For any successful firm, competitive strategy remains the core to any success. The strategy will direct and determine firms’ activities that will contribute to its organization culture, its performance, and implementation strategy. Competitive advantage aims at establishing a sustainable and profitable position against the forces that determine industry competition.
As the competition in the United States retail industry as well as the international markets remain fierce, Wal-Mart is the top retailer in the United States in relation to dollar sales and it operates arguably the largest retail chains internationally. Target and Kmart, which are the main competitors of Wal-Mart in terms of superstores, have not grown as fast as Wal-Mart. Statistics has it that the United States is the biggest market for Wal-Mart, accounting for approximately 63.7% of its net sales (Pearson, 2010).
Wal-Mart has over the years managed to develop significant competitive advantage through its relative heft and several strategies. This includes being a basic goods retailer and low-cost distributor. The philosophy of the company of ‘everyday low costs’ has led to continuous cutting down on prices through eliminating inefficiency in its retail supply chain. Retailers have added an additional costs multitude and Wal-Mart has gone ahead to charge these to its suppliers. The charges take the form of rebates, display fees, damage allowances and handling charges.
The additional costs are then passed on to its consumers, and the revenue makes the retailers ignore the processes that are inefficient. Wal-Mart price policy cuts all wastage incentives in the supply chain. While some of the competitors have adopted some of its strategies on cutting of waste, Wal-Mart is still likely to remain on the lead now that its partners are more willing to work together with their largest customer so as to cut in costs.
The highly efficient system of distribution enables Wal-Mart to stand out as the lowest cost provider in most of the goods. This way, Wal-Mart can maintain very low inventory levels. There are limited possibilities of inventory catching up with the company following the continued improvement in its inventory turnover. Wal-Marts economies of scale help it to maintain a competitive advantage as a low -cost retailer (Pearson, 2010).
In 2010, its advertising budget approximated to $2.4 billion consisted of 0.6 percent of its sales. During the same year, the advertising budget of target was $ 1.4 billion, and this consisted of 2.15 percent of its sales. These figures show that Wal-Mart had a 1.55% advantage in advertisement only. This advantage is significant in the retail industry that has a net margin of approximately 3% (Pearson, 2010).
Information systems expenditure and distribution was averaged at $2.6 billion in the last three years. Even when half of this amount is taken as the cost tied to the number of stores the company opened, it still leaves a $1.3 billion fixed cost. This figure is 0.33% of the Wal-Mart sales. In order to keep up, Target is expected to dedicate an amount equivalent to that which would constitute approximately 2$ of its total sales. The above implies that Wal-Mart will enjoy a 1.7% advantage in technological enhancement compared to Target (Pearson, 2010).
Wal-Mart also enjoys the largest retailer in the market with its sales placed at six times more than its nearest competitor giving it a strong bargaining position with suppliers. This position enables Wal-Mart to get its goods at a lower cost than other retailers. Non-union workforce, on the other hand, maintains lower employee cost compared with the rest of the grocery chains in competition with Wal-Mart. All the above-mentioned advantages place Wal-Mart in a position where it can offer lower prices for its goods serving a significant competitive barrier to those competitors who seek to compete with Wal-Mart on price basis.
Wal-Mart has a competitive advantage that is highly sustainable as it is in a position to single out the advantage sources, go ahead to implement them, and this defends it from duplication from competitors. Some of the areas that have enabled Wal-Mart to sustain its competitive advantage include;
- Cost leadership; the cost leadership approach implemented by Wal-Mart is of great benefits as it allows it to attain higher profit margins and also enables it lower prices giving it an edge over its competitors in the market environment. It offers large varieties of services and merchandise every day at lower prices hence giving it an edge over its competitors.
- Marketing Strategy; the marketing slogan of Wal-Mart is “Everyday Low Prices” has managed to appeal to its customers. The developed relationship between Wal-Mart and its consumers make it easier for the firm to market its products as customers have already gained the trust in them.
III. Differentiation Strategy; Wal-Mart established large stores that offered various products in small towns unlike its competitors who believed in large populated towns. It offered the pioneer discount store that offered online shopping experience for its consumers giving it a competitive advantage in a century that rely heavily on information technology.
International Markets Strategic Options
After establishing itself in the United States market, Wal-Mart needed to grow so as to survive. The international arena provided the only option in which it was possible for Wal-Mart to have a significant growth. This strategic option was important for Wal-Mart as it needed to increase both its profits and sales in order to satisfy the expectations of capital market. Wal-Mart also needed to satisfy its employees expectations as one of its key factors to success is its committed and dedicated work force. It is through a stock purchase plan of Wal-Mart that the wealth of its employees was tied directly to the market value of the stock of the company. This plan created a direct link between its stock price effect and growth as well as company morale.
Considering the necessity to growth, Wal-Mart could not confine its operations only in the United States as it had already saturated most of the domestic markets in the United States. In addition, the population in the United States accounts for only four percent of the population in the world. Wal-Mart would miss out on the remaining 96 percent of the potential customers across the world if it limited itself to the United States market (Pearson, 2010).
The secret to success for any company is to have a strategy that fit the reality, make the right choice of strategy and implement the strategy successfully. It is in most cases due to the above reason as well as business strategies that are well planned that a company attains a competitive advantage over its competitors and emerge as the leader of the industry market. Wal-Mart has employed the above, and that is why it is the leading retailer in the United States.
Pearson (2010). The Strategic Management Process. The Tools of Strategic Analysis. 1-6