Page 157 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 8: Business Level Strategies

From the very beginning, Walton made efforts to procure products at the lowest prices Notes
possible from manufacturers.
He always shared these savings with customers by charging them lower prices, thus
giving them the maximum value for their money.
Wal-Mart's products were usually priced 20% lower than those of its competitors. Walton's
pricing strategy led to increased loyalty from price-conscious rural customers. It helped
the company to generate more profits due to larger volumes. Explaining his pricing
strategy, Walton said, "By cutting your price, you can boost your sales to a point where
you earn far more at the cheaper retail price than you would have by selling the item at the
higher price. In retailer language, you can lower your markup but earn more because of
the increased volume." EDLP was extremely attractive to rural customers and emerged as
the key contributor to Wal-Mart's growth over the years.
Offering products at EDLP, especially during its early years, when Wal-Mart was not an
established retail player, was quite difficult. The company aggressively followed a cost
leadership strategy that involved developing economies of scale and making consistent
efforts to reduce costs.
The surplus generated was reinvested in building facilities of an efficient scale, purchasing
modern business-related equipment and employing the latest technology. The
reinvestments made by the company helped it to maintain its cost leadership position.
From the start, Wal-Mart imposed a strict control on its overhead costs. The stores were set
up in large buildings, while ensuring that the rent paid was minimal. The company
imposed an upper limit for its rent payment at $1.00 per square foot during the late 1960s.
Not much emphasis was laid on the interiors of the stores. The company did not invest on
standardized ordering programs and on basic facilities to sort and replenish the stock.
In the early 1990s, Wal-Mart started focusing on its Supercenters and Sam's Clubs to fuel
growth. Wal-Mart expanded its operations into the Northeast and West of the US by
placing a lot of emphasis on the groceries business through its Supercenters. The modus
operandi was to first establish discount stores, after which the best performing stores
were to be converted into Supercenters.

By 1991, Wal-Mart's mammoth retail network comprised of 1,355 discount stores, 120
Sam's Clubs and three Supercenters being served by 16 distribution centers.
However, at this time, Wal-Mart had yet to enter as many as 23 states in the US. In the early
1990s, it was estimated that the size of the groceries business in the US was three times that
of the discount store business. So, Wal-Mart decided to focus on Supercenters to propel its
growth. Following Walton's death in 1992, David Glass succeeded him as the CEO of Wal-
Mart. Glass viewed food retailing as a key driver to increase revenue growth in the 1990s.

By the beginning of the new millennium, Wal-Mart was one of the world's largest
companies, with revenues of $165 billion in fiscal 2000. Wal-Mart's rapid growth continued
in the initial years of the new millennium.

While continuing its aggressive expansion in the food business, the company started
launching innovative programs to further penetrate the US markets. For instance, in 2001,
Wal-Mart launched a program, called 'Store of the community.' Under the program, Wal-
Mart began remodeling its discount stores and Supercenters in the US to fulfill the needs
of customers they served, in line with what the customers wanted. Explaining the program,
Tom Coughlin, President and CEO of Wal-Mart Stores Division, said, "The one-size-fits-
all concept simply doesn't work anymore in the retail industry. Customers tell us what
they want and it is our responsibility to meet those needs. Our store associates live and
work in each store's community and interact with over 100 million customers each week.
Contd...

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