Problem Statement
The major problem Walmart is experiencing is inadequate brand image, which undermines the company’s expansion efforts and hinders its business growth. According to the case, Walmart’s stock rise was 5.3% in 2019, while the stock of its competitors – Target and Costco – rose 23.1% and 20%, respectively. In addition, Walmart has difficulty operating successfully in international markets and struggles with fierce competition with Amazon in the online environment. The main reason for these challenges is that customers perceive Walmart as a plain marketplace, the chief advantage of which is low prices. In contrast, Walmart’s competitors place emphasis on delivering a superb shopping experience and providing customers with additional value. Consequently, it is hard for Walmart to compete effectively with other major retailers, and its expansion efforts do not yield the desired results. Hence, the primary problem Walmart faces is how to improve its brand image to foster further business growth and compete successfully with its rivals.
Analysis
This report will analyze various environmental factors influencing Walmart’s competitiveness to determine opportunities and threats to be addressed by the company.
Environmental Analysis
Companies do not operate in isolation, and there are many factors that may influence their performance. Therefore, managers should carefully consider any threats and opportunities existing in the external environment to develop their business strategies accordingly. In this section, Walmart’s environment will be analyzed using the PESTEL model, which includes political, economic, social, technological, environmental, and legal factors. Additionally, Walmart’s competition will be discussed since rivals are a significant component of the environment.
Political Factors
Walmart is subject to the influence of political factors both inside and outside the US. In its home country, the political situation is stable, which means that the risk that the company’s business will be interrupted by any political conflicts in the domestic market is low. However, Walmart experiences political pressure in terms of employee wages. According to the case, Walmart has gained a bad reputation as an employer because the average income of its employees is below the poverty line. The company should address the threat of increasing wages because it will affect its strategy of cost minimization. Since Walmart has established an international presence, the political factors of host countries also play an important role. For example, due to the favorable political environment in Mexico, the company was able to enter the Mexican market and reach substantial growth there. According to the case, the sales in this country were the largest among all its markets outside the US. At the same time, political factors prevented Walmart from establishing its business in Germany. The company had to exit the German market because of unfavorable zoning regulations.
Economic Factors
The stability and growth of the US economy have contributed to Walmart’s business success. The country’s domestic country is large, which has allowed Walmart to build over 5,000 stores across the US. However, in other countries, the economic situation is less favorable for the company. For example, although Walmart has established a strong presence in Mexico, the market in this country has declined in recent years. As a result, the company is forced to search for new growth opportunities to offset the outcomes of this decrease. As of 2020, Walmart operated in 26 countries, and change in the economic situation in any of these markets can affect the company’s bottom line.
Social Factors
Customers’ preferences play an important role in Walmart’s profitability because if the company does not meet customers’ needs, they will choose to spend their money in other retail outlets. In 2006, Walmart had to exit South Korea and Germany since its local competitors were better at satisfying customer needs. Walmart used the same low-pricing strategy in its foreign markets as in the US, emphasizing its main value of frugality. However, consumers from other countries, particularly Germany, had different values and tastes, and Walmart’s failure to satisfy the special needs of foreign customers undermined its success in these markets.
Walmart has also tried to capitalize on the recent social trends. For example, it has decided to sell organic products at lower prices than competitors. However, the employee training necessary for these efforts is unlikely to bring quick results. Finally, Walmart’s performance has been hurt by changing customer preferences. According to the case, buyers have begun to value convenience, appearance, and customer service more than low prices. This shift in consumer preferences goes against Walmart’s core strategy of “Everyday Low Prices.” Walmart should reconsider this brand image to create additional value for customers and boost its financial performance.
Technological Factors
Walmart has successfully used technological advancements in its business operations. As noted in the case, the company has invested in technology since the 1980s and was among the first to adopt automated distribution systems, electronic scanning, and satellite-supported EDI. The firm also launched Retail Link, which has allowed suppliers to get convenient access to the data of the company’s stores. Further, Walmart follows the increasing trend of online sales. The company tried to use Jet.com from 2016 to 2020 to compete more effectively with online retailers. However, since this platform was not profitable, it was closed, and the company used its own website – Walmart.com – instead. The website was a success, allowing Walmart to become the second-largest online retailer in the US, though substantially lagging behind Amazon (see Exhibit 1). Finally, Walmart introduced several innovations in its logistics, merchandising, and transportation, but they were copied by competitors. Therefore, Walmart should constantly invest in innovations and develop its online sales strategy to outperform its rivals.
Environmental Factors
Nowadays, environmental concerns are expected to be addressed by major players in various industries. As a large international retailer, Walmart should try to reduce its environmental impact. For example, it is noted in the case that the company has its own fleet of trucks that helps it cut logistics costs. However, it also presents the issue of reducing Walmart’s carbon footprint. Further, Walmart sells a wide range of products in large quantities around the US and other countries. All these products are likely to generate a significant amount of waste. If the packaging used in products sold by Walmart is not environmentally friendly, it may have long-term negative effects on the environment. Therefore, Walmart can attempt to reduce its carbon emissions and choose eco-friendly packaging as part of its CSR strategy to improve its brand image.
Legal Factors
The legal environment in the US and foreign countries can significantly affect Walmart’s operations. According to the case, strict labor laws in Germany, which are different from those in the US, were one of the reasons for Walmart’s failure in this country. In addition, Walmart incurred losses in 2019 due to a prolonged legal investigation that began because the company was suspected of bribing local officials in Mexico, China, India, and Brazil. These examples show that local legislation regulating labor relations and corporate practices can undermine Walmart’s efforts of business expansion and damage its reputation. In the US, labor laws are the major concern for Walmart. As the case notes, employees bring lawsuits accusing the company of gender discrimination in the workplace. Furthermore, Walmart keeps employees’ wages low to cut costs, which is necessary to maintain its low-pricing strategy. These issues may impede Walmart’s operations or lead to economic losses if lawsuits continue to be filed.
Competition Factors
Walmart experiences significant competitive pressure in all aspects of its business. In the domestic market, its main competitors are Costco, Target, and Kroger. With changing customers’ preferences, Walmart’s competitors that emphasized buyer experience found themselves in a more favorable position than Walmart, the primary focus of which was low prices. For example, the case notes that, although Target’s prices were 10% higher than those of Walmart, its same-store sales grew more rapidly. In foreign markets, particularly in Germany and South Korea, competitors’ offerings seem to be more adjusted to local preferences because Walmart failed to establish its presence there. In the online market, Walmart’s primary competitor is Amazon, with a market share of 38.7%. Walmart’s share in e-commerce is 5.3%, which is considerably lower. Thus, the company should consider altering its brand image and positioning strategy to be able to compete more effectively in various markets.
SWOT Analysis
SWOT analysis aims to identify the key external and internal factors affecting the company to help it develop a successful strategy for the future.
Strengths
Walmart’s first strength is high brand awareness, at least in the US. Walmart is well-recognized by customers, perhaps, because its stores are densely located across the US, even in its rural areas that are usually omitted by other large retailers. Brand awareness is a strong competitive advantage because it increases the likelihood of customers spending their money in Walmart stores. This is because people often tend to select a familiar brand when faced with several choices.
Another strength is the customer-focused culture and the focus on meeting customer needs. Walmart’s low-pricing strategy was developed with buyers’ needs in mind, and the company achieved excellence in cutting its operational costs to be able to deliver customers a wide variety of products at low prices. Walmart’s attempts to start selling organic products and fashion clothes also seem to be linked to its customer focus since the company identified a need for these products among its target markets.
An efficient supply chain is also a significant advantage of Walmart. The company has its own warehouses and a fleet of trucks, which helps it cut logistics costs. In addition, Walmart widely uses technology to manage its supply chain. Thanks to these efforts, Walmart’s inventory moves quickly, and the stock in its stores is constantly replenished to ensure that the necessary products are always available for customers.
Weaknesses
One major weakness of Walmart is its brand image because the only significant advantage of Walmart for customers is its low prices. Walmart’s brand is not associated with an additional value or superb customer experience; therefore, its products are perceived as commodities. Such a brand image does not allow the company to compete effectively with premium retailers that offer exceptional quality or customer service. Another weakness is labor relationships; Walmart may experience problems in hiring and retaining personnel because it pays low wages, does not offer good healthcare options to employees, and is known for discriminatory practices. Furthermore, Walmart has an imitable business model since, according to the case, the company’s competitors have been able to study it and duplicate it. Under these conditions, it may be difficult for Walmart to achieve a competitive advantage.
Opportunities
Walmart is presented with an opportunity for further growth in e-commerce. Online shopping is a growing trend in consumer behavior because of its convenience. Therefore, Walmart can expand its online presence in both the US and foreign markets to reap the benefits of e-commerce. Another opportunity is improving the quality of at least some products and charging premium prices for them. Currently, Walmart is famous for its low prices, but they come at the cost of quality. With changing customer preferences, buyers are more likely to spend money on products of higher quality in competitors’ stores rather than shop at Walmart. By adding premium brands and increasing quality, Walmart can improve its brand image and increase its profit margins. Finally, the company can improve its labor practices by addressing the issues of low wages and workplace discrimination. These measures may improve public attitudes toward Walmart and reduce turnover rates.
Threats
In the retail business, a fierce competition is one of the primary threats. According to the case, although Walmart was the price leader in the grocery business, its rivals duplicated its innovations in transportation, logistics, and merchandising and nearly closed the gap in prices. In addition, Walmart experiences strong price pressure from other discount grocers that allow customers to save considerable sums of money. Therefore, Walmart’s low-pricing strategy seems to lose its competitive advantage in the current business environment. To address this issue, the company may consider adding value to customers by increasing product quality, improving customer service, and offering premium brands.
Another threat is that Walmart faces resistance from communities of local business owners. The case notes that when Walmart opens new stores in rural areas, it creates 100 new jobs. However, around 70% of initial jobs are lost because small businesses have to close, being unable to compete with Walmart. As a result, the unions of small business owners prevent Walmart from opening new stores, thus hindering the company’s further expansion.
Market Segmentation
Market segmentation means dividing the target market into groups of customers based on shared demographic, geographic, and behavioral characteristics.
Demographic Segmentation
Since different groups of customers have varied needs, market segmentation is necessary to adjust marketing strategy to the interests of a particular customer segment. Regarding demographic characteristics of its target market, Walmart divides the population into groups depending on their age, gender, income, and occupation. As for the age, the company targets people of all age categories by selling a wide range of products, including food, household essentials, electronics, infant necessities, and others. In terms of age, the retailer offers its goods to both men and women. Regarding income, Walmart’s target market consists of individuals with low and middle income since the company uses a low-pricing strategy to attract these people. Finally, Walmart targets individuals with such occupations as manual workers, students, and ground-level employees because they are the most likely to be attracted by low prices.
Geographic Segmentation
Walmart’s geographic segmentation is based on region and population density. As for the region, the company’s segments include domestic and foreign markets. Since customer needs in different parts of the world vary, Walmart has to adjust its product offerings to local consumer preferences. For example, buyers in the European market are less attracted by low prices than US consumers, as evidenced by Walmart’s failure in Germany. Depending on population density, the company has rural and urban market segments. The main target of Walmart’s marketing strategy is rural areas because they have been usually omitted by other large retailers. For instance, its neighborhood markets seem to be particularly designed for the rural market because they had a smaller size and included all the necessities, ranging from grocery products to pharmacy preparations.
Behavioral Segmentation
Walmart’s behavioral segmentation is based on purchase behavior, benefits sought, and customer loyalty. Since online shopping has become a popular trend in buyer behavior, the company targets both offline and online market segments. It uses its website – Walmart.com – to drive its sales in e-commerce. Although this platform has brought the company some success, it is still greatly outperformed by the major player in the online environment – Amazon. Regarding the benefits sought, Walmart targets the segment of individuals who value cost advantages over anything else. The firm’s Every Day Low Prices strategy allows such customers to buy products at low costs at any time, not only on holidays. Finally, Walmart sells its products to customers of various degrees of loyalty to the company. The firm has established Sam’s Clubs specifically for loyal customers. The products at Sam’s Clubs are available only to the members of these warehouse clubs. They are particularly useful for small business owners because they sell products in bulk. Other Walmart stores are suitable for both loyal customers and switchers who do not search for a specific brand.
Customer Analysis
This section will explore Walmart’s customers in terms of their income, age, lifestyle, geographical location, and needs. This analysis is necessary to help the company meet the needs of their customers better and, thus, strengthen its competitiveness.
Income
Walmart’s customers are individuals with low and middle income because this population segment is the most attracted by the company’s “Every Day Low Prices” strategy. The median income of consumers’ households is $39,731, which is lower than the average income of customers of Walmart’s competitors – Target and Kmart (see Exhibit 2). The firm’s brand seems to be unattractive to high-income buyers. As the case notes, Walmart once tried to sell branded fashion clothes at higher prices in an attempt to increase its profit margins. However, these efforts did not bring much success because Walmart did not appear as a premium brand in customers’ minds. Therefore, fashion clothing sold at Walmart was likely to be perceived as a commodity not worthy of spending additional money on it. In order to attract high-income segments, the company should consider altering its brand image by emphasizing the added value of products rather than a low price.
Age Range
Although Walmart targets customers of all age groups, it seems that most of them are middle-aged individuals. People of this age group mainly include families with children living with parents. Consequently, they have a high demand for products sold at Walmart, such as grocery, infant necessities, household necessities, and other similar goods. This age category benefits most from Walmart’s low prices, which is it is likely to constitute the largest share of the company’s customer base. Young people may also shop at Walmart because of its affordable prices and the availability of its stores. However, this age group values brand image and customer experience more than low price, which is why they can visit Walmart out of necessity rather than due to being attracted to the company’s brand.
Lifestyle
Consumer lifestyles are constantly changing in response to the growing popularity of different trends, such as online shopping, health consciousness, eco-friendliness, and others. In order to remain competitive, businesses in the retail industry research customer preferences and adjust their product offerings and marketing strategies to meet new demands. It seems that one major lifestyle characteristic of Walmart’s customers is that they value convenience. This is because they are more likely to shop at Walmart if the store is located near their houses (see Exhibit 3). The current trend of online shopping is also linked to convenience; therefore, Walmart has made the right move by establishing and expanding its online presence. In addition, modern customers have shifted their preferences toward healthy choices when buying grocery products. Walmart has made an attempt to capitalize on this change by offering organic products at affordable prices to its customers. What the company has not incorporated into its marketing strategy is consumers’ expectations of added value and superb customer experience.
Geographical Location
Being currently a large international retailer, Walmart began its business by establishing its first store in Rogers, Arkansas. Initially, stores were located in small towns because of low competition, resulting from competitors’ unwillingness to run the business in rural areas. Walmart’s retail outlets were situated close to each other to facilitate distribution. In addition, such dense location of the stores increased the chance that customers would shop at Walmart rather than at competitors’ stores. In 1999, Walmart began testing a new store format – Neighborhood Markets. Although they showed significant growth, these markets were still absent in many states of the US, including New York, Ohio, New Jersey, Michigan, and others. Walmart’s foreign customers are located in 26 countries, including Canada, Mexico, China, Brazil, and India. In order to enter and grow in foreign markets, the company partnered with large local retailers and made acquisitions.
Scope
Walmart makes continuous efforts to expand the scope of its business. Back in the 1980s and the 1990s, Walmart grew its business by adding new types of stores to enlarge its customer base. For example, Sam’s Clubs were designed for customers buying in industrial quantities and resulted in the 13% gross margin and sales-per-square-foot amounting to $401 on average. The format of supercenters allowed Walmart to add groceries to their stores, and Neighborhood Markets provided additional growth by selling pharmacy preparations, among other products. Currently, Walmart expands its business by increasing its online sales and adding new types of goods and brands.
Customer Base
Walmart has a large customer base due to its wide distribution across the US and other countries. In 2006, 60% of the US population had a Walmart store within five miles of their homes, and 96% had one within 20 miles. Since close proximity to Walmart stores increased the likelihood of individuals shopping at Walmart, all these people were Walmart’s potential customers. In the US online market, the company had achieved 1.6% market share by 2015, while Amazon’s share was 12.1%. By 2020, Walmart’s share in e-commerce had grown up to 5.3%, but it still lagged behind Amazon. Entering foreign markets was not an easy task for the retailer, especially when European countries are considered. Yet, by 2020, the company had managed to establish 6,146 locations worldwide, which generated 28% of its revenue. Walmart still has the potential to increase its customer base in the online market and in developing countries that may be attracted by the company’s low-pricing strategy.
Past Behavior
As is evident from the case, consumers were more price-sensitive in the past than they are at present. Walmart’s customers used to make purchases at the company’s stores because of low prices and convenience stemming from the proximity of the stores to their homes. It seems that previously, Walmart stores’ plain and minimalistic interiors did not discourage customers from shopping there. However, as competitors are putting more emphasis on customer experience, buyers’ preferences have changed, and Walmart has become a first choice for the underprivileged populations.
Future Needs
Walmart has made attempts to address the emerging customer needs of online shopping and leading healthy lifestyles. The need for e-commerce was first met by acquiring Jet.com, but since it appeared to be not profitable, the company began to use Walmart.com for online transactions. In order to compete with Amazon, Walmart offered customers unlimited free shipping, charging a $50 fee per year. In order to satisfy the consumers’ desire to lead healthy lifestyles, Walmart partnered with Wild Oats, a well-known brand of organic products. The company will still need to address the emerging trend of valuing customer experience more than low prices and consumers’ preference for eco-friendly goods.
Marketing Mix
The marketing mix includes factors that the company can control to motivate customers to purchase its products. It comprises such elements as product, place, promotion, and price.
Place
Location is crucial for business success because, without geographical accessibility and proper business placement, customers would not be able to get access to the company’s products. Walmart pays great attention to the location of its stores and stock replenishment to increase the likelihood of customers shopping at its outlets. When the company was at its opening stage, its stores were isolated because the retailer established them in rural locations where no large competitors were present. In order to make these stores function, the company had to establish its own distribution network with warehouses and a fleet of trucks. This allowed the company to restock its shelves every day, in contrast to competitors who replenished their stock once a week. In addition, having its own distribution system has enabled Walmart to track each part of the schedule and delivery processes. Further, the company continuously increased the number of its stores, making sure that each new store was closely located to the existing warehouses. However, in 2014-2015, Walmart faced a problem of sales cannibalization since opening new stores began to withdraw sales from already established stores.
Walmart also has a strong e-commerce platform, which helps it to reach customers in the online environment. Online shopping can be regarded as a partial solution to the problem of sales cannibalization because it increases sales without requiring the creation of new stores. In addition, the company’s own fleet of trucks may help it launch home delivery, which is a service growing in popularity among customers.
Product
The product in the marketing mix refers to goods or services offered to customers, which are designed to satisfy a particular customer need. Walmart offers a wide range of products of various categories to its visitors. The marketed goods fulfill a large number of different consumer needs, most of which fall under the category of basic physiological needs such as food, water, and clothing. The company added new products to its portfolio when experimenting with store formats. For example, when establishing supercenters, Walmart added grocery markets to them, which came to fuel the company’s profit growth. By 2020, groceries were accountable for 56% of the company’s revenues. Another store format – Neighborhood Markets – offered pharmaceutical preparations to customers, among other traditional products. The small size of these stores allowed the company to experiment with a wide variety of different merchandise. Walmart buys products in large quantities and deals directly with suppliers in order to keep the costs as low as possible. In addition, the company often partners with various brands to provide its customers with exclusive products at low prices.
Promotion
Promotion refers to using multiple marketing channels for making potential customers familiar with the company, its value proposition, and products on sale. In its promotional materials, Walmart uses such slogans as “Every Day Low Prices” to inform customers about the company’s offering and attract them to its stores. For its marketing efforts, the company avoided using traditional marketing to keep the costs low, and it did not have a PR department until the 1990s. In the 2000s, the retailer applied marketing to improve its corporate reputation that was undermined by several unethical practices, such as gender discrimination, low wages, and unfair competition with small rural businesses. In order to fight its critics, the company established a “campaign-style war room” and an advocacy group called “Working Families for Walmart.” Yet, the retailer repealed these measures after it decided to work together with the unions to improve some of its operations.
Price
Since its establishment, Walmart has been pursuing a cost leadership strategy, which is based on low prices and high volumes. With this strategy, profit per unit is low, but the demand is high; therefore, Walmart aims to earn profits not by charging premium prices but by increasing the volumes of products sold. In order to make sure that its prices were lower than those of competitors, Walmart used a specific practice of determining prices. While its competitors defined prices in the headquarters, Walmart delegated this task to its store managers. They had to visit neighboring stores to track their prices and then make sure that the prices at Walmart were lower. In locations where no direct competitors were present, the company charged 6% more than usual. In 2000, the company began to introduce products with higher price points, which included mainly fashion clothes. This pricing strategy has led the company to continuous business growth and allowed it to become one of the major retailers in the US and in foreign markets.
To maintain its low prices and remain profitable, the company focused on minimizing its costs. In particular, for a long time, it had its headquarters located in a small town of Bentonville, Arkansas, which was later moved to New York City. Walmart’s managers always bargained with suppliers to get goods at lower prices and bypassed manufacturer representatives to save 3-4% in costs of goods. Low employee wages are also part of Walmart’s cost-saving strategy, which is why the company cannot simply raise the payment to its workers in response to their dissatisfaction. Such measures would threaten Walmart’s profitability and the survival of its business.
Exhibits
Exhibit 1
Exhibit 2
Exhibit 3
