Walmart: A Comprehensive Business Analysis for the US Market
I. Walmart’s Macro Environment
PESTEL analysis is the most commonly used tool to analyse a company’s macro-environment. PESTEL analysis is done to ensure the company makes use of opportunities and minimises or avoids the challenges posed by external factors (Issa, et al., 2010).
A summary of key findings of Walmart’s PESTEL analysis is as follows:
The transition into a new government administration under the newly elected president Donald Trump exhibits uncertainties regarding the new foreign policy and trade policy.
Online retail purchases have increased substantially, reaching $394.9 billion in 2016, up 15.1% compared to 2015.
Global economic growth was forecast to reach 2.7% while the US economy would only grow at a meager rate of 2.2% (Anon., 2017).
The G20 nations, BRICS nations (including Brazil, Russia, India, China and South Africa), countries participating in the Asia-Pacific Economic Cooperation (APEC), countries in the Trans-Atlantic Partnership and Investment Agreement (TTIP), and the Comprehensive Economic Partnership Agreement (RCEP), etc. account for much of the global trade (UNCTAD, 2017).
The digital revolution is happening at an unprecedentedly rapid rate with technology becoming a major driving force of the economy (Margherio, et al., n.d.)
Baby Boomer generation is retiring, and Generation X and the Millennials take the Baby Boomers' place.
Walmart’s low pay rate for their employees has drawn much criticism, and the company has faced various lawsuits and widespread boycotts due to this issue (Johansson, 2005).
New online shopping companies are emerging and quickly taking a share of the market. Take Amazon for example. In 2015, Amazon’s market capitalization exceeded that of Walmart, and it became the most valuable retailer in the US. What’s more, in the third quarter of 2016, Amazon ranked as the fourth most valuable public company (Cheng, 2016).
With the rise of the Internet, customers also have more sources to obtain information and reviews about a product and a company.
Awareness of green consumerism and ethical issues about the socio-environmental costs of a company are on the rise. As the environmental protection movement has achieved its momentum in recent years, companies that are branded as environmentally friendly and eco-friendly are more likely to receive positive feedback from guests and maintain a positive public image (OECD, 2012).
New sources of energy that are more efficient and environmentally friendly are more extensively applied.
Environmental regulations regarding a company’s eco-footprint, CO2 emission, etc. have become much more stringent on all levels.
Cyber laws and regulations regarding the cyber world have become tightened, protecting companies from risks of identity theft, copyright violations, etc.
II. Walmart’s Micro Environment
To assess a company’s micro environment, Porter’s Five Force analysis is adopted to analyse Walmart’s customers, suppliers, competitors, new entrants and substitutes. This analysis is powerful in a way that it can help a company identify new trends and changes that impact its profitability and find strategies to counter those effects from an early stage (Porter, 2007).
Direct competitors include Target, Costco, CVS Caremark, The Home Depot, Walgreen, and Kroger.
Convenience stores also compete with Walmart indirectly in the retail market. Some popular convenience store chains include 7-Eleven, Circle K, On the Run and Certified.
Vending machines have gained enormous popularity in the United States with more than 6.9 million machines located in office space or commercial centers.
Due to its size, Walmart has great power over its suppliers. It can negotiate with its suppliers to buy big volume of products at great discount prices.
Walmart also buys and imports products from overseas.
New entry into the retail sector is quite challenging because the initial capital requirement is very high. The market is dominated by some major players.
There is fierce competition for certain types of products such as clothing, food, etc. from small retail stores.
Customers have a lot of power in the retail markets since they have many options when deciding where to shop. Depending on customers’ demographics and preferences, they will choose a suitable place to purchase.
Substitutes of Products and Services
There are close substitutes to the types of products and services that Walmart currently offers. For example, for clothing, instead of buying at Walmart, consumers can buy at other clothing stores such as TJ Maxx, Rose, Love, etc.
In short, from the situational analysis, although Walmart is a giant in the retail market, competition is every intense, requiring the company to develop comprehensive and effective marketing campaigns to promote the company’s image and differentiate it from its competitors.
III. Walmart's Target Market
A target market refers to a group of customers who share some common measurable attributes that influence their behavior in a predictable manner. Once a company defines its target market, it can develop suitable market approach strategies to better attract and serve their customers. Based on its business strategy, Walmart has used three techniques to segment its market, namely demographics (income and age in particular), and geography.
First, since its inception, the main marketing message Walmart has constantly communicated to its customers is “save money, live better”, conveying the company’s promise that it would offer products to customers at low prices. In the United States, this strategy is very successful in attracting low and middle-income customers. As seen from the graph, for the year 2015 more than half of Walmart shoppers have an average annual income of USD 49.9 thousand and less. Compared to Walmart, Target, one of Walmart’s biggest rivals, attracted customers with higher income.
Regarding age, Walmart further identifies some major groups of customers.
For example, the Baby Boomers account for about a third of Walmart’s customer base, which is understandable since these are often the people in charge of going shopping for the whole household. In addition, generation Xers who are relatively young, technology-savvy and low-income are also an important group of buyers at Walmart.
Third, Walmart applies geographical segmentation techniques, dividing customers based on their location to determine where to locate their retail stores and what to stock. For example, in cities with a warm climate like San Diego, Walmart does not store snow shovels and other snow-related items (Noel & Hulbert, 2011). In addition, Walmart stores are more popular in the eastern region compare to the western region of the United States, except the West Coast and a few outliers (Jacobs, n.d.).
IV. Walmart's Value Proposition
To evaluate a company’s value proposition, the 4Ps technique developed by E. Jerome McCarthy can be utilised to analyse the businesses’ key defining characteristics, and to pinpoint its marketing mix. The four main factors of the 4Ps model are product, price, place and promotion. For Walmart, its 4Ps elements are as followed:
- Product: Walmart provides customers with retail service both online and offline. Since it is a multi-brand retail store, it offers all kinds of products a consumer might need at one place including products in such categories as electronics and office, movies, furniture, home improvement, baby products, clothing, household products, pharmacy, outdoor equipment and other seasonal items. Walmart appeals to its customers by giving them a convenient and easy one-stop shopping experience. For example, Walmart’s sales personnel are trained to effectively assist shoppers in finding the goods they need. The company also trains its employees to properly assist the buyers and give them the best experience ever since they enter the store.
- Price: Walmart embraces the low-cost leadership business strategy. In terms of price, Walmart competes aggressively with its direct competitors to provide the lowest possible provide. Its current slogan is “Save money. Live better,” indicating the company’s commitment to its low-pricing strategy. It also an Everyday Low Price (EDLP) pricing strategy which aims to attract large populations of buyers. By buying and selling at great volume, Walmart is able to negotiate aggressively with its suppliers to buy at low costs, and by materializing on economies of scales, it can sell the products to the consumers at low prices and still making healthy profits. Hence, it can be argued that in the marketing mix, the pricing component is Walmart’s main selling point. In addition, by employing the newest technologies such as using bar codes and paying employees with minimum wages, Walmart can also drive down its operational costs.
- Promotion: There are several strategies which Walmart has adopted since its beginning to promote its business with the company’s offering of a wide variety of goods at low pricing being its main message to customers. As for traditional advertising channels, Walmart uses newspapers and websites to advertise its special deals and sales. Regarding public relations, the company uses press releases to update its buyers and stakeholders about policies, products, and strategies. To alleviate its negative publicity due to its weak union, low wages, etc., the company tries to fulfill its corporate social responsibility by establishing Walmart Foundation to raise fund and contribute donations to empower the local community, provide economic opportunities for the underprivileged, and build a sustainable supply chain around the world (Anon., n.d.). As for the digital marketing channel, Walmart creates its online presence via various platforms. First, it broadly advertises its e-commerce website and attracting customers by offering gift cash for new visitors. Second, it also has its own social media pages on social networking sites such as Facebook, Twitter, etc, and the company-sponsored blog.
- Place: In the United States, Walmart has more than 5,000 stores in almost all states, creating more than 1.5 million direct and indirect jobs. Walmart also owns more than 150 distribution centers which are the hubs of the company’s business activities (Anon., n.d.). Its distribution operation remains the biggest and busiest one in the world delivering goods to stores and customers. Walmart’s location and distribution network make it convenient for the customers to shop at its stores and also help to reduce its operational costs.
Is there a Walmart store in your city/state?
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.