The Impact of Customers Tastes Changing on WALMART - Assignment Example

1. How are s’ tastes changing in the retailers industry? What impact do these changes have on WALMART? s’ tastes are changing from time to time not only in retail industry but also in almost every industry. So, a business should be aware of the ever changing consumer tastes and behaviors to be successful in the long run. Consumers have been demanding more varieties and convenience in recent years and the retailers have to present more brands and ready-to-eat products in food retailer industry. (Kinsey) Changing demographic data such as growing population, ethnic diversity, income, percentage of single parents and percentage of people living in metropolitan triggers four prospects—more food for growing population, more easy-to-prepare foods for single parent households, more variety of products for diversified people and more upgraded foods for individuals with higher incomes. (Umberger, Thilmany and Ziehl p9-13) Nowadays, consumers are changing their buying patterns to be online because of lower prices and available 24/7. Consumer tastes can be different based on another demographic factor: age. For example, consumers under 35 years old are most likely to be interested in domestics (73.3%), lawn & garden (71.4%), stationery (66.7%), personal care appliances (65.5%) and glasses and dishware (60.0%). (Negley) And the willingness to switch brands also depends on the age groups—for instance, consumers over 50 years old have strongest loyalties. Jennifer Negley also claimed that the loyalties of consumers were falling down. It could be seen in groceries and canned food products which possessed 84% loyalty in 1993 and shifted to 73% in 1997. Wal-Mart, the largest retailer in the world, is operating in the highly competitive retail industry in both local US market and international market. Wal-Mart Stores, Inc. is based in Bentonville, Arkansas, and comprises of four separate retail segments namely Wal-Mart Supercenters, Discount Stores, Neighborhood Markets, and SAM’S CLUB. As of January 31, 2010, the company operated 2,612 Supercenters ,891 Discount Stores, 153 Neighborhood Markets and 602 SAMS CLUB warehouses and in the United States. (Wal-Mart Annual Report, p 14) There are 3,615 Wal-Mart units outside US including countries such as Mexico, Canada, Brazil, UK, China and Germany. The retail products available at Wal-Mart include general merchandise such as household goods, apparels, jewelry, health & beauty products, electronics, toys, fabrics, shoes, garden appliances and crafts. Along with other retailers in the industry like Kmart and Sear, Wal-Mart is facing the changing consumer buying patterns and preferences. The essence of Wal-Mart’s success is its ability to purchase a huge amount of goods and re-sell them to customers with lower prices. It also intends to sell quality products at the same time. So, it would be a high risk if it could not predict correctly on which items to be purchased to meet the changing consumer tastes. As we learned that consumers from different places prefer separate items, it may affect on setting localization strategy for each international unit. Next, as Wal-Mart is selling many products across several product lines, it is more inflexible to change compared to its competitors who only focus on one or two product lines. If consumers change their tastes in one product line, the competitors can adapt with customers’ preferences more easily than Wal-Mart can. Moreover, it is vital to catch up with changing consumer’s online behaviors for the effects can be critical for how Wal-Mart’s online store should be shaped. 2. How well are these changes in customer tastes and preferences being reflected in competitive strategies in the industry? Changes in customer tastes and preferences are reflected in competitive strategies pursued by different retailers in the industry. Competitive strategies help an organization to build a competitive advantage which is the result of having superior performance over competitors. (Hill) And that advantage makes a company achieved superior efficiency, quality, innovations and responsiveness to customers. Nowadays, companies have understood the importance of competitive strategies and consumer behaviors in doing and sustaining a business in the long run and try to adjust those two aspects. For example, during 1970s in the US retailer industry, Wal-Mart pursued cost leadership strategy and provided goods and services at lower unit costs than its competitors. Meanwhile, Sears targeted at middle households and expanded its overheads while Kmart tried to apply low cost structures like Wal-Mart for non-brand items. (Vance, p 160) Wal-Mart intends to positions its goods to appeal to general or average users to improve efficiency among altogether four factors required to build competitive advantage. Cost leadership is the key strategy of Wal-Mart and it made Wal-Mart dominated the retail market by offering the lowest possible prices. Moreover, the company’s sheer size puts it at an advantage above other similar stores, such as Target, Sears, and Kmart. (Vance) But, the consumer tastes and buying behaviors have been changing and demographic trends have shown that there will be more households with single parents and higher incomes. Those kinds of customers need ready-to-made foods or sophisticated foods such as diet foods in addition to typical foods. When cost is not the major factor to determine consumer buying decisions, Wal-Mart has to invent a new competitive strategy such as differentiation strategy which can provide customer responsiveness to catch up with customer tastes. (Hill) Similarly, companies have to build its competitive advantage through application of suitable strategies that will meet customer tastes. For example, more and more customers have been using credit cards and it will require a company focus on IT strategy. To fulfill the customer changing tastes, an organization has to strengthen its IT department to control the secure credit card transactions, verify credit cards and transaction databases. Consumer tastes have been changed not only in physical patterns but they altered in perceptions. For example, Hanna (p 308) argued that when consumers stop buying from a company, the possibilities because of poor product quality are only 14 percent while 68 percent comes from consumers’ bad buying experiences such as being treated rudely by the staffs. So, an organization which formerly focused on its superior product quality strategy ought to pay attention on its Human Resource strategy and customer responsive programs. 3. WHAT ARE WALMART’S STRENGTHS, WEAKNESSES, OPPORTINITIES, AND THREATS (SWOT ANALYSIS)? WHAT CONCLUSIONS DO YOU DRAW ABOUT ITS FUTURE? SWOT analysis is very useful in determining the prospects of a business both in internal and external environments. The purpose of analysis within an organization is to indicate strength which will lead to superior performance and weakness to inferior performance. Analysis of the external environment of an organization dedicates to pinpoint opportunities and threats that will affect the organization positively or negatively. Strengths First and foremost, Wal-Mart possesses a solid image value as the largest retailer in the world. This value means a lot and makes a customer trusted in buying Wal-Mart stores and supercenters. Moreover, Wal-Mart is among a few companies which can successfully apply cost leadership strategy by providing lowest costs for customers meanwhile they can implement customer responsiveness. To provide low prices, the company reduces costs by utilizing advanced electronic technology and warehousing. Application of SAP, business management software, also strengthens Wal-Mart’s ability to control and manage its business processes as well as to keep the shelves at stores stocked with best-selling items. The company also gets benefits in tracking goods at inventory and distribution centers by using RFID tags. Wal-Mart can negotiate deals for merchandise directly with manufacturers to eliminate the costs for middleman or agents (Hayden p4). The logistics system is effective and helpful to direct right merchandise to the respective distribution centers to supply the goods to stores or supercenters at regular intervals. At the same time, the management team can build a strong image concerning customer services by creating a pleasant buying experience with friendly and efficient staffs. Wal-Mart is pursuing diversification strategy by keeping many product lines and also can diversify its store types, Neighborhood markets and malls. The management team’s ability to foresee the business trends and consumer behavior is also strength for Wal-Mart. Wal-Mart owns its website to publish news and reports as well as to provide an online store to catch up with the changing customer buying behaviors. Having a website not only offers convenience for customers, but also for its logistics system to track online orders. The company even has a distribution center for online orders. Wal-Mart pay attention to hiring new employees and it is the largest employer in the United States. Although it provides employments for individuals without a degree, the company applies a focused strategy on its human resource to produce efficient and skillful employees. Finally, Wal-Mart can adapt to different strategies and can implement them practically. It applies globalization and localization strategies successfully and opened many units around the world. Weaknesses Wal-Mart still has some weaknesses although they are few. First, Wal-Mart has no formal mission statement. Mission statements are clear descriptions of a business concerning its ways to reach its vision. Wal-Mart should have mission statements to let its stakeholders know how the company is operating to get its goals. Wal-Mart’s overly successful business strategies and expanding power sometimes make it viewed negatively by the eyes of general public. Some ethical shoppers consider Wal-Mart as a retail giant that monopolizes domestic markets and hinders the possible domestic store owners from entering into retail market or surviving in it. Wal-Mart is also accused of paying low wages and weak employee benefit programs such as healthcare benefits. Labor relation problems are common at Wal-Mart and the company is opposed to unionized labor (Hayden p 17). Moreover, Wal-Mart is alleged to discriminate against female employees and violates child labor laws. Those criticisms may weaken the trust and morale of its current and prospective employees towards the company. Opportunities Obviously, Wal-Mart is the largest retailer and its favorable financial records show that there are many opportunities in future. According to Wal-Mart’s annual report in 2009, net sales increased 6.8 percent ($255.7 billion in total) and ROI or Return On Investment was 19.3% which means every time it invests 100$, it will get 19.3$ in return. In retail industry, there are no bargaining power of suppliers and that of buyers over Wal-Mart for it is the market leader and it possesses strong purchasing power over its suppliers and supplying power over its customers. High barriers to enter into the retail market because of absolute cost advantages, proprietary learning curve, economies of scale, brand identity of existing retailers may provide opportunities for Wal-Mart to be number one in the industry. There are many great opportunities for Wal-Mart online store for several reasons. Consumer buying patterns are changing and moving towards online and according to The Independent newspaper, roughly 83% of people revealed that they have shopped on-line once in their life time. Knight claimed that a recent survey from online retailer Safe Home Products showed 89% of the survey respondents prefer online shopping to in-store shopping. The gradual expansion into international market is another opportunity for Wal-Mart to bring success. If Wal-Mart utilize a localization strategy by sharing value creation activities duplicated in every region it expands to and decentralizing authorities in each division, there would be a bright future for Wal-Mart in international market. Expansions to several Asian countries like China and South Korea are huge steps into Asian markets. Wal-Mart offers alliances and licensing agreements to smoothly move into those markets. It also forms strategic alliances by merging or acquiring other local or global retailers to overcome potential competitors and strengthen its future success. Wal-Mart can create another opportunity by changing its bad reputations with labor wages, employee benefit programs and child labor laws. Wal-Mart announced its concerns for those areas and provided a new health care plan for employees. Moreover, ‘Wal-Mart pays attention to the labor practices within its organization and even within its suppliers’. The company also shows concerns for the environmental problems and it will be an opportunity if Wal-Mart can work out plans to improve the neighborhood of its units or expansions. Moreover, as a market leader and a recognized brand with economies of scales, Wal-Mart can lower the high prices in developing countries to improve the lives of people there and finally it will drive to build its goodwill and strong image value. Threats As a global retailer, Wal-Mart has to comply with foreign regulations and standards and sometimes it may produce conflicts with its own regulations, corporate strategy and finally profit margins. Some countries have many restrictions in doing business and so Wal-Mart needs to trade off between its expansion strategy by dominating the area and the approval to open a new store only in targeted regions. To implement the cost leadership strategy which has brought many benefits to Wal-Mart, it has to make suppliers comply with its pricing standards. Then, the suppliers, who rely on the giant retailer, also have to adjust the prices downward and so it will finally affect the wages of the employees along the supply chain. The problem may trigger bad reputations or relationships with labor unions and even drive to lower the standard wage of a region or country. This kind of problem of being unethical can bring negative impacts on Wal-Mart’s reputation and will hinder its expansion from the countries where governments pay attention to its citizens’ rights. Among the five forces in the retail industry environment, Wal-Mart needs to consider the competitive rivalry with its major competitors: Costco, Target and Kmart in US retail market and UK’s Tesco, Germany’s Metro and France’s Carrefour in international market. The degree of rivalry is quite intense for the growth of retail industry, low switching costs and expansion strategies of competitors. Moreover, there can be threats concerning with substitute products offered by competitors. (Hill) Future Trends It can be concluded that advances in technology have contributed a great deal to the growth of Wal-Mart. Setting up of RFID and SAP can organize and control almost all processes in Wal-Mart though those programs may be incompatible or beyond applicable for some suppliers or regions or countries. Its distribution centers effectively cut cost of shipping and delivery time by utilizing high technology. Via sophisticated computer systems and databases, the operators can track inventory to reorder and supply the products readily available on shelves. Wal-Mart has been very successful in the past and for the time being and even the company is ranked as the second most admired company in the world by Fortune Magazine (Hayden p4). To stand as an organization which is successful with respects of sales volumes, market share and profits in the long run, having a good name plays a vital role. Nowadays, ethical behaviors of businesses are considered as an important factor in the survival of a business in the end. Wal-Mart should focus on the issues with their employees as well as labor unions and find out a solution that will bring a win-win situation for both sides. It would be beneficial if Wal-Mart can pursue transnational strategy which needs both local responsiveness and cost reduction which are essences of Wal-Mart’s strategy. To implement transnational strategy successfully, a company should have a decentralized control to provide flexibility for local issues while the managers at headquarters should have centralized control to cooperate company activities in a harmony. (Hill) IT will play a major role in coordinating business processes of an organization running transnational strategy. 4. Should WALMART’S develop a separate strategy for the heavy user segment of the retailers industry? Wal-Mart should definitely implement a separate strategy for its heavy user segments because those users have brought many benefits for the company, financially and non-financially, and can bring more users by spreading word of mouth news. Moreover, those heavy users should get something in return for their loyalty because customer loyalty plays an important role in hindering new retailers entering into the market. Customer loyalty or retention programs should be offered to maintain existing users and attract possible customers in future. Although Wal-Mart does not have a particular customer loyalty programs, its customer loyalty, which is built through its low prices and good customer service, is quite impressive. “Wal-Mart was found to dominate the 2010 COLLOQUY Retail Loyalty Index, in results that the study noted reflect a reality of the global recession: low prices drove consumer loyalty”. (www.procurementleaders.com) But it still needs to provide loyalty programs that return gratitude of heavy users in terms of financial benefits such as cards for discounts or points or coupons to recognize their patronage. Depending on their frequency of buying, users should get ranks such as premium users. They should have an opportunity to make suggestions on Wal-Mart’s products and services and their advices should be prioritized compared to normal suggestions by other users. 5. What should Robson Walton and Michael Duke do to grow sales, profits, and market share at WALMART’S? Sales, profits and market shares mean differently in business environment. Businessdictionary.com defines sales as “a contract involving transfer of the possession and ownership of a good or property in exchange for money or value”. Profit is something left after total costs including taxes and dividends are deducted from total revenue and it is the most preferable indicator in determining a business’s success. Market share is a percentage of total sales volume in a market owned by a specific brand or company. (www.businessdictionary.com) For intense competitors like Coke and Pepsi Co in 1970s, getting a better market share was the primary concern for both and each company experienced declining profitability. (Hill) As Wal-Mart is in a highly competitive and mature retail industry in which there are a small number of large companies, like Costco, Kmart and Target, its strategies have several effects on its competitors. The business level strategy needed to pursue at this stage is to reduce strength of competition among major players in the industry. At the same time, Wal-Mart has to deter possible entries into industry and play non-price competition by applying marketing programs. (Hill) Wal-Mart has net sales of $401.2 billion and net sales increase rate of 7.2%. (Wal-Mart Annual Report p1) Sam Walton’s concept of successful discount retailing has been inherited and Wal-Mart has cut the price on each product as much as possible, lowered the markup and earned profit from the increased volume of sales. (Hayden p5) To increase sales, Robson Walton and Michael Duke can use several strategies such as offering more products or product lines, volume discounts and expanding into new regions that can be good locations. Wal-Mart’s bargaining power over its suppliers can fulfill the supply needed to increase sales. Wal-Mart can also try three options or price point programs in which prices and qualities are matched up equally to make customers chosen the middle price range. (www.dennissommer.wordpress.com) To increase market shares, Wal-Mart can try to acquire other small retailers existing in the industry. More ethical and possible way is to conduct survey programs about consumer preferences and make its research and development department focused on retail consumer buying behaviors to find out what customers really want correctly. SAP can help it track best seller products and idle items. To increase profit, Walton and Duke can pursue mixed strategies to increase sales and revenues as well as to reduce operating cost without lowering the wages of employees under the standard rate. As a global company entering into international market, Wal-Mart spent a lot of bureaucratic costs arose from performing different functions. (Hill) Wal-Mart needs to consider a more effective organization design that economizes or lowers bureaucratic cost, increases revenue from product differentiation and utilizes its strong economies of scale in lowering overall cost structure. Finally, Robson Walton and Michael Duke should maintain the policy goals crafted by their founder, Sam Walton. In 1962, Sam Walton founded Wal-Mart and announced that three policy goals would define his business: respect for the individual, service to customers, and striving for excellence (www.walmart.com). These three goals are too logical to build competitive advantage as well as to maximize long-run stakeholder value. They can be very useful in building a great image value of Wal-Mart that will bring more success to the organization with respects of sales, profit and market share in the end. Works Cited Hanna,Nessim and Wozniak, Richard. Consumer Behavior: An Applied Approach, NJ: Prenhall. 2001. Hayden, Patrick, Lee, Seung, McMahon, Kate and Pereira, Mike. Wal-Mart: Staying on Top of the Fortune 500 A Case Study on Wal-Mart Stores Inc .the Graduate School of Political Management, George Washington University, WN, 2000. Hill, Charles W.L and Jones, Gareth R. Strategic Management Theory An Integrated Approach .8th Edition. 2008. Kinsey, Jean. "The Changing Global Consumer”. Presented at the 2000 IAMA World Food & Agribusiness Congress. Chicago, IL, 2000. Knight, Kristina. “Survey: 89% of consumers prefer online shopping”. Ecommerce : 19 December, 2007. 25 April, 2011. Umberger, Wendy, Thilmany, Dawn and Ziehl, Amanda. Consumer Tastes & Preferences: What Research Indicates. Department of Agricultural & Resource Economics , Colorado State University, Co. www.dennissommer.wordpress.com. 8 Strategies to Increase Sales Revenue Growth. 23 August, 2010. 24 April 2011. < http://dennissommer.wordpress.com/2010/08/23/100823-sales-growth-strategies/> www.procurementleaders.com. “Walmart dominates US customer loyalty index”. 01 April 2010. 26 April 2011. Read More