Wal-Mart and its Monopolistic Market - Assignment Example

?Wal-Mart Introduction Wal-Mart is global brand dealing in retail outlets across many economies around the world as a multinational player. Under thecircumstances of an international presence and product portfolio composed of diverse products, Wal-Mart’s performance in the market global market is under different forces. Both local and international economic performance exposed to the two systems of market that Wal-Mart deals in characterise the managerial considerations when dealing with operations. Most of the markets in which Wal-Mart has set up shop are run on the free market, which is driven by the market forces of demand and supply, and the international market characterised by globalisation unification factors that define global trade. This presentation discusses the microeconomic and macroeconomic factors that affect the operations of the giant retail outlet chains. Microeconomic Analysis In order to understand the nature of demand and supply environment in the various outlets owned by Wal-Mart, it is important to describe the product portfolio for Wal-Mart. Among the products that an ordinary retail shop offers to the market, general household products and appliances, electronics, beverages, food, stationery, textiles, furniture among many other general retailable products. From this illustration of product portfolio at Wal-Mart or any general retail outlet, certain demand and supply forces influence the operations of the shops when compared to any other shop such as wholesale outlets. One characteristic of the demand and supply is the high diversity in products that the company deals in. Whereas it is possible to monitor one line of products and the performance thereon determined, the aggregate demand and supply for the retailer is determined by the total performance of the products. This implies that the performance in demand and supply of a single product will affect the operations of the company to the extent of the overall proportion that the particular product makes to the operations of the company. This is an advantage to Wal-Mart since the high performing products soak up the impact of non-performing goods. As a disadvantage, accommodating non-performing goods at any season blocks the capacity to exclusively exploit the benefit of high demand for highly performing goods. In terms of the market structure in which Wal-Mart operates, it is perhaps important to consider the two market platforms at both the local US market as well as the international level. For Wal-Mart, the level of retail outlet design and approach taken by the company in the US is largely an oligopoly1. The structure of an oligopoly qualifies Wal-Mart to be classified as such due to the existence of few players of its status and form. Retailing at the large size and high-end category in the US has a few players due to the inherent market forces that discourage entry of many players. According to Porter’s five competitive market forces, the entry of new players into the departmental retailing is highly restricted due to the nature of retailing business that can accommodate only a specific number of players. The few players in this kind of business in the US include Target and Costco2. In the overseas market platform, Wal-Mart assumes different statuses as defined by the retail business in the different countries. As an illustration, the market could be a monopoly in a country where such size of retail players is not present. In view of the interventions that can be taken to ensure that the oligopoly or monopoly structure is maintained for Wal-Mart to enjoy its benefits, the management needs to consider offering unique services and products. Under the circumstances that an oligopoly presents to the players, competition may increase and affect Wal-Mart’s opportunities in the market. To facilitate a strong and sustainable market existence amid the competition, Wal-Mart must present a unique product to act as the main customer attraction and retention factor. To illustrate this, McDonald’s example of offering internet and entertainment service to its youthful market segment can be adopted. This can for instance target the children accompanying their parents to shopping and offer children incentives with an aim of influencing the parents’ shopping decisions. Under the lower level of retail business, Wal-Mart can decide to opt out of the oligopoly and enter into the much-crowded medium level retail supermarkets and apply its brand force to steal the show from the other players. Such a move can be backed by the upper end market experiences to launch a successful retail business. A lower size business structure can handle pressure from various sources better than the other smaller players, making it more sustainable than in the oligopoly status. Wal-Mart pricing strategy is determined by retailing elasticity that is affected by the diverse products contained in the products portfolio as mentioned above. Under the retail business, the determination of the appropriate pricing strategy is affected by factors such as market factors, chain factors, store factors, goods’ category factors, customer factors and competitor factors. The elasticity of prices on the demand for various products within the retail setting is difficult to establish due to the multiple stocks handled by the retailer3. Customer shopping behaviour is affected by the nature of the retail setting such as the one operated by Wal-Mart. Lowering the price of a single product may not only increase the quantity demanded for the particular product but also affect the consumer purchasing decisions due to the convenience of shopping for multiple products less than one roof. Increasing the price of a product in a retail outlet such as Wal-Mart may also lead to reduced quantity demanded of the product as well as the loss of the shopping opportunity that is presented by the shopping convenience in the setting. Brand value for Wal-Mart pricing strategy has therefore to be within certain market perceptions of quality and distribution of pricing within the entire product portfolio. Wal-Mart is making use of its available resources in the expansion and maintenance of existing business capacity. However, due to the economic difficulties that global economy experienced in the turn of the decade, it is difficult to state how ambitious the use of the resources went into the second decade of the 21st century. Mixed economic fortunes across the markets such as in Asia, Africa, Europe and in the US implies that investment agenda for Wal-Mart was affected. Due to witnessed continued competitiveness and ambition to maintain operations as opposed to desperately seeking bailouts in the US, market can be translated to imply that the resources are well managed and utilised at Wal-Mart. Macroeconomic Analysis Economic performance and stability of the global and local economies that support the market for Wal-Mart have been under intense pressure in the recent past. Apparently, the US market was the worst hit by the economic crisis towards late 2000s, which presents a major scare for a retailer depending on the performance of the economy for profitability. During the recent economic strain, household spending was rapidly reduced due to sudden loss of incomes. The economy in the US is reported to have grown at an average negative rate at the height of the financial crisis, and the recovery process is still underway4. It implies that the burden of the economic decline on the disposable incomes negatively affected purchasing preferences. In view of the retail product portfolio, the most essential products can be expected to have experienced the least reduction impact and the luxury products to be the most affected. As an illustration, spending on food products is not likely to have experienced huge cuts as compared to electronics and other expensive products. Despite the fact that the economy was not conducive for retail business, Wal-Mart reorganisation was able to ensure sustainable profitability. Just as with decreased or mixed economic performance in the economies supporting Wal-Mart’s market, unemployment is a huge setback to the operations of the organisation. Whereas many firms were firing staff in a bid to reduce operating costs, Wal-Mart was stable in retaining its staff base5. Wal-Mart’s strategy was able to capture unaffected consumer spending to sustain its operations, despite the fact that the national unemployment figures reduced significantly. Unemployment in the US hit a double digit during the economic crisis and the reduction in incomes can be linked to reduce spending on certain products. The US inflation rates have been contained in the recent history and currently stand at around 2.9 percent. Since the economic difficulties in the US economy were introduced by difficulties in the financial markets, inflation remained low with a recession affecting the economy. As opposed to inflationary strain when there is a lot of money with less purchasing value-exchanging hands, the recession in the recent economic crisis was recessionary with little money exchanging hands. People were fearful of losing their money to the financial challenges. Reduced production in the US and generally for the global economy must have reduced productivity and competition at the retail industry. The balance of payments during the difficult times was characterised by a deficit in the current account with more imports than exports because of reduced production. The current account deficit for the US increased due to the imbalance in source of national supplies at the international trade platform. This translated into reduced investment into the local economy, which directly affects retail business6. Despite the growth trends reported by Wal-Mart during the crisis, it would have been a better experience if the balance of trade were not disturbed by reduced production. The business cycle at Wal-Mart has not experienced huge deviations from corporate objectives, perhaps due to well-outlined policies and business strategies. However, growth over the years has contributed to a major characteristic of the business cycle at Wal-Mart. From a few tiny retail outlets looking for the appropriate niche to occupy since inception, Wal-Mart has grown to become a huge departmental store player in the global market. This is the story of a successful business from which lessons on sticking with business strategy can be borrowed. Bibliography Econ, Dominic “Wal-Mart and its Monopolistic Market,” < http://dominic92.wordpress.com/2010/02/10/wal-mart-and-its-oligopolistic-market-structure/> 2010 (Accessed 22 March 2012) Trading Economics, “GDP Growth Rates, List by Country,” 2012, (Accessed 22 March 2012) Shankar, Venkatesh & Bolton, N. Ruth “An Empirical Analysis of Determinants of Retailer Pricing,” Marketing Science, vol. 23, no. 1, Winter 2004, pp.28-49 Trading Economics, “Unemployment Rates, List by Country,” , 2012 (Accessed 22 March 2012). CIA “The World Factbook: United States,” n.d., (Accessed 22 March 2012) Read More