Custom «Retail Business Analysis» Essay Paper Sample
A strategy is an action plan designed to help an organization achieve its vision. Most retail businesses employ business-level strategies aimed at helping them describe how they will compete favorably in their chosen market segments. A business-level strategy is intended to enable the firm focus its energies in satisfying a group of customers. There are five business-level strategies, which are sometime referred to as generic marketing strategies and include: Cost leadership, Focused Cost Leadership, Differentiation, Focused Differentiation, and integrated cost leadership/ Differentiation. This paper seeks to discuss cost leadership marketing strategy as used by Wal-Mart retail stores.
Cost leadership strategy is an action plan developed by a firm to produce goods and services at a lower cost than its competitors. Low production costs enable a firm to set a better price for its products than competitors, which guarantees it a larger market share in the target market. Cost leadership strategy is used by firms that typically sell standardized products to average customers because they form the largest target segment. This strategy is considered to be the most basic generic marketing strategy necessitating the construction of efficient scale facilities, vigorous pursuit of cost reductions on account of experience, tight overhead, cost control, aoidance of marginal customer accounts, and cost minimization in R&D and promotions. Great expertise especially in management is required in order to achieve the above stated objectives.
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Wal-Mart has been successful in retail business by particularly offering its merchandise at considerably low prices than its competitors. The company has specialized in building its own store warehouses in order to buy in volume at favorable prices and store the merchandise. Cost leadership strategy has compelled Wal-Mart to enter into virgin markets with untapped resources. Wal-Mart has excelled in doing this by putting up good sized stores into small towns that its competitors. Consequently, Wal-Mart stores are located in regions where its competitors are unable to function effectively. Using the Cost Leadership Strategy, Wal-Mart has revolutionized the retail industry in the US by setting standards and benchmarks in the industry, thus gaining competitive advantage in the market.
Using the leadership cost strategy, Wal-Mart has maintained its stay-on-the-offensive policy driven by its principle to be ahead of its competitors and keep them in a reactive catch up mode. This has made the company to continuously innovate and improve its operations. The firm has come up with attractive performance features such as quality enhancement, technological integraation, improved customer service, and new ways of cutting down operational costs. Wal-Mart has also employed fortify and defend strategy, which has made it hard for its competitors and new entrants to gain ground. This has been accomplished by adding personalized services that boost customer loyalty, building capacity ahead of demand, and investing hugely to remain cost-competitive and technologically progressive.
Wal-Mart is dominant in the retail industry across the US. Therefore, it needs to strengthen the lead to hinder its competitors from catching up. This strategy can be improved by expanding the company’s market capture. This is achievable by initiating online shopping service, persisting in selling its products at competitive prices to maintain and attract new customers, investing heavily in technology, creating innovative means of selling its products, developing/strengthening relationships with suppliers, which reduces the number of players selling similar products.
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In a nutshell, Cost leadership strategy is a generic marketing strategy fit for companies entering the market and wants to establish a large customer base within a very short period of time. Consequently, companies with huge capital base and want to be on the competitive edge like Wal-Mart then cost leadership strategy is the best option.
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