Market Structure of Walmart - Research Paper Example

? 25th November Walmart Company overview Walmart Stores is a US based retail company that deals with various products in the local and international market. Being the largest retail shop in the world, Walmart has acquired a competitive edge in the market based on its quality brands that are not only demanded in the US market but also in the foreign countries. Having being established in 1962 by Sam Walton, the company has more that 8,500 stores located in 55 countries. Based on its large customer bases and wide market segment, the firm has maintained a large number of employees who stands at approximately 2 million. Walmart headquarters are based in Arkansas, US. Under the leadership of Robson Walton and Mike Duke, the chairman and the President respectively, the company has embarked on diversification of its product portfolio in order to face off its key competitors in the market. Some of the notable products that the company provides include warehouse clubs, superstore, Apparel, Shoes & Accessories footwear and food products among others. Walmart Stores opened its first store in 1970 in its home country. Based on its good financial performance during its establishment, the store became a public held company in 1970. Based on the need to strengthen its capital base and bring more investors on board, the company was listed in the New York Stock Exchange thus making it to freely sell its stock to the local and foreign investors. Due to Walmart establishment of stores in various market and strong positive relationship with the customers, the store has for a long time enjoyed increase in revenue. For example, in 2012-2013 financial year, the company revenue stood at US$ 469.162 billion. The net income was US$ 16.999 billion while the company operating income stood at US$ 27.801 billion. In the same year, the company total assets were US$ 203.105 billion. Its improved financial performance has made the store to be successful thus becoming the market leader in the stores industry. Walmart market share stands at 63%. This implies that the company plays a major role as far as the retail industry is concerned. Market structure Walmart Stores is a key player in the retail industry. The company is focused at providing wide range of products in all departments. One of the major divisions is the Walmart Stores US. Being the largest, the store consists of there key retail outlets namely supercenters, Walmart markets and discount stores. Walmart plays in the monopolistic market structure. One of the major aspects that make the store to emulate a monopolistic economic model is that it emulates product differentiation in its operations. Additionally, the firm operates in an industry with many firms locally and in the global market. Based on its significant market share, it is worth to note that Walmart has some degree of market power an aspect that is characterizes firm in a monopolistic market structure. Major competitors Based on the free entry aspect of the retail industry, Walmart is faced by various competitors in the US market and in the UK market as well as in other countries. For example, in the North America market major competitors are Target, Meijer, Kmart, Big Lots, Costco and ShopKo. In UK, the company is faced with stiff competition from Tesco. In their efforts to face off Walmart in the market, the competitors have embarked on extensive marketing strategies that include selling of products that are low priced as well as similar to those provided by Walmart. For example, Target, the second largest retail shop in US, offers direct competition to Walmart by opening more that 1,920 distribution centers in US. Additionally, Target differentiates its products from those of Walmart and other competitors by offering upscale merchandise at lower prices. On its part, Tesco maintains a 30% of the UK market due to its extensive market strategies and provision of wide range of products that includes Tesco mobile, food products, clothing, financial services and quality beverages. Direct competitor comparison Walmart Tesco Target Market capitalization US$ 260.67 billion ?28.58 billion US$ 40.24 billion Employees 2.2 million 537,785 361,000 Annual revenue US$ 469 billion ? 64.83 billion US$ 73.30 billion Total assets US$ 203.1 ? 50.13 billion US$ 48.16 billion Locations 11,047 stores ? 6351 stores 1,920 stores Market demand Based on the improved quality of the Walmart brands, the demand for it products continues to experience high demand in the local and foreign markets. In 2013, the total revenue for the company was $ 469,000,000,000 and by dividing it by 12, the monthly revenue becomes $39,083,333,333. Sam's Choice is one of the famous beverage brands that are produced by Walmart. At the end of every month, Sam's Choice contributes total revenue of $750 million. Particularly, the kid’s choice is one of the highly demanded varieties of the Sam's Choice. The table below indicates the price and the quantity demanded of the Sam's Choice product. Price ($) Quantity demanded ($ million) 25 250 40 200 50 190 100 150 200 100 Walmart demand curve 200 Price 150 100 50 50 100 150 200 250 300 Quantity From the demand curve, it is clear that as the price of the Sam’s Choice increase depending on the packages used by the company, the demand for it decrease. Using the midpoint formula, the demand elasticity of the Sam's Choice can be computed as follows: (100-150/150+100)/2 divided by (200-100/200+100) /2. This results to -0.1/0.1= -1. From this calculation, the Sam’s Choice is elastic. Profit maximization strategy and recommendations Walmart focus is to maximize its profits by offering quality brands at cheaper prices. By the use of good value strategy, the company aim s at increasing its revenue to a sustainable level. For example, the company total production of Sam’s Choice is 1 million units costing $200. The total revenue of that product can therefore be computed as follows. In order to increase its annual profits, I recommend that the company expands its marketing by emulating the social media including face book and twitter. In the contemporary world companies that are making sustainable profits have extensive used social marketing. In its expansion strategies, I recommend that Walmart opens more branches in the emerging markets where retail industry does not experience stiff competition. Price * Quantity = Total revenue 200*1=$200 million Pricing strategies To retain a strong positive relationship with its customers, Walmart realizes the need to adopt effective pricing as one of its marketing mix aspect. The firm emulates everyday low price (EDLP) strategy (Stephen et al 56). This is a strategy that entails promising its customers low prices for their brands without to wait for comparison shop or sale events. One of the major advantages of this policy that has made the company to increase its sales and profits is that it avoids incurring of expenses associated with adjusting of prices during sales events. In order to increase the number of loyal customers thus leading to high sales and profits, Walmart pricing strategy entails offering lower prices as compared to its competitors. The company philosophy Always low prices, was initiated by Sam Walton during the launching of the company. Despite the efforts by the company not to discriminate its customers as far as pricing is concerned, there exists a difference between the Walmart online prices and Walmart store prices. The difference exists due to the variation in the level of competition in various markets as well as the distribution costs. Thus the company management maintains tat the customers should not be frustrated by the differences in prices as indicated in the Walmart.com and the Walmart stores (Tellis 145). A notable strategy that Walmart emulates in order to retain its high number of customers and attract new ones is partial refund. This entails providing a price adjustment to the consumers who experiences a change in price of their products within seven days from the date they placed an order. However, this only applies to brands purchased through Walmart.com and not from the physical Walmart stores. Walmart cost factors In its wide operations locally and globally, Walmart experiences high costs in terms of high salaries, maintenance costs, marketing costs as well as fixed costs. Some examples of fixed costs that are incurred by Walmart include payroll, administration costs, property tax, rent and inventory among others. Variable costs (Amount in $ 000) Salaries and wages 320 Pension contributions 645 Income tax 45 Advertising expenses 205 Administrative expenses 1,235 Cost of products sold 4,236 Total variable costs 6,686 Fixed costs Depreciation 365 Amortization 69 Rent, lease and insurance 68 Total fixed costs 502 Total costs 7,188 As indicated on the cost analysis of Walmart, Cost of production and the administrative costs are forming the major part of the company costs. Likewise, the company is incurring substantial high costs in the form of pension contributions. Even though a firm requires effective administration in order to achieve its goals, I would recommend the company to merge some of its department in order for it to reduce the administration costs. This will not entail sacking some of its employees in the administrative posts, but the company should increase their responsibilities. The increase in the responsibilities should be awarded by giving them rewards and promotions that would be significant but not equal to the saved administrative costs. The company should also decrease the amount of pension contribution and notify the contributors that this action is not permanent. As the company continues to increase its revenue and profits, it should adjust the pension contributions upwards in order to motivate the employees. Another recommendation is that Walmart should seek for suppliers who offer discounted prices for their products and raw material. In this way, the company will incur less costs of buying the raw materials as well as the transportation costs thus reducing the costs of producing its products. Government regulations Walmart complies with the government regulations an aspect that has made the company to experience less cases of litigations. However, one of the key challenges that are facing Walmart is the criticism that the company is getting from the public due to its failure to maintain a strong relationship with its employees. For example, the company has been blamed for illegal dismissal of the employees as well as discrimination of the female workers (Zellner 25). Walmart on its part has continued to engage on streamlining its corporate social responsibilities as a way of appreciating members of the public as well as creation of positive image on the eyes of the public. Walmart future strategy Based on the saturation of the US market, Walmart is limited in its physical expansion. As a result, the company future strategy is to increase the productivity of its stores located in US while expanding in other foreign countries. Another notable strategy that the company is aimed at emulating in future is to improve on line shopping. This will entail expansive use of technology and improvement of Walmart.com. In this way, the company will effectively meet the needs of its customers located in various parents of the world. In the next five years, Walmart aims at creating 500,000 new jobs (Gibb 18). Thus it will become a major source of employment in the US market. Walmart financial strength One of the key aspects that make Walmart to experience a strong financial position is large number of investors who purchase the company shares through the New York Stock Exchange. The company has also created a positive relationship with local and foreign banks thus making it to easily access loans. For example, in 2004, Walmart obtained a loan of $ 5.1 billion from 77 banks. The amount was used for product improvement as well as research and development (Davila et al 41). As at 22nd November2013, Walmart shares reached a high of $79.81 indicating an increment of 1.20%. During that day, 6,064,000 shares were sold resulting to a market capitalization of $260.67 billion. Based on the company future strategies to expand and diversify it is worth investing in the company. Conclusion Based on the above discussion, it is clear that despite the stiff competition from the rival firms such as Tesco and Target among others, Walmart sales and profits have continued to increase. In this way, the company expansion in the local and foreign markets has been enhanced thus creating job opportunities to large number of young people in the developed as well as well as in the emerging markets. Additionally, the expansive marketing strategies that include online marketing and advertising, promotion and various corporate social responsibilities, Walmart has succeeded in creating a strong positive customer product relationship. As a result, the company has remained competitive in the retail industry. Despite the criticism that the company is experiencing as far as its relationship with the employees is concerned, the company management is focused at complying with the government regulations including paying taxes and adequate compensation. Works Cited Davila, T., Marc, E and Robert, S. Making Innovation Work: How to Manage It, Measure It, and Profit from It. Upper Saddle River: Wharton School Publishing, 2006.Print. Gibb, S. Human resource development: processes, practices and perspectives. Basingstoke: Palgrave MacMillan, 2008.Print. Stephen J., Xavier D and Mary, P. EDLP, Hi-Lo, and Margin Arithmetic. The Journal of Marketing, Volume 58, Number 4 (October 1994), pp. 16.27 Tellis, J. Beyond the Many Faces of Price: An Integration of Pricing Strategies. Journal of marketing, vol.50, NO. 4, 146-160 Available from https://www.google.co.ke/search?q=journal+of+marketing%2Cvol.50%2C+NO.+4+(Oct.%2C1986)%2C+146-160&rlz=1C1VASU_enKE551KE551&oq=journal+of+marketing%2Cvol.50%2C+NO.+4+(Oct.%2C1986)%2C+146-160&aqs=chrome..69i57.4753j0j7&sourceid=chrome&espv=210&es_sm=122&ie=UTF-8 Zellner, W. No Way to Treat a Lady? . Retrieved November 22, 2013. Available from http://www.businessweek.com/stories/2003-03-02/no-way-to-treat-a-lady Read More