(Tiểu luận FTU) LOW COST STRATEGY THE CASE OF WALMART

The objective of the this paper is to investigate how to walmart use low cost strategy to brand position as the cheapest - price retailing group, clarifies the effect of low cost strateg

Authored by: Group 5.3Submitted to: Master Phan Kim ThoaForeign Trade University

Submission date: June 6, 2019

The Wal-Mart Corporation is one of those companies that have been impacted by change at all levels as they conduct business and expand their operations throughout the globe.Wal-Mart has also greatly benefited from deeply-held universal values, philosophies, and management practices which have made them successful in diverse countries In a short span of about forty years, this company has become the envy of any and every major corporation in the world This case presents how Wal-Mart has achieved this enormous success, its best practice in the global retail industry,

international growth trends and challenges, and various lessons that have been learned from their expansion in foreign countries The case focuses on customer value delivery related to low prices, use of technology, and an organizational culture passionate on continuous learning The objective of the this paper is to investigate how to walmart use low cost strategy to brand position as the cheapest - price retailing group, clarifies the effect of low cost strategy on the business performance of Wamart, thereby giving appropriate recommendations for businesses to apply this strategy into business more effectively

TABLE OF CONTENT

INTRODUCTION 3

CHAPTER 1: OVERVIEW OF MARKETING STRATEGIES AND LOW COST STRATEGY 5

1.1 Definition of marketing strategy 5

1.2 Marketing Mix and classification 5

1.3 The concept of Low cost strategy 7

1.4 The pros and cons of Low cost strategy 8

1.5 The enterprises that use Low cost strategy 9

CHAPTER 2: ANALYSIS FOR LOW COST STRATEGY IN CASE OF WALMART 10

2.1 Company overview 10

2.1.1 Introduction 10

Source: Wikipedia 11

2.1.2 Operating divisions 11

2.1.3 Customer Base 13

2.1.4 Competitors 13

2.2 Marketing of Walmart from 1969 14

2.2.1 Economic Potential 14

2.2.2 Pricing Strategy of Walmart 15

2.2.3 Cutting down pricing methods 16

2.2.4 React from competitors & customers 18

3.1 General assessment of The effect of Low cost strategy to company 20

3.2. Recommended Solutions 22

CONCLUSION 23

ACKNOWLEDGEMENT 24

REFERENCES 25

In the business process of each business, marketing is an important factordetermining the business efficiency of that business Businesses do not apply a singlemarketing strategy in the marketing process Marketing mix strategies are often used as

a combination of single marketing strategies in advertising and sales However, thereare well-known brands that are successful in brand positioning thanks to an outstandingsingle marketing strategy and so is Walmart Like other businesses, Walmart usesmarketing mix in the marketing process, but the point of making the difference ofWalmart compared to other retail groups in the world is because Walmart turns itselfinto a pricing leadership retailer in the World (Gregory, 2010)

Pricing competitive strategies deals with the development of attributes thatcharacterise a company and differentiate the value it creates and offers in comparison

to its competitors the main idea about how the firm can best compete in the market

However competition in the retail sector has been increasing for years, theimportance of developing an effective competitive strategy appears to be increasingconstantly Given that retailing has become a mature industry with overcapacity, highconcentration and, in many cases, price-driven marketing strategies which have led torather homogeneous stores, differentiation from competitors through positioning seemsincreasingly necessary, competitive strategy can be understood as the activities acompany undertakes to gain a sustainable competitive advantage in a particular

industry That is also the reason why our team made research “ Low cost strategy : The case of Walmart” more clearly assess the effectiveness of walmart's low price strategy

on its own performance, thereby giving recommendations for enterprises to thisstrategy more effective at the present

This paper including three chapters:

 Chapter 1: Overview of marketing strategy and low cost strategy.

This chapter provides basic definitions of marketing, marketing strategies and lowprice strategy

 Chapter 2: Analysis for low cost strategy in case of WalmartThis chapter presents information about Walmart's low-price campaign,Walmart's way of applying this strategy and how to Walmart cut down productioncosts

 Chapter 3: Solutions

This chapter presents General assessment of advantages and disavantages of lowcost strategy to Walmart and give out some recommendations

CHAPTER 1: OVERVIEW OF MARKETING STRATEGIES AND LOW COST STRATEGY

1.1 Definition of marketing strategy

Marketing: Marketing refers to activities undertaken by a company to promote

the buying or selling of a product or service Marketing includes advertising, selling,and delivering products to consumers or other businesses

Marketing strategy: A marketing strategy is a business's overall game plan for

reaching people and turning them into customers of the product or service that thebusiness provides The marketing strategy of a company contains the company’s valueproposition, key marketing messages, information on the target customer and otherhigh-level elements (Adam Baron, 2019)

The marketing strategy informs the marketing plan, which is a document that laysout the types and timing of marketing activities A company’s marketing strategyshould have a longer lifespan than any individual marketing plan as the strategy iswhere the value proposition and the key elements of a company’s brand reside Thesethings ideally do not shift very much over time

1.2 Marketing Mix and classification

Definition: The marketing mix refers to the set of actions that a company uses to

promote its brand or product in the market The 4Ps which make up a typical marketingmix include Price, Product, Promotion and Place However, nowadays, the marketingmix increasingly includes several other Ps which modify and improve the system of4Ps to become 7Ps All the elements of the marketing mix influence each other Theymake up the business plan for a company and handled right, can give it great success

The marketing mix needs a lot of understanding, market research and consultation withseveral people, from users to trade to manufacturing and several others (Marketingmix, 2018)

Classification:

4Ps include Price, Product, Place and Promotion

 Price: refers to the value that is put for a product It depends on costs of production,segment targeted, ability of the market to pay, supply - demand and a host of otherdirect and indirect factors There can be several types of pricing strategies, each tied inwith an overall business plan Pricing can also be used a demarcation, to differentiateand enhance the image of a product

 Product: refers to the item actually being sold The product must deliver a minimumlevel of performance; otherwise even the best work on the other elements of themarketing mix won't do any good

 Place: refers to the point of sale In every industry, catching the eye of the consumerand making it easy for her to buy it is the main aim of a good distribution or 'place'strategy Retailers pay a premium for the right location

 Promotion: this refers to all the activities undertaken to make the product or serviceknown to the user and trade This can include advertising, word of mouth, pressreports, incentives, commissions and awards to the trade It can also include consumerschemes, direct marketing, contests and prizes

As well as the standard four afore-mentioning Ps, services marketing adds threeelements which are People, Process and Physical Evidence, totaling seven and knowntogether as the extended marketing mix

 People: Any person coming into contact with customers can have an impact onoverall satisfaction Whether as part of a supporting service to a product or involved in

a total service, people are particularly important because, in the customer's eyes, theyare generally inseparable from the total service As a result of this, they must beappropriately trained, well-motivated and the right type of person Fellow customersare also sometimes referred to under 'people', as they too can affect the customer'sservice experience

 Process: This is the process involved in providing a service and the behavior ofpeople, which can be crucial to customer satisfaction

 Physical evidence: Unlike a product, a service cannot be experienced before it isdelivered, which makes it intangible This, therefore, means that potential customerscould perceive greater risk when deciding whether or not to use a service To reducethe feeling of risk, thus improving the chance for success, it is often vital to offerpotential customers the chance to see what a service would be like This is done byproviding physical evidence, such as case studies, or testimonials

1.3 The concept of Low cost strategy

Low cost strategy is a pricing strategy in which a company offers a relatively lowprice to stimulate demand and gain market share It is one of three generic marketingstrategies that can be adopted by any company, and is usually employed where theproduct has few or no competitive advantage or where economies of scale areachievable with higher production volumes

This strategy is suitable for large-scale business units that are able to reduce thecost of operating processes that allow businesses to overcome competitors byproducing goods and services at low cost

Enterprises with low cost strategies choose low product differentiation becausedifferentiation has a high cost so if the enterprise spends resources focusing on making

a difference to the product, the cost of production export will increase Enterprisesadvocating to achieve differences in products are not higher than enterprises according

to differentiated strategies but must achieve low cost Often businesses only make adifference when customers need it.

Enterprises with low cost strategy do not pay attention to market segments andoften provide products to average customers The reason businesses follow this lowcost strategy is because it is costly to meet different needs in different markets

Although no customer is completely satisfied with the products of the enterprise, theenterprise still attracts customers because it sets prices lower than its competitors

To achieve this strategy, the goal of enterprises under low-cost strategy isnecessarily to develop capabilities that allow businesses to increase efficiency andreduce costs compared to competitors Developing different capacities in productionand raw material management is a core issue to achieve this goal Businesses pursuinglow-cost strategies try to quickly move down to the bottom of the experience curve toreduce production costs In order to get low-cost businesses need to develop skills inflexible production and use effective material management skills

Besides, enterprises pursuing low-cost strategy must also focus on other functions

to create different capacity of enterprises to meet the requirements of productionmanagement and materials For example, sales functions can develop capabilities,attract more and stabilize customer orders It then allows production to be moreoperational and thus economies of scale and cost reduction Human resourcemanagement functions can focus on training programs and remuneration systems toreduce costs by improving labor productivity, and research and development functionscan focus on product improvement to reduce production costs

1.4 The pros and cons of Low cost strategy Advantages:

 Because of the low cost, businesses can bid lower than their competitors but still havethe same level of profits as them If businesses in the industry place the same price fortheir products, low-cost businesses will earn higher profits.

 If industry competition increases and businesses start to compete on prices, low-costbusinesses will be able to withstand better competition than others

 When alternative products appear, businesses can be more flexible in competition byreducing costs

Enterprises with low costs create barriers to limit new firms to the industry

Disadvantages:

 Businesses need require great capital if they want to start Low cost strategy

 Enterprises can encounter difficulties when there is a change in technology

 The risk of being imitated can happen

1.5 The enterprises that use Low cost strategy

Nowadays, there are a lot of both Vietnam and foreign businesses usingeffectively Low cost strategy which has helped them to gain big revenue, raise theircompetitive capacity in worldwide as well as domestic market They are Walmart,Vinamilk, BigC, Viettel, Jetstar Pacific, Dell, Toyota, Honda and so on

CHAPTER 2: ANALYSIS FOR LOW COST STRATEGY IN CASE OF WALMART

2.1 Company overview

2.1.1 Introduction

Walmart is an American multinational retail corporation that operates a chain ofhypermarkets, discount department stores, and grocery stores Headquartered inBentonville, Arkansas, the company was founded by Sam Walton in 1962 andincorporated on October 31, 1969

Sam Walton was born in 1918 in Kingfisher, Oklahoma In 1945, Sam and hiswife moved to Newport, Arkansas During this time, Sam gained early retailexperience, eventually operating his own variety store Inspired by the early success ofhis dime store, and driven to bring even greater opportunity and value to his customers,Sam opened the first Walmart in 1962 at the age of 44 in Rogers, Arkansas

As of April 30, 2019, Walmart has 11,368 stores and clubs in 27 countries,operating under 55 different names It has wholly owned operations in Argentina,Chile, Canada, and South Africa

Walmart is the world's largest company by revenue - over 500 billion USD,according to Fortune Global list in 2018 - as well as the largest private employer in theworld with 2.2 million employees It is a publicly traded family-owned business, as thecompany is controlled by the Walton family Sam Walton's heirs own over 50 percent

of Walmart through their holding company, Walton Enterprises, and through theirindividual holdings Walmart was the largest U.S grocery retailer in 2019, and 65percent of Walmart's 510.329 billion USD sales came from U.S operations

Walmart's investments outside North America have seen mixed results: itsoperations and subsidiaries in the United Kingdom, South America, and China arehighly successful, whereas its ventures in Germany and South Korea failed

(Wikipedia, 2019)

Figure 2-1 Walmart’s financial figures from 2010 – 2018

(Wikipedia, 2019) Revenue Net Income Total Assets Price per Share Employees Stores

Walmart's operations are organized into four divisions: Walmart U.S., WalmartInternational, Sam's Club and Global e-Commerce The company offers various retailformats throughout these divisions, including supercenters, supermarkets,hypermarkets, warehouse clubs, cash-and-carry stores, home improvement, specialtyelectronics, restaurants, apparel stores, drugstores, convenience stores, and digitalretail

 Walmart U.S.

Walmart U.S is the company's largest division, accounting for 331.666 billionUSD, or 65 percent of total sales, for fiscal 2019 It consists of three retail formats thathave become commonplace in the United States: Supercenters, Discount Stores,Neighborhood Markets, and other small formats The discount stores sell a variety ofmostly non-grocery products, though emphasis has now shifted towards supercenters,which include more groceries As of April 30, 2019, there are a total of 4,763 WalmartU.S stores

 Walmart International

As of April 30, 2019, Walmart's international operations comprised 6,006 storesand 800,000 workers in 26 countries outside the United States There are wholly ownedoperations in Argentina, Brazil, Canada, and the UK With 2.2 million employeesworldwide, the company is the largest private employer in the U.S and Mexico, andone of the largest in Canada In fiscal 2019 Walmart's international division sales were120.824 billion USD, or 23.7 percent of total sales

 Sam's ClubSam's Club is a chain of warehouse clubs that sell groceries and generalmerchandise, often in bulk The first Sam's Club was opened by Walmart, Inc in 1983

in Midwest City, Oklahoma under the name "Sam's Wholesale Club" The chain wasnamed after its founder Sam Walton As of April 30, 2019, Sam's Club operated 599membership warehouse clubs and accounted for 11.3% of Walmart's revenue at 57.839billion USD in fiscal year 2019

 Global EcommerceBased in San Bruno, California, Walmart's Global eCommerce division providesonline retailing for Walmart, Sam's Club, Asda, and all other international brands

There are several locations in the United States in California and Oregon: San Bruno,Sunnyvale, Brisbane, and Portland Locations outside of the United States includeShanghai (China), Leeds (United Kingdom), and Bangalore (India)