Walmart is the world’s largest retailer (by revenue) with annual revenue of nearly half a trillion dollars. Sam Walton founded the Walmart brand in 1962, and Walmart remains a family controlled business. As of the first quarter of 2016, Walmart operates 11,500 retail units in 28 countries, and employs 2.2 million associates, which makes Walmart the world’s largest private employer. If Walmart’s associates were an Army, it would be the second largest Army in the world. Walmart is also the world’s largest public corporation.
Price. In the world of business, companies seek to gain a competitive advantage not only by differentiating their products and services based on physical function, performance characteristics, place/time of purchase, but also by price. Winning companies understand that “of all the tools available to marketing managers, pricing has the most immediate impact on both the top and bottom lines” (Kohli & Suri, 2011). As one of the largest player in the retail industry, Walmart utilizes spatial discrimination pricing strategy, which means that prices for the same product varies based on region and neighborhood (Richards & Pofahl, 2010). To effectuate the spatial discrimination pricing strategy, Walmart adopted the following strategies: (1) explosion in variety, and (2) every day low prices (EDLP).
Store Density. Walmart stores are strategically located. What does this mean? There are ~323 million people living in the U.S., and 90% or 290 million people live within fifteen (15) minutes of a Walmart store. The ubiquity of Walmart stores allows it to take advantage of economies of scale (i.e., goods or services produced on a larger scale with less input costs), which results in Walmart’s ability to reduce the prices of its goods and services. The network of stores also gives Walmart tremendous leverage as it relates to bulk buying power. (Ellickson & Grieco, 2013). .
Volume Buying Power. Walmart’s capacity gives it considerable purchasing power as a wholesale buyer of groceries. “[Walmart] can exert its influence over food manufacturers, meat processors, produce shippers and other suppliers to reduce its prices and require specific packaging and manufacturing practices, (Food & Water Watch, 2010, p. 2). Walmart’s ability to enter into exclusive supplier arrangement with volume discounts allows Walmart to keep its stocking inventory cost low, which translates into discount prices for customers.
Supply Chain Efficiency. Walmart owns its food distribution centers, which are strategically located to Walmart stores. One benefit of this network is that it keeps Walmart’s transportation costs low. Having a network of stores and food distribution centers packed closely together also allows Walmart to respond quickly to demand shock. For example, on the very day of 9/11, Walmart was able to restock its shelves with American flags due to a spike in demand. Although an unintended consequence of having stores close to each other is diminished returns in sales, the overall cost savings of this network is what makes Walmart profitable (Roberts & Berg,2012).
Walmart’s single-minded devotion to sustaining its low-price leadership is the cornerstone of its success and competitive advantage. “Walmart has seemingly perfected the most efficient and profitable relationship between the technology of production, the organization of work, and the new shape of the market” (Wexlerp, 2011, p 96).
Ellickson, P. B., & Grieco, P. L. (2013). Wal-Mart and the geography of grocery retailing. Journal of Urban Economics, 75, 1-14.
Food & Water Watch. (2010). Consolidation and buyer power in the grocery industry. Retrieved from https://www.google.com/search?q=Walmart%2C+bulk+buying+power&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a&channel=sb#
Kohli, C., & Suri, R. (2011). The price is right? Guidelines for pricing to enhance profitability. Business Horizons, 54(6), 563-573. doi:10.1016/j.bushor.2011.08.001.
Richards, T. J., & Pofahl, G. (2010). Pricing Power by Supermarket Retailers: A Ghost in the Machine. Choices, 25(2).
Roberts, B., & Berg, N. (2012). Walmart: Key Insights and Practical Lessons from the World’s Largest Retailer. Kogan Page Publishers.
Walmart. (2016). Retrieved from http://www.walmart.com/