What are Walmart's competitive advantages?

Mar 4

It's because Walmart sells products at the lowest prices that it's known as America's favorite retail brand. In 2022, Walmart has a market capitalization of more than 400 billion dollars, making it among the top 25 most valuable companies in the world.

The brand is also known for its capacity for generating large numbers of jobs, in addition to its higher sales. Most of this is attributed to the company reducing operational costs, which were notoriously low in the past. In recent years, these things have improved, but despite all of this, it continues to be the most popular retailer in the US.

Yet, a significant competitive advantage cannot be acquired without gaining a leading position in the market. Walmart has expanded and built a large empire through its broad array of competitive advantages. The purpose of this article is to examine and analyze a few of these competitive advantages. In this article, we will examine 5 factors that led Walmart to its current position.

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Walmart's strategy is shaped by 5 competitive factors

Leadership in cost

It is obvious that Walmart's competitive advantage is its low prices, which can't be matched by other retailers. It has become a part of the public consciousness that Walmart always offers low prices. Many people assume that if they are looking for a particular item at the best price, a trip to Walmart is required.

As a result, companies cannot just turn around and charge low prices for goods and services. Your Walmart seller account may see profit loss if prices are kept too low. Most companies lose money when they pursue cost leadership. In fact, the minuscule profit margins rapidly lead to the demise of most retailers.

In order for cost leadership to be a successful pricing strategy, there are several conditions that need to be met:

Assurance of quality. A majority of customers equate cost with quality, viewing low-priced products as inferior or cheap. Walmart will never rank among the top retailers because of its low prices. In addition, customers who shop at Walmart appreciate its "save money, live better" slogan and its selection of recognizable brands.
Brands with a strong following. Brands that are proprietary to one particular chain of stores sometimes called generics, are also known as private brands. Although the cost of private-brand goods is lower than that of name-brand goods, retailers realize a much higher proportion of the sale.
Supply chain logistics of the highest quality. Most stores have higher retail costs as a result of an inadequate supply chain as companies must pay for things like shipping, storage, and security. With its own transportation fleet and warehouses, Walmart keeps its supply chain costs low in addition to its private brands.
Volume. Many grocery stores operate on margins of under 3% per item, the lowest in the retail industry. It is a large number of items by which these margins are made up as well as the large number of items in which they are sold. The volume advantage that Walmart enjoys over other retailers allows it to capture profits that are even lower than 3%. In turn, this often translates to greater savings for consumers.
Name of the brand

As a result of its development, Walmart has transcended the retail industry in terms of brand recognition. In contrast, other low-cost retailers can try to reach their customers with marketing efforts that can spend millions of dollars. Walmart's low-cost brand is likely to remain dominant for some time regardless of these efforts.

Walmart benefits from a global brand name in addition to increased awareness because of the following:

Customers have more flexibility. There are many not-for-profit organizations that do not have a lot of opportunities to satisfy the needs of customers. Customers tend to look elsewhere if they fail to meet their needs. As much as Walmart tries its best to satisfy customers, it's more likely that a negative experience will be forgotten than a positive one.

Goodwill. A company's goodwill is defined as the measurable value of its reputation in the business world. Walmart is consequently a widely recognized brand in this regard. Walmart has reached a point where its reputation can buy customers as a matter of course, rather than having to spend money to establish one.

Providing customer service

Businesses are increasingly concerned about keeping customers satisfied due to the number of options competing for their attention in the year 2022. Negative reviews from unhappy customers or viral tweets may result in damage to a company's social capital that is difficult to recover.

Among the most favorable policies in the retail sector, Walmart is sensitive to customer needs and provides excellent customer service. It will allow customers to return products without a receipt up to 90 days after the date of purchase. Most retailers, in contrast, limit the amount of time that you can return the product to 30 days and require you to provide proof of receipt.

As demand shifted during the COVID-19 pandemic, Walmart stepped up its game as well.

The economy of scale

Economies of scale occur when production levels are increased proportionately, and as a result, costs are reduced to a proportional degree. In other words, you save money by purchasing a large quantity. Since Walmart manufactures its own private brands in such large quantities, the price per unit is negligible. This is how Walmart is able to have such affordable private brands.

Since Walmart knows there will be a demand for its end products, it has economies of scale. Additionally, smaller businesses cannot achieve economies of scale. This is due to the fact that any cost savings realized per unit would be greatly offset by the wasted quantities of unpurchased goods. In addition to the economies of scale, Walmart is able to source products from abroad at lower prices. When the ship is partially loaded or fully loaded, the cost of transport is generally the same.

Expansion into international markets

Despite being largely dependent on its U.S. operations for most of its revenue, Walmart has continuously expanded its operations abroad. Currently, it operates in over 25 countries, with sales of $119 billion externally, equalling roughly 24% of all revenue.

In the event of a change in consumer behavior in the United States, Walmart will have a security blanket from its global presence as it penetrates new markets. This kind of strategic edge gives its US competitor a significant advantage over it in foreign markets. Experiencing international markets also allows the company to upgrade its economies of scale, which can further reduce costs.

Conclusion

It goes without saying that Walmart is the name that rings loudest when it comes to retail. In the world's retail sales rankings, the company has earned the top spot with its hard work, continual innovation, and expansion into new sectors. As outlined above, nine areas have given it an advantage. The company is in a strong position to stay at the top for a long period of time, considering why it has achieved this position.