Hbs Case: Airborne

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Case Report| Creating Sustainable Competitive AdvantageWall Mart| | |

1. Background

2.1. Retail
Discount
Merchandise (wide variety)
National Market
B2C

Retail
Discount
Merchandise (wide variety)
National Market
B2C

Market

Discount
Merchandise (wide variety)
National Market
B2C

Discount
Merchandise (wide variety)
National Market
B2C

Merchandise (wide variety)
National Market
B2C

Merchandise (wide variety)
National Market
B2C

2.2. Value Chain

2.3. Strategy
Wal*Mart’s strategy was a cost leadership (approximately 15% below competition), this was achieved by discount prices and large volume purchases. Prices are adapted to the local competition and set below all competitors. Their marketing expenses are lower than all others in the market. Their locations focused on rural areas (app. 5.000-25.000 inhabitants), aiming to compete if at all only with local stores, which could be out-priced and outgunned easily. Their distribution centres were located in the middle of many stores in order to be able to serve many at the same time and build synergy-effects. Their info system was technically innovative, which –combined with the close by distribution centres – lead to a highly flexible distribution process – they could deliver wares even within 24 hours. In order to diversify their market offerings vertically, they introduced several new market concepts, such as supercentres (offering additional services such as hair salons, florists, bakeries), Sam’s Club (high volume offerings, focused on business customers).

Their Capabilities were a combination of many different features: They excellently improved their value chain by collection as much information as possible about their processes and ultimately optimizing them.

2.4. Special Situation (Porters Five Forces)
Supplier
Wal*Mart developed its suppliers from few brands (which meant little power for Wal*Mart) to many brands. This lead to a risk distribution and a powerful situation for them: Suppliers could easily be substituted with others producing similar products. They also created their own brands, to become more independent from their suppliers. In Addition they formed partnerships with their suppliers, in order to reduce the risk of price-pressure from the distributors. Buyers

Buyers in this market are mainly private households, no “big players” are in this segment. The buying power is therefore relatively low. In the ordinary retail market though, buyers are relatively volatile and therefore powerful and can change their “supplier” easily – just by choosing a different store. In this respect Wal*Mart’s strategy was clever: customers were almost forced to chose them, because their store location was often quite remote.

Potential entrants
The market is close to being saturated, market entry barriers are relatively high because of high monetary requirements for entrants, big players in the market have already expanded into the market. Wal*Mart has chosen their market locations wisely by going for rural areas with close to no competition so far. Their strategy of even cannibalizing amongst their own markets, in order to avoid potential market entrants set a high barrier for new players. Industry competitors

Besides Wal*Mart there are two further big competitors combining a market share of 86%, Wal*Mart itself had app. 45% and therefore is market leader. The following competitors (Kmart and Target) are fought back by always staying below their price range – with comparable product quality. Substitutes

Wal*Mart’s market positioning was the Discount Market. Possible substitutes were * local shops
* supermarkets
* warehouse clubs
2. Questions
3.5. Which are the keys for success in this industry?
Wall Mart succeeded by reducing profit margins and costs radically. The profit margins are 10-15% lower as in standard...
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