The Successful Cost Leadership Strategies of WalMart

 When you walk into WalMart, the first thing you will notice is that the prices of the WalMart are much lower than those of any other stores. Why does WalMart offer lower prices? What are its strategies in lowering the prices?

   Efficiency in supply chain management: WalMart is incredibly successful in managing its supply chain. WalMart applies the most reliable supply chain management system which is very efficient because almost all product data can be tracked to and from the manufacturer, warehouse, and the store shelf. Efficiency in supply chain system may save WalMart several million dollars as it can prevent losses from faulty product management.              

              

                        WalMart’s strategy in cost leadership

   Efficiency in operations and distribution strategies: OD strategies have helped WalMart achieve low prices- WalMart opens the stores outside of large cities and within 200 miles of existing stores.  By bunching stores together in small areas, distribution costs are below average.  Furthermore, WalMart seeks to meet different customers’ needs with four main distinct retail options; these include discount stores, supercenters, Sam’s Clubs, and neighborhood markets. In addition to that WalMart is trying to open WalMart Express in urban cities where physical space is at a premium.

      Bargain power: WalMart buys its products at rock-bottom prices, exchanges high purchase volumes for low cost while passing the savings onto its customers. The bargaining power of suppliers is weak.  Many suppliers even give in to WalMart’s pressure because they depend on the discount retailer for the majority of their sales. Obviously, suppliers would do what Wal-Mart wanted them to do if they hoped to maintain their sales. Furthermore, the bargaining power of buyers is also weak because there is a very broad base of customers and a significant demand for low prices.  

  Therefore, those are some of top the strategies that WalMart uses to sustain cost leadership position in the value chain market.

The Successful Cost Leadership Strategy of WalMart

   When you walk into WalMart, the first thing you will notice is that the prices of the WalMart are much lower than those of any other stores. Why does WalMart offer lower prices? What are its strategies in lowering the prices and what lies behind them?

   There are two activities that drive the strategy of WalMart in lowering prices; primary activities and secondary activities. Primary activities include all the activities such as supply chain management, operations, distribution, sales and marketing and services etc.

                     WalMart’s strategy in cost leadership

   Efficiency in supply chain management: WalMart is incredibly successful in managing its supply chain. WalMart applies the most reliable supply chain management system which is very efficient because almost all product data can be tracked to and from the manufacturer, warehouse, and the store shelf. Efficiency in supply chain system may save WalMart several million dollars as it can prevent losses from faulty product management.                    

   Efficiency in operations and distribution strategies: OD strategies have helped WalMart achieve low prices- WalMart opens the stores outside of large cities and within 200 miles of existing stores.  By bunching stores together in small areas, distribution costs are below average.  Furthermore, WalMart seeks to meet different customers’ needs with four main distinct retail options; these include discount stores, supercenters, Sam’s Clubs, and neighborhood markets. In addition to that WalMart is trying to open WalMart Express in urban cities where physical space is at a premium.

   The secondary activities of the WalMart stores include all activities and technologies that indirectly contribute in achieving lower prices such as R&D, human resources management especially employee training, etc.

   Bargain power: WalMart buys its products at rock-bottom prices, exchanges high purchase volumes for low cost while passing the savings onto its customers. The bargaining power of suppliers is weak.  Many suppliers even give in to WalMart’s pressure because they depend on the discount retailer for the majority of their sales. For most producers, Wal-Mart is their largest account.  Obviously, they would do what Wal-Mart wanted them to do if they hoped to maintain their sales. Furthermore, the bargaining power of buyers is also weak because there is a very broad base of customers and a significant demand for low prices.  

   Failure of potential entrants: WalMart’s ability to continuously drive its costs lower while satisfying customers’ needs makes it potential entrants very difficult to compete with WalMart.

   Therefore, those are the strategies that WalMart uses to sustain cost leadership position in the value chain market.

 Footnote: This is a general study using most updated references and cases study to uncover the successful cost leadership strategies of WalMart. Not all primary activities and secondary activities are discussed. But special emphasis is put on efficiency in supply chain management and efficiency in operation and distribution. In addition to that, this study mentions about the role of WalMart’s buying power among suppliers, producers, competitors and the bargain power of buyers in order to illustrate the cost leadership of WalMart.

References: Wiki analysis, Wikipedia WalMart and case study of WalMart.