Target Market Strategies for Wal-Mart - Term Paper Example

? Marketing Plan of Wal-Mart entering Germany Contents Marketing Plan of Wal-Mart entering Germany Contents 2 Introduction 5 Internationalization 5Market screening and selection process 7 Target market (Germany) 7 Porters Five Force Model 8 Supplier Power 8 Buyer Power 9 Threat of substitute 9 Threat of new entrant 9 Rivalry 9 SWOT Analysis 10 Strength 10 Weakness 10 Opportunity 10 Threat 11 Target market 11 Consumer analysis 11 Cultural analysis 12 Segmentation targeting and positioning (demo and geographic) 12 Entry mode strategies 13 Target market strategies 14 Marketing mix 15 Product 15 Price 16 Place 16 Promotions 16 People 17 Process 17 Physical Evidence 18 Measures for monitoring process, organization and co coordinating 18 Conclusion 18 Reference 21 Bibliography 23 Introduction Wal-Mart has revolutionized retailing in USA in 1962 and since then the company revenue has spread like a bushfire across the country. Wal-Mart serves members and customers more than 200 million times per week at around 9826 retail units in 28 countries under 60 different banners. In the previous fiscal 2010, with sales of $405billion, the company employed 2.1 million associates worldwide. The Fortune Magazine 2010 has ranked Wal-Mart among the top 10 retailers in the world. Wal-Mart goal is to save the money of its customers and help them live better (Wal-Mart, n.d). Wal-mart has its retail stores across the country, thus this paper deals with the expansion strategy of Wal-Mart in Germany. The retail market in Germany has reported to fall unexpectedly by 2.33% in September 2010; but the German retail market has experienced a recovery from the crises in 2010 and generating revenue of 400billion EUR (PRLog, 2011). Thus Wal-Mart can take this opportunity as its competitive advantage lies in low cost pricing and thus expand itself in Germany. Internationalization Wal-Mart draws its competitive advantage from the aspect of its unique supply chain management strategy using advanced technological tools like Enterprise Resource Planning. The supply chain management strategy of the company such as cross docking and real time information sharing between suppliers is used to forecast demand on the basis of real time data that is further used to manage the inventory carrying costs. Use of real time information sharing enables the company to eliminate instances of overstocking or stock outs that helps in managing inventory carrying costs. The cross docking system initiated by the company also ensures that inventory is not stored and there is no standing time. The cost savings incurred due to inventory management is passed on to the customers in the form of an EDLP (Every Day Low Price) strategy where the company provides services at low prices that helps in attracting and retaining customers (Dess, Lumpkin & Eisner, 2009, p.180). The role of the external environment is also another aspect that determines the success of the international expansion program of a company. In case of Wal-Mart the level of technological expertise in a market is also important as suppliers need to be linked to its supply chain management. Germany being a technologically developed nation would easily help Wal-Mart to supplement its core competence in supply chain management so as to replicate its successful EDLP program in the German market. Wal-Mart would essentially use a push-pull strategy to gain a formidable presence in the German market. A push-pull strategy is essentially used by firms when they have a system of forecasting demand on the basis of real time information sharing. In the German market the technology driven supply chain management would of Wal-Mart and its EDLP program would help in pushing the products to the consumers (push strategy) while the external market demand of the service of the company among the members of the target market audience would act as a pulling factor of bringing in the consumers (pull strategy). Traditionally, retail firms have been relying on push based strategies as a pull strategy involves considerable efficiency in supply chain management using real time information sharing to estimate demand. Considering the fact that the core competence of Wal-Mart lies in its supply chain management using real time information sharing, a push-pull strategy can easily help the company to distinguish itself from the competitors and gain a formidable market share in the German market (Levi, Kaminsky & Levi, 2003, p.130-133). Market screening and selection process The German retail market has experienced difficult times in the recent past but presently it is on the path of recovery. With an increase in the employment rate combined with wage increased, the situation is getting better in terms of consumer spending. The German grocery sector is experiencing a period of consolidation due to tough competition from stores like Lidl and Aldi which followed a format of discounting and extended the market share to 42% in grocery retailing. However the discount sector is likely to develop in a two tier system with the players, Lidl and Aldi playing a league of their own. Thus with mergers and acquisition by competitors prevailing in the German retail industry it is predicted that rival retailers can enter the market and gain some ground on Germany’s two leading discounters (Verdict, 2008, p. 106). With the discounters making the German retail sector extremely price competitive, Wal-Mart being a low price company can fairly do well in the German market. Therefore based on the above facts, the German market was selected. The main reason for selecting Germany is because retailing in German market no longer suffers from the economic crises. The country showed signs of economic recovery and the effects of 2008 crises no longer impacted the German market negatively. Wal-Mart would open up its stores initially in the cities of Berlin, Frankfurt, Munich, Hamburg and Dresden. These constitute among the top cities of the country both in terms of potential as well as population that would ensure vital opportunities for Wal-Mart (KPMG, 2011, p.3). Target market (Germany) The target market for Wal-mart is the German market because of its growing opportunities in the retail industry in the near future. Also with an increase in the employment rate the people of Germany are willing to spend more on consumer goods. Wal-mart deals in a variety of products, thus with an increase in the disposable income of the German consumers, the target market fits the notion. According to a report it was stated that the German population registered a strong consumer preference for smaller grocery formats and the consumers had cut down their shopping in large retail outlets in order to save time (Euro monitor, 2011). Therefore analyzing the current German market would enable Wal-Mart to find solutions and built a store according to the preference and need of the consumers in Germany. Porters Five Force Model The five force model describes the industry and analyses the industry from the perspective of how they are able to limit industry profit. The five force model includes, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, threat of new entrant, and rivalry among the existing firms. Supplier Power In the recent past there has been an increased in the number of retailers who manufactures their own brand. The cost of switching to different suppliers is quite easy and can be done at a reasonable price. The major retail stores in Germany have enormous power in negotiating the price and the quality of the product. But with an increase in the consumer demand for a particular brand makes the power of supplier stronger. Thus in case of Wal-Mart the bargaining power of supplier would be moderate to high. Buyer Power The bargaining power of the customers is relatively high because the consumers are more mature and sophisticated. The consumers want their product to be made available at the best quality and demand better and wider choices of products. Threat of substitute The threat of substitute is moderate to low for retail industry as the industry deals in products of everyday use, thus there are no direct substitutes. The substitute can be the small retail or the convenience stores which can harm the branded products. In case of Wal-Mart the threat of substitute is low because of its excellent customer service and its concept of everyday low price. Threat of new entrant With a stable economy rate, Germany has attracted many retailers to explore the city making the threat of new entrant high. Thus when Wal-Mart enters the industry, the threat will increase in respect to the established retail players. Rivalry The German industry is highly competitive with some top retail stores such as Metro AG, Schwarz Untemehmens Treuhand KG, Aldi GmbH & Company oHG , both discount store in Germany, Rewe-Zentral AG and Edeka Zentrale AG & Company KG, supermarkets in Germany to name a few. The giant German retailer Metro Group took over one of the retail and tourism competitor, Arcandor (Deutsche Welle, 2009). Thus the rivalries among firms are quite high in Germany and especially with respect to discount stores. SWOT Analysis Strength A major strength lies in the economy of Germany which has showed a stable economy growth in the year 2010 after global crises. With a rise in the employment rate, the disposable income has also increased resulting in spending on consumer goods. Therefore a favorable economic condition adds on to the strength of any country and initiates global companies to explore the city and the retail market of Germany is third biggest in Europe. Weakness The German are very introvert in nature and does not really want to experience anything new. Also the strict law in Germany proves to a weakness as foreign companies may find it tough to get into the culture of the German population. Apart from it, the people prefers shopping from small retail stores and do not want to spend time in big retail outlets. Opportunity There is a vast demand for packaged food in Germany and is expected to grow at a rate of 1.7% by 2014 (Food Export Association, 2011). Thus a wide opportunity lies for Wal-Mart in the German market to make use of its brand name and introduced packaged food. The market demographic changes also add on to its opportunity as the younger generation likes spending and exploring a new trend unlike the older population. With a change in consumer trend, there rises a demand for healthy lifestyle which Wal-Mart can cater it efficiently and satisfactorily. As the supermarket has saturated there lies a huge opportunity for stores like Wal-Mart to cater to the needs of the German population. Threat Threat in the German market mainly lies from the discount chain such as Aldi and Lidl. With a rapid increase in the number of discount stores, the supermarket turnover saturated as they could not come up with innovation. Also with an increase in the supercenters stores the supermarket would face a stiff competition between the discount store and supercenters stores (Senauer & Seltzer, 2010). Analyzing the competitors, Wal-Mart would face a stiff competition from the discounters like Aldi and Lidl. Wal-mart competitive advantage, Every Day Low Price and Customer service would help it reach at the top ahead of its competitors. As there is an intense rivalry among the firms, with a new store like Wal-Mart would attract the customers with its low pricing strategies and as the people of Germany are highly price sensitive they would prefer buying from Wal-Mart. As stated above Germany has a huge opportunity in the packaged food sector thus Wal-Mart to attract the Germans must take hold of the opportunities and apply it as per their culture and demands. The advantage with Wal-Mart is that it is a supercenters store and as Germany’s supermarket is on the verge of getting saturated, Wal-Mart can utilize this situation and add to its advantage. Target market Consumer analysis Despite the effect of financial crises, the revenue generated from the retail industry in Germany remained relatively constant as a result of stable consumer spending. Germanys buying power is influenced by the structural difference, the western side showed signs of a stronger purchasing power whereas the eastern side showed stronger growth rate. The consumers of Germany has been following a new trend of buying goods from the smaller retail outlets as per their convenience and avoiding the big retail outlets in order to save time. This indicates that the consumers are living a very fast life in Germany and does not have time to spend on unnecessary items. The German population showed a trend for high quality foods and for branded products. Cultural analysis Germany’s culture is very much different from that of US and Wal-Mart must give high importance to the culture of the German population. The Germans are introvert in nature and does not prefer display of emotions in public as the people gives high priority to their personal space. The shopping hours in Germany are shorter, the shop closes by 5PM on weekdays and on Sundays, and no shopping as the shops remains close. This indicates that the consumers do not have the habit to spend much time in a store wondering around for the things they need. German prefer to do their own search for products and bargains, they do not prefer store assistants. The discount product should be placed at an eye level so that the consumers can get a glimpse of the discounted product. Also the German retail outlet prefers stocking of food in a higher ratio rather than non food items. The German consumers prefer to bag the grocery product by themselves into reusable carriers (Tinsley & Woloshin, 2011). Segmentation targeting and positioning (demo and geographic) Wal-Mart must segment its product mostly into food category because the Germans culture showed a preference towards food in retail outlets rather than non food items. The demographic profile of Germany states the current population to be 81,471,834, which comprises mainly of population within the age group of 15-64 years accounting for 66.1% (CIA, 2011). Therefore the target market for Wal-Mart would be the population who falls within this age group. The positioning for Wal-Mart must be done as per the culture of the German population because of their introvert nature. Thus Wal-Mart should understand the laws and follow it accordingly. The promotional campaigns must not be loud because of their introvert nature; the company should follow its competitive advantage of Everyday Low Price as the Germans are price sensitive. Entry mode strategies Market entry strategies are very vital in determining the success of a company in the international market. There are various modes of entry in the international markets that include partnerships, franchisees, joint ventures as well as Greenfield projects. In case of Wal-Mart’s international expansion in Germany the company would open up a new subsidiary with a strategic partner that would be a local market player who has a good understanding of the local market conditions. This would also help the firm to gain a better understanding of the needs and wants of the consumers and analyze their consumer behavior so as to offer them services that help in satisfying their demands. It would also help Wal-Mart in inculcating a ‘glocalisation’ strategy of thinking globally and acting locally. This strategy is considered extremely essential in case of international expansion by firms as understanding the local cultures and sentiments of individuals is very critical for the success of a firm in the international market (Culpan, 2002, p.60). Wal-Mart would register the new entity as a subsidiary and would have a 74 percent stake in the new subsidiary. The remaining 26 percent would be kept for the local partner who would be acting as a joint promoter for the new subsidiary. Adopting a partnership strategy would help Wal-Mart in not only having a better understanding of the demands of the target market segment but would also help in creating a risk sharing mechanism as the risks involving the new international expansion would be also shared by the local partner. In addition to this the company would also be in a better position to interact with various suppliers as the local partner would have a better understanding of the prevailing business aspects in the new market. A partnership strategy would help in countering competition in the market by creating co-operation between market players. Mutual sharing of expertise would help in bringing about greater organizational excellence that would help generate competitive advantage for the organization. It would also help in creating a favourable positioning among the customers in the target market segment (Daft & Marcic, 2008, p.184). In the partnership agreement the obligations and bindings of each of the partners would be clearly defined. It would also state an exit route for partners in the event of a break down in the partnership between the two firms so as to ensure better and long term relationship between the two partners that would help generate long term sustainability in the market. Target market strategies After exploring the German market and consumer preference, the strategy that Wal-Mart must follow in order to attract its target consumers is the generic model strategy. The generic strategy aims in giving a choice as to which strategy to follow so to succeed from its rival. Porter has described three generic strategies, which include cost leadership strategy, differentiation strategy and focus strategy (Botten & Sims, 2006, p.274). Among the three Wal-Mart should follow the focus strategy and concentrate on the food sector such as packaged food, frozen and ready meals. According to a report in Euro monitor the packaged food market is estimated to reach $91.2 million with a growth rate of 1.7% by the year 2014 (Food Export Association, 2011). Thus if Wal-Mart could capture the food sector in Germany, the company would result in profitable condition as more than 50% of the revenue generated in the German retail industry comes from the grocery and food section. With the concept of Everyday Low Price, Wal-Mart can attract the younger population of Germany as they tend to be more prices conscious (Bord Bia, 2008, p.12). Marketing mix The elements of marketing mix for a retail organization like Wal-Mart includes the aspects of product, price, place, promotions, people, process and physical evidence. An effective planning of the elements of the marketing mix is perhaps the most important part of a company’s business planning. The elements of the service mix for Wal-Mart for its international expansion in Germany is stated below: Product The basic product or service of Wal-Mart would be to provide a complete range of grocery and other retail goods of various brands. The company would sell its products using the online channel where a dedicated web portal for online shopping would also be introduced in the German market. This assumes importance as the retail industry in the nation saw sales worth 400 billion Euros and the next year shows opportunities considering the recovery trends in the economy (Ystats, 2011, p.3). The economy of Germany is also quite buoyant with the GDP in terms of purchasing power parity is being pegged at 2.94 trillion US dollars. The economy also registered growth of 3.5 percent showing recovery in the economy. The country is also heavily urbanized with an urbanization rate of 74 percent (CIA, 2011). Price Wal-Mart would have a very competitive pricing strategy and would replicate its successful EDLP program and would offer products at low prices to consumers. The value for money pricing strategy would be replicated across each of the stores in the new market. Wal-Mart would adopt a predatory pricing strategy and would try to outwit its competitors by undertaking predatory pricing so as to garner market share for the company. Place Wal-Mart would open up its stores initially in the cities of Berlin, Frankfurt, Munich, Hamburg and Dresden. These constitute among the top cities of the country both in terms of potential as well as population that would ensure vital opportunities for Wal-Mart. The stores would be located in various up market locations that command a high footfall and essentially in areas that are close to the residences and offices so as to allow convenience in shopping. Germany is presently the best market for retail industry in Europe and these cities are considered to have the highest potential in the nation. A study has found that 33 percent of the leading global retailers are targeting Germany which leads the European nations in this regard (Europe Real Estate, 2010). Promotions Wal-Mart would promote its store using various channels that includes Television as well as the print media. Newspapers and magazines along with commercials on television and radio would be used to attract the consumer audience. In addition to this billboards and hoardings would also be used to communicate to the consumers. Finally last but not the least Wal-Mart would use the online communication channel especially the social networking sites to communicate its intended message to a large group of market respondents. Wal-Mart would also sponsor events that would help in conveying its message to a large section f target audience. A local personality would be selected to act as a brand ambassador in order to showcase its commitment towards the prevailing local cultures and sentiments so as to make a better connect with the members of the target market audience. People Wal-Mart would replicate its successful training programs for the employees that would include training them with devices like hand held computers. Wal-Mart would also educate the suppliers about its ERP program so as to enable them to bring on a common platform. Employees would be also trained in the best practices in customer relationship management in order to ensure maximum satisfaction of the consumers. Tie ups would be made with leading universities so as to devise customized training programs for employees. Process Wal-Mart has a highly technological management system that ensures maximum use of technology in day to day affairs. Wal-Mart would replicate its famous Electronic data Interchange to fuel up its EDLP program. The company would replicate its cross docking and real time information sharing system so as to fuel its EDLP program that constitutes its core competence. This apart electronic point of sale and secured payment gateway for the online portal would also be implemented so as to generate competitive advantage. Physical Evidence Wal-Mart stores would be in the supermarket model formats where customers would find it easy to locate their products. In store displays would also be used along with shelf management to ensure greater satisfaction of customers. A mix of local designs would also be used in the store ambience so that customers get a localized feeling while shopping inside the stores. Measures for monitoring process, organization and co coordinating In addition to strategy formulation and implementation it is also essential for having a monitoring and feedback system for evaluating the accomplishment of the objectives. In this regard the company would devise objectives that are specific, measurable, achievable, realistic and time bound in nature (SMART objectives). Each of these objectives would have a specific person who would be responsible and held accountable for the accomplishment of the objectives (Richman, 2006, p.65-66). In addition to this the company would also implement a Balanced Scorecard Approach in its strategic framework as it would help the company monitor the financial as well as non financial strategies and objectives. The use of the balanced scorecard approach would also help in generating feedbacks about the accomplishment of the objectives and devising alternate and contingency strategies to counter any issues that may have emerged in the process (Balanced Scorecard Institute, 2011). This would help the company keep a regular check on the business strategies and help generate sustainable competitive advantage for the organization in the long run. Conclusion In conclusion, Wal-Mart in Germany would prove to a success only if it follows the culture and law abided by the country. Since the Germans are very introvert in nature, Wal-Mart cannot impose the strategies used in US. The German population being price sensitive, thus Wal-Mart should follow its strategy of Every Day Low Price in order to attract the consumers. The company might face a stiff competition from the discount store like Aldi and Lidl which has already marked its presence in the German market. Therefore Wal-Mart needs to focus more on the needs of the German population and the market. As stated earlier, the demand for packaged food showed signs of growth in Germany, providing opportunity for Wal-Mart to set up store concentrating in the packaged food section. Wal-Mart has been recognized as the world’s largest grocery retailer, thus having a huge brand name would add on to its advantage. Wal-mart could operate with the local retailers in form of partnership as it would help Wal-Mart to get an idea of the local cultures and also the sentiments of the German population. Thus in order to achieve a secured place in the retail sector of Germany, Wal-Mart must highly emphasis on the needs and wants of the consumers as the taste, preference and culture of the Germans differs from that of US and with a forecasted growth rate of 2.5% in the current fiscal, the German market is expected to grow significantly in the coming years or so. Therefore Wal-Mart plan of entering Germany would prove to be profitable for the company as well as German population as Wal-Mart core competency lies in customer service and Wal-Mart can achieve success with its competitive advantage as there are no stores in Germany which gives high importance to customer service. Also with its everyday low price strategy, the company would prove to be a success but Wal-Mart must consider the facts of German culture and the country’s political regulation so that the company does not faces any compliances from the government and able to operate is business successfully. Wal mart is based all over the world, therefore exploring Germany would help it achieve success in European countries and further expand in European cities. Reference Balanced Scorecard Institute. (2011). What is the Balanced Scorecard? [Online]. Available at: http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx. [Accessed on November 22, 2011]. Bord Bia. (2008). Germany market overview. [Pdf]. Available at: http://www.bordbia.ie/eventsnews/ConferencePresentations/FoodDrinksIndustryDayCountryOverviews/Germany%20Market%20Overview.pdf. [Accessed on November 22, 2011]. Botten, N. & Sims, A. (2006). CIMA Learning System 2007: Management Accounting - Business Strategy. Butterworth-Heinemann. CIA. (2011). The World Factbook. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html. [Accessed on November 22, 2011]. Culpan, R. (2002). Global business alliances: theory and practice. Greenwood Publishing Group. 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Positioning and Opportunity Assessment Report with Main Focus on Germany, China, USA, New Zealand: The Establishment of English Tea Company. GRIN Verlag. Read More

 

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