power to employees on issues that involve their compensation, benefits, and working conditions. This is also a weakness because of job security. With unions, job security is not as much of a concern.
The biggest source of marketing weakness stems from Wal-Mart lobbying to expand into new markets. There are thousands of towns across the United States that have tried to block the introduction of Wal-Mart because of the economic impact that it has on small-town stores and shops. Wal-Mart has a damaged reputation because when they move into a location they end up "forcing" these types of businesses out of business.
Weaknesses in Wal-Mart's finances are seen in three of its ratios. The fixed asset turnover, earnings per share, and average collection period ratios are not very good. The fixed asset turnover ratio is telling us that they have made a lot of investments, but that they are not being fully used at this point in time. The earnings per share ratio is not good because when compared to the industry, they are not earning as much money for each shareholder. However, this is most likely due to the sheer number of outstanding shares. The average collection period is a cause for concern because it means that they are allowing their debtors to carry accounts with Wal-Mart for an above average period of time. This is not good because it increases the likelihood of non-payment. (These ratios can be found in Figure 3 of the appendix)
The largest source of concern for this functional area is the slowing speed of checkout lines. This is simply a product of Wal-Mart's success. Because more and more people are going to Wal-Mart, and the number of checkout lines is staying constant, the only way to compensate is for the time to checkout increase. This is a problem because it can and will cause people to choose other stores that are less congested. They are basically losing sales due to this fact.
Research and Development
This is a weakness because they do not actively engage in any research and development. Specifically, they do not do any prior site research before opening a store. They simply approach a local government and build.
Computer Information Systems
We did not find any weaknesses in Wal-Mart's computer information systems.
Internal Factor Evaluation
The internal factor evaluation is used to evaluate the major strengths and weaknesses of a company. There are weights assigned to strengths and weaknesses based on how the company responds to them. The ratings are: 1 = poor response, 2 = average response, 3 = above average response, and 4 = superior response. (Figure 5 in the appendix)
The key strengths we identified were financial position, employees, customer oriented, one-stop shopping, satisfaction guaranteed programs, employee stock ownership and profit-sharing, well-rounded business, ease of website, good reputation, and favorable access to distribution networks. Along with key strengths of Wal-Mart, we also identified key weaknesses. The key weaknesses are some ratios are not sufficient, non-unionization, no formal mission statement, few women and minorities in top management, undifferentiated products and services, site research, slow speed of checkout service, and finally a damaged reputation.
The strengths were weighted: .04 for financial position, .07 for employees, .07 for customer orientation, .14 for one-stop shopping, .05 for satisfaction guaranteed programs, .05 for stock ownership and profit-sharing, .03 for well-rounded business, .04 for ease of website, .04 for good reputation, and .04 for favorable access to distribution networks. The weaknesses have also been weighted. The weaknesses weighted scores were .03 for insufficient ratios, .15 for non-unionization, .05 for no formal mission statement, .05 for few women and minorities in top management, .03 for undifferentiated products and services, .05 for site research, .04 for slowing speed of checkout service, and .03 for a damaged reputation.
These weights show the importance of each strength and weakness of Wal-Mart. They are determined by how important that quality is to Wal-Mart and how hard of an impact each has against other businesses. We felt that the most important factors were one-stop shopping and non-unionization. These two factors are very important to Wal-Mart's structure and well being as a whole. If these factors are not evaluated regularly, they could put a start to its potential downfall.
We rated each strength and weakness based on how Wal-Mart seems to be positioning itself against its competitors. Wal-Mart's employees, customer orientation, one-stop shopping, satisfaction guaranteed programs, stock ownership and profit sharing, ease of website, good reputation and favorable access to distribution networks all have been very successful strengths for the company. These are so successful we rated each with a 4. The financial position of Wal-Mart and the well-rounded business that it is has made Wal-Mart what it is today. Because of this success we rated these factors with a 3.
In their weaknesses, we thought that minor weaknesses included: non-unionization, no formal mission statement, few women and minorities in top management, undifferentiated products and services, site research, and the slowing speed of checkout service. Since these were only minor we gave them a score of 2. We also rated some major weaknesses. These included insufficient ratios and their damaged reputation, which we rated as a 1.
By using these scores in the internal factor evaluation matrix, we came to a total score for Wal-Mart being a 3.01, which is above average. They are above the average company when it comes down to its strengths and weaknesses and how they deal with them. (This is Figure 5 in the appendix)
There are three potential problems for the organization. They are customer and employee theft, slow checkout service, and non-unionization. Ranked in the order of importance, customer and employee theft comes out first. This is a major problem not for just Wal-Mart but for the whole industry as well. The employees start to become very creative in the way the steal merchandise or even money. One example could be when the cashier is checking someone out; the cashier doesn't give the receipt to the customer, then when the customer leaves the employee will cancel the transaction and take the money. Along with employee theft customer theft is another big issue. No matter what technology Wal-Mart has, someone will figure out how to get around it.
The next potential that is of importance, ranking second, is slow checkout service. When people go to Wal-Mart, they may go for the low prices, but when they go to leave some people may say forget it. Some Wal-Mart's have the slowest checkouts around. It may take fifteen minutes for someone to buy one thing because of how many people are in line waiting. This really discourages people from going to Wal-Mart and may encourage them to go to a competitor.
Finally the last potential problem Wal-Mart has is non-unionization. This is because in the industry the competitors have unions while Wal-Mart doesn't. The workforce for Wal-Mart had been lobbying to unionize for the distinct advantage that unions provide to their members. This is important because union membership allows employees to increase their value to the employer and to themselves through collective bargaining. As this pressure increases, Wal-Mart will either have to create unions or they will have to increase its compensation and benefits to employees.
The internal-external matrix is also known as a portfolio matrix because it involves plotting organization divisions in a schematic diagram. It is based on two key dimensions: the internal factor evaluation total weighted score on the x-axis and the external factor evaluation total weighted scores on the y-axis.
On the x-axis of the internal-external matrix, an internal factor evaluation total weighted score of 1.0 to 1.99 represents a weak internal position, a score of 2.0 to 2.99 is considered average, and a 3.0 to 4.0 is considered strong. Similarly, on the y-axis, an external factor evaluation total weighted score of 1.0 to 1.99is considered low, a score of 2.0 to 2.99 is medium, and a score of 3.0 to 4.0 is high.
The internal-external matrix is divided into three different regions. The first region is described as grow and build and can use intensive or integrative strategies. The second region is described as hold and maintain. This region can use market penetration and product development strategies. The third and final region is described as harvest or divest and this is where successful organizations are able to achieve portfolio of businesses.
Wal-Mart is part of grow and build strategies and the three strategies appropriate for the company are market penetration, market development, and product development. This is because the internal factor evaluation total weighted score is 3.01 and the external factor evaluation total weighted score is 2.95 causing the to fall into the medium range in strong position, quadrant IV. (This is figure 6 in the appendix)
As determined by the IE Matrix, Wal-Mart fits into the category of grow and build strategies. Thus, the aforementioned strategies would fit Wal-Mart very well. All three of the strategies that we decided on are grow and build types. The three strategies that Wal-Mart would benefit most from are: market penetration, market development, and product development.
The market penetration strategy is when a company is seeking to increase the market share for present products or services in present markets through greater marketing efforts. This is also an appropriate strategy for Wal-Mart to implement because they can take advantage of the bankruptcy of K-Mart. Through the increase of Wal-Mart's marketing campaigns, they can attract and retain most of K-Mart's customers. Also, because K-Mart has been closing hundreds of stores, Wal-Mart has a distinct advantage of controlling markets where both Wal-Mart and K-Mart are located. Also, because of Wal-Mart's economies of scale against its rivals, they have the power to influence markets in their direction.
The company culture is also well suited for this type of strategy. The management of Wal-Mart has ingrained in the employees the core values needed to excel at increasing their market penetration. Again, their EDLP and Rollback campaigns can readily be diffused into markets where they do not have as much of a market share as they want. This will also have a positive impact on the company culture because of the increased opportunities available to current employees. As their market share increases, they would also probably begin to add to their product offerings in that area. This will, in turn, allow employees the ability to grow with the company and be promoted into higher positions.
The costs involved with market penetration are not nearly as great as with market development. Wal-Mart only needs to increase its marketing campaigns in the target areas. And again, with K-Mart's unfortunate exit in many of the same markets as Wal-Mart, they have an even better chance of success simply because they will be the only large discount retailer in the area. They may not even have to increase any costs in this type of situation simply because of the natural reaction of consumers needs. If they were going to K-Mart for products and K-Mart is closed, their natural reaction would be to simply go to Wal-Mart.
The length of time for this type of strategy implementation can be measured in days. This is because Wal-Mart already has a very large, established marketing campaign. All that they would need to do is realign or increase their marketing in the target area. This is a very simple process of contacting the local television stations and purchasing advertising space. It can also be accomplished through circular ads and the newspaper. The running length of time for this strategy can be measured in weeks, as Wal-Mart would probably change their campaigns periodically.
This is a good strategy for Wal-Mart because of the relative ease of success that Wal-Mart can garner simply from advertising in areas where K-Mart stores have closed. This is also a good strategy because it will have a positive impact on Wal-Mart's bottom line without a very large increase in costs. The only bad aspect of this campaign is that other competitors will probably be doing the same. Every single business in that area will have to respond to Wal-Mart's drive to increase its customer base.
The advantages of this strategy are almost immediate results, increased market share, increased sales, and increased consumer recognition. Disadvantages of this strategy are possible failure and increase competition.
The market development strategy is simply the introduction of present products or services into new geographic areas. This is a very good strategy for Wal-Mart because it is in line with its core values. Wal-Mart has many areas of opportunity to excel with this strategy, both at home and abroad. The have the needed capital and human resources to expand, they are very successful in their industry, and there are several untapped and unsaturated markets still available. This is also an appropriate strategy because of the increased competition that the retail/discount industry is facing. While Wal-Mart is at the top, they are increasingly seeing their competition move closer to dethroning their position.
The company's culture already is receptive to this type of strategy. They have been expanding their reach in all facets of their business for years. This type of strategy allows for current employees to be promoted by relocating to new stores, have increased roles in the success of new locations, and be a part of a winning organization. Also, because of the societal influence that Wal-Mart has, they can improve the quality of life in the areas of expansion. This is a very important aspect of Wal-Mart as discussed with their scholarship and community donations.
The costs of this strategy are very high. Because this would involve constructing new buildings and organizing new distribution networks, Wal-Mart has to plan for this with the utmost attention to detail. This is not a very large problem for Wal-Mart, though, because they have the financing available to do just about anything. The typical store covers over 150,000 square feet, and requires a lot of planning before the construction begins. Everything has to be organized in a way that everything is in place and operating within the shortest amount of time. We believe that Wal-Mart has this capability and will excel in this strategy.
The length of time for Wal-Mart to implement this type of strategy is typically four months. Wal-Mart has very favorable access to construction companies, local governments, computer systems, and other necessary services needed to expand their operations. This is because of the extraordinary impact that a single Wal-Mart can have on a local area. The sheer size of the stores provides a large boost to local government tax revenues, and Wal-Mart has the incentive of fast turnaround time so that the store can begin adding to their bottom line.
This is a very good strategy for Wal-Mart, and it shows because this is one of their primary strategies that they are currently using. They are following their commitment to expansion by adding additional stores every year and are adding to the economy of the United States by employing hundreds of thousands of Americans. The only negative aspect of Wal-Mart's strategy is that they are inadvertently taking jobs away at the same time. When Wal-Mart moves into a new area, the local shops and stores are generally "forced" out of business because of the superior pricing ability that Wal-Mart has.
The advantages of this strategy are increased sales, increased market share, increased capital investments, and customer satisfaction.
The disadvantages of this strategy are growing to big too fast, possibility of poor sales in new market area, the expense, increased competition, possible decreased market share, and decreased profit margins.
Finally, the product development strategy is used to increase sales by improving or modifying present products or services. This strategy has the unique capability of propelling Wal-Mart into higher market sharing places with its other divisions. As discussed earlier, Wal-Mart operates ten distinct divisions under its name. This strategy could be used to launch these divisions into a more mainstream, market leading position. Also, because Wal-Mart does not invest in research and development, they could open this category to finance the opportunities available in their optical, lube, vacation, and auction divisions.
The company's culture is very capable of implementing this type of strategy. We believe that Wal-Mart's employees and management would benefit greatly from this type of strategy. Their marketplace power could very well be large enough to topple even the largest competitors in these business areas with the proper amount of research and development. This opportunity is also in line with the core values of Wal-Mart because they would definitely be able to serve the public well and offer the best possible prices.
The costs for this type of strategy could vary a lot. Depending on the scope and direction that Wal-Mart intends to go, it could cost billions of dollars or only a couple million. If they would focus on one division at a time and upgrade the equipment, product offerings, and service this would be a cost that could be easily handled by Wal-Mart. And, this would also be the best way for Wal-Mart to receive the largest return for each dollar spent. On the other hand, if they went all out and decided to review each division at once, this would probably end with problems. The cost to upgrade and retool all of their divisions at one would easily be in the billions of dollars.
The length of time for this type of strategy would be measured in years. The sheer amount of money and equipment that would need to be installed and upgraded would take a lot of time. Also, before any of the decisions to develop the divisions is allowed, Wal-Mart would need to take time to research the demand for such services.
This is a good strategy because it can enable Wal-Mart to increase its market positions. Each of their divisions is a major business in any town. If Wal-Mart would implement this strategy, we are sure that they would succeed and be a major competitor in these markets. The bad part of this strategy is that it will most likely put local businesses out of business. Because of Wal-Mart's extremely efficient distribution system, they would be able to undercut all of the businesses in the same line of work.
The advantages of this strategy are increased markets, increased sales, increased incomes, and increased customer loyalty. The disadvantages of this strategy are that it will take away local jobs, it will be expensive to implement over the entire company.
Wal-Mart would be most successful by pursuing the market penetration strategy. This is the best strategy because it is the easiest and least costly option. Wal-Mart has many advantages to choosing this specific strategy over the other ones. While most of the advantages overlap between the different strategies, we believe because of the costs of choosing one of the other strategies, this one is the best.
Because of the potential for expanding too fast and taking on too much debt, Wal-Mart should not choose the market development strategy. This strategy is a good one, but the results could be very positive or very negative, whereas with the market penetration strategy, the results could be very positive or just somewhat negative.
The market penetration strategy is also the simplest strategy for Wal-Mart to implement. Because of the financial state of K-Mart, Wal-Mart can have an immediate impact on its bottom line just by advertising is those selected markets where both stores exist. Also, Wal-Mart has very distinct advantages as outlined in their internal strengths. Among the most important are the EDLP and Rollback programs. These will allow the market penetration strategy to succeed to the fullest since Wal-Mart can out price any of the local competition.
We feel that the product development strategy is also a good strategy, but not the best because of its specific costs. As discussed earlier, the costs to retool and update their equipment can be extremely high in order for Wal-Mart to gain a distinct advantage in their divisions. Also, they would have to create an entire new marketing campaign for these distinct services.
One of the major goals that Wal-Mart wants to try and achieve is the key strategy of Wal-Mart wanting to dominate retail markets everywhere. Company founder Sam Walton put in place their products at the lowest possible prices. By selling at the "lowest price," Walton outlines that the essence of successful discount retailing to cut the price on an item as much as possible, lowering the markup, and earn profit on the increased volume of scales. Another subset of this strategy is the competitiveness of every unit. Each store is encouraged to ferociously compete against all other stores in its customer base until the Wal-Mart store gains dominance over its local competitors. Wal-Mart is currently ranked as the world's number one retailer and the number one company in the world in terms of sales on the Fortune 500 list. So, the key strategy is to dominate a retail market, and by using its size and volume buying power, the company effectively implements its strategy.
Functional Area Impact
The market penetration strategy will impact the functional areas of the company in many ways. Among the main functional areas seeing the largest involvement will be the marketing and financing departments. Management will also have a large role in because of the increase in customers. Production and operations will be involved because of the increased amount of goods that will be needed as the volume of customer's increases. The computer information systems will not have a very large impact on the implementation of this strategy because they are already well-equipped to handle the large volume of customers that may use their website.
Management, specifically, will need to make sure to have the stores well stocked and prepared for additional customers. Because of the large number of customers that would have been going to K-Mart that are now going to shop at Wal-Mart and the additional customers that will come to take advantage of any promotions or new sales that Wal-Mart offers, management will have to make sure that they also have the proper number of employees to handle the increase. This procedure of resource allocation will be very important for a smooth transition to the increase in customers.
Management will also need to implement specific types of measurements to calculate the impact of their marketing campaigns. This could be simply an analysis of the day's sales. This would easily determine what the impact of their marketing campaign has been. They may also be able to create some reward-based sales incentives if employees are able to increase services to the new customers. Maybe the customers used to have K-Mart fill their prescriptions, and now an employee refers them to Wal-Mart's pharmacy. Management could reward this with a small bonus.
Marketing will obviously have a large role in the implementation of this strategy. They will need to devise targeted advertisements to the market in order to reach the K-Mart and non-Wal-Mart customers. They will need to have these readily available and placed at the proper times to reach their target audience. This department will also need to be actively reading the market in which they are concentrating to see how well their efforts are working. This can be accomplished through customer surveys, market share readings, and management meetings. The impact of their marketing department will also be able to be measured through the daily sales reports. If the campaign is successful, there should be a noticeable increase in this number.
Production and operations will be integral to this strategy because of the need for more products. Basically, if they are having more people come into the store, there will be more products leaving the store. Because of this, this department will have to plan to increase its shipments of products. This will involve coordinating delivery times, pick-up times, and the adjustment of delivery routes so that it does not impact other stores. This may even require the construction of a new warehouse or distribution center. Because of the highly integrated distribution system that Wal-Mart employs, these tasks should not be very difficult for Wal-Mart to complete.
The finance and accounting departments will have a role in this strategy because of the increased costs associated with the marketing campaign. We do not believe that this will be a very significant increase in costs because of the natural reaction of consumers to the bankruptcy of K-Mart. Although, in order to increase their market of consumers where this is not a factor, the marketing costs will have to be increased. They will also have a role in determining the costs for hiring additional employees and, if needed, the costs for constructing a new warehouse or distribution center. And again, we do not believe that this cost will be prohibitively expensive. The additional revenues derived from this strategy will be more than enough to compensate for the cost.
We believe that Wal-Mart will be successful with this strategy over a two-year period. Wal-Mart's current market positions in each of their territories should be increased to the highest level after the market penetration strategy has been applied for the two-year period.At that point in time, Wal-Mart will begin experiencing diminishing returns for every adverting dollar spent on the market penetration strategy in their targeted areas. Following the use of this strategy Wal-Mart will be able to reduce their advertising budget in these areas to a market share maintaining level.
In order to determine if the market penetration strategy is indeed adding to the success of the company, Wal-Mart will need to take periodic readings from sales figures, department heads, inventory turnover, and customer surveys. This strategy will be fully implemented within days of its selection from management.
To find the sales figures we would have to go to the accounting department where all the information on sales should be recorded. The information from department heads will be useful because it will allow us to recognize the problems and what they are doing good in each department. Inventory turnover allows us to know whether a firm holds excessive stocks of inventories and whether a firm is selling its inventories slowly compared to the industry. The inventory turnover is found in the financial ratio, which could also be found in the accounting department. Finally, customer surveys will help the whole company by getting an outsiders point of view on the company.
Since 2002, Wal-Mart has maintained its command over the discount retail industry. In mid-December Wal-Mart announced the promotion of John Fleming, Walmart.com's chief operating officer, to president and chief executive officer of Walmart.com. Wal-Mart reported record sales and record earnings in one of the most difficult business environments in recent years. They had a 12.3% increase in sales and a 21.5% increase in earnings per share. They reached one of their most important goals, which was to grow at a rate equal to or better than sales. Wal-Mart added 192 Supercenters, and is planning to add 210 more in the coming year.