Industry Analysis: Walmart Before Walmart was the powerhouse that it is today, the company or business had to analyze the industry it was pursuing to make sure it could achieve commercial success, learn how to operate within the industry, and most of all it had to discover a way in which it could gain a competitive advantage.
Is the industry accessible; is it a realistic place for a new venture to enter? Walmart was entering the retail industry that did not have many discount retail goods stores. The barrier to entry was relatively high at the time, so it seemed to be a realistic place for them to begin their business venture but it would not be as easy.
Does the industry contain markets that are ripe for innovation or are underserved? The retail industry offers the opportunity to enter because the retail industry needed a better cost leadership discount store with a variety of products and services that could be sold to a mass consumer base.
Are there positions in the industry that will avoid some of the negative attributes of the industry as a whole? Yes, the retail industry offered a position that had some negative attributes within it, but these negative attributes could be avoided if a strategic plan was set in place to help deflect the negativity that comes with retailing.
The Five Competitive Forces Model that determine industry profitability.
1. Barriers To Entry. Walmart was entering the retail industry which has a high level of entry because it is very competitive with many competing businesses trying to gain consumers business. Economies of scale, or the cost advantage of producing more output to lower the cost per unit. Walmart took advantage of this barrier by offering cheap prices of goods that it supplied to consumers in mass amounts.
Government Policies, Walmart needed to make sure it followed all of the policies and restrictions that come with the retail industry. Capital Requirements, Walmart based its retail stores on buying cheap real estate in the middle of nowhere and building large massive stores that could hold its abundant inventory. Brand Identity, Walmart used the idea of saving people money and time to help establish itself as a dominant cost leadership within the retail industry.
2. Supplier Power. Importance of Volume to Supplier, for the retail industry in general this varies among certain retailers. Walmart used a large volume of capacity within its retail stores so that consumers could buy a high volume of supplies. Increasing Walmart’s supplies also helped with reducing their prices and becoming a cost leader. Differentiation of Inputs, Walmart has many products/services within the retail industry helping it to be an all-in-one retail store that offers everything. Supplier Concentration, this differs from retailer to retailer within the industry but Walmart began its supply of retail goods with five main categories: food, apparel, entertainment, home goods, and pharmacy.
Threat of Forward Integration, Walmart needed to establish who its supplier would be so that it could dominate the retail industry by having concentrated suppliers that offered them cheap goods that Walmart would sell for low prices. Cost Relative to Total Purchases in Industry, Walmart needed to make sure its costs remained relatively low so that it could establish maximum profit within the retail industry.
3. Buyer Power. Bargaining Leverage, Walmart offers cheap prices in the industry to help establish them as a cost leadership. Buyer Volume, Walmart’s stock is usually high in volume and the prices are low enough to allow buyers to purchase large quantities of products. Price Sensitivity, Walmart entered the retail industry as a discount mega store offering very low prices to consumers who are highly price sensitive. Substitutes Available, any other retail store with a product or service that meets the needs and benefits of consumers. Buyers’ Incentives, Walmart gives people “Roll Back Prices” which give the retail industry an option of getting products at extremely low prices.
4. Threat Of Substitutes. Switching Costs, Walmart’s needed to gain consumers from other markets within the retail industry that offer the same products or benefits sought. Buyer Inclination to Substitute, the retail industry is very competitive so Walmart needed to make sure it did not have consumers finding the same products and services offered elsewhere at a better price, benefit, or any other reason for the buyer to shop elsewhere. Price-Performance Trade-Off of Substitutes, certain products within the retail industry are at different prices but have different performance levels in the consumer’s eyes. Walmart offers low priced clothes within its retail stores but the quality of the clothes is relatively low as well.
5. Degree Of Rivalry. Exit Barriers, the retail industry offers easy access to exit within the industry if needed. Walmart could easily stop business if profits did not meet the expectations. Industry Concentration, Walmart concentrated its business by being the cost leader within the retail industry of: food, apparel, entertainment, home goods, and pharmacy. Industry Growth, Walmart knew the retail industry had room to grow because of its strategy to sell high volumes at low prices.
Product Differences, Walmart offered its own type of Great Value goods that could be sold cheaply. Walmart also offered many discount products which was different then many retailers who offered only certain types of retail goods within their store. Diversity of Rivals, the retail industry has many rivals within the industry since retailers can offer certain goods that appeal to a smaller market. But Walmart targeted the idea of being the all-in-one discount store of food, apparel, entertainment, home goods, and pharmacy retail.