Walmart’s industry fallsunder perfect competition. The case shows that all the firms in the market have equal access to capital, raw materials, technology, and labor. There is no evidence of a single market leader in all parameters of financial weight in the market.From the profit margin graph, all the firms have a fair share of buyers and every potential customer in the market also have the choice to make on where to buy or seek services (many buyers and sellers). This gives every firm in the market the potential to maximize their profits with Target group being the key competitor of Walmart stores.
Being a market of many buyers and sellers, it will fall under NAICS code 11-there are a lot of products to be offered to the market and this makes the competition to be stiff.
Threat of new entrants in the market
Due to the promising profitability of the firms in the market according to the presented case, (gross margins), there is a possibility of the new entrants in the market. When this occurs, the profitability of all industries in the firm will eventually decrease as the new firms will also struggle to get the share of the market.
New substitutes in the market:
The introduction of similar products in the market will give the customers an opportunity to switch to alternatives. This will affect the demand of the existing products in the market. The introduction of the new products also poses the competition to the existing goods so the has to be new market strategies in order to remain relevant in the market. New techniques can as well be adopted.
Bargaining power of buyers and suppliers for companies within this industry.
Once there are many alternatives in the market, the buyer bargaining power will be higher and the companies might be forced to lower their prices when the customers put more pressure on the same. This will lead to either hoarding of goods or higher supply than demand. When there is more supply than demand of goods the company must draw new equilibrium to help understand what new sales to expect. Alternatively, the company can decide to lower further to have more customers. After lowering the prices than other firms it will take control and then shifts back to regular pricing. This strategy of bargain requires the firm to have control of most of the production materials.
The suppliers will gain more power in the market when there are few substitutes availablein the market.
2.Walmart stores business level strategy
Cost leadership or differentiation?
From the data based on the graphs, the inventory turnover of Walmart is high, it, therefore, means that they make more sales at a given time and restock at an appropriate time. The sales can be improved through proper technologies that other competitors lack.
Cost leadership strategy will be more effective because the gross margin of Walmart store is the lowest in the market. It applies that their production cost is relatively high and they need to find ways of cutting the cost. It will be hard for them to increase their prices since there exists a standard price among the competitors in the market. The sales, however, can be increased by increasing the quality of the products. This will shift the interest of the buyers has the consumers are always associated with the taste and preferences of the goods.
Cost leadership strategy can be achieved through minimizing cost of sales and services, having a tight control over the overhead costs and maybe to introduce new technologies in the production processes that are cost effective. The technologies also should be affordable in terms of running cost. The technology further should also adhere to the environmental ethics. Through this approach, the public confidence is busted and will directly attract the customers through good will.
- Walmart’s financial performance.
Walmart store is doing well in the market financially as compared to Target and Sears.
From the presented case, Walmart store has a fairly higher and constant Return on Assets(ROA). The ROA is an indication of how profitable a company is in relation to its existing assets informs the stakeholders of the company on how effective the business has been employing its assets to work i.e. whether there is a maximum utilization of the available resources in the company. The high ROA shows that the company manages its assets efficiently to generate earnings by making more money on less investment and this give them advantage over their competitors since they are in a better position to acquire more funds through equities. A good ROA will always be achieved through effective management of the cost of capital (debts and equities) because at the moment it exceeds return on assets, the company will be financially inefficient and all the invested capital will be to waste. It, therefore, means that the capital to be used should be well structured to influence a better ROA
The return on assets can also be made consistent through leasing of old assets before the depreciation eats much into their original cost.
Revenues per employee
Walmart stores have arising revenue per employee, this shows how efficiently the company is utilizing its human resources. This will turn to high productivity of its personnel and dictates a better reward for the employees. A competitive reward will mean more values to the workers motivating them to work hard by giving their best in the industry. The revenue is much proportional to the work and labor done, if the productivity of the employees is high, more revenue will be earned and this will put the company in a better financial position.
4.The basis of Walmart’s competitive advantage:
From the graphs, Walmart stores competitive advantages may arise from the following sources:
Human capital: As per the case, revenue per employee of Walmart store is the highest in the industry. This means that it is composed of highly trained work force with enough experience to execute every task in the company. The human resource advantage has reduced the rate of employ turnover. This can be a source of its competitive advantage if they maintain the available skills.
Similarly, if the people in the company are good at innovation, creativity and establishing a good customer relation, the company will automatically achieve its goals. The advantage has to maintained by doing what the company has been doing or have more motivation on the employees to maintain the gap.
From this case, Walmart store is having a good access to the working capital. (Higher return on assets) This has always become one of the strongest sustainable advantage over other competitors. The working capital has been a key pillar in the day to day running of the business or store.
Company-Wide Market penetration
The inventory turnover of Walmart store is fairly high. This shows that they engage in a lot of sales at a given time. It can be as a result of more focus on the market on what customers require out of their products thereby trying to offer more customer value products which will eventually have a positive effect on the company performance. The penetration is focused on both the quality and new markets not yet reached.
5.Differentiation and cost leadership for the case of Walmart store.
When Walmart chooses ondifferentiation, it will try to be unique and this can be achieved through design, features, technology or customer service. To implement this, a company has to focus only on the product features.
Differentiation creates value by enabling a firm to charge a price higher than the extra cost incurred in the process. This can be effected easily in the market where there is lack of substitutes or alternative products in the market.
Some of the disadvantages of differentiation include:There is a tendency of a company to imitate the differentiation and this may lure some of its customers. The implementation of differentiation is also costly and it may take long for the customers to accept the new taste of the new product and the company may not have enough customers to meet the cost of differentiation.
It focuses on organizing the available resources to produce goods and services at the lowest cost possible. This will enable the company to reduce the prices of its products in the market.
The cost of production can be reduced by employing qualified and experienced staff, economies of scale and having a tight control on overhead costs.
Companies with lower cost of production always become stable in the market even at times when the economy changes because there will be always enough capital to fund its growth or for further investments.
In conclusion, the choice of one will put constraints on using the otherbecause Porter’s view of the strategies means that cost leadership and differentiation are viewed in opposite way.
If the firm chooses a strategy of differentiation it means that extra cost is required to be unique and we cannot use cost leadership in this case. If we are to use cost leadership it may mean low cost of operation which may lead to low-quality products.If a company tries to use all the strategies at the same time, it may risk being stuck in the middle and may result in low profit at the end.