“Save money. Live better.” It is this simple vision of Sam Walton that Wal-Mart has adhered to from the very beginning. And it is that very concept that has propelled Wal-Mart into becoming one of the largest corporation in the world. Wal-Mart has become a prime example of a cost leadership corporation that has revolutionized the way consumer businesses interact and conduct with each other in today’s retail environment, in order to give their customer the best value; always. The purpose of this essay is to discuss how Wal-mart was able to achieve such a feat through their cost leadership strategies to bring more value to its customers, how it contributes to their stakeholders, as well as how it positively impacts the society overall. Definition of Cost Leadership Paragraph
Since most of the discussion is on Wal-Mart and its successful implementation of cost leadership strategies, it is imperative to define the cost leadership strategy to give a clearer understanding of the discussion put forward. Cost leadership strategy has been generically defined as a firm being the lowest cost producer, to sell at or below industry prices; By doing so firms are able to gain a larger market share, allowing them to achieve higher overall profits through high volumes of lower marginal profits – That is exactly what Wal-Mart has done. Unlike Wal-Marts competitors who have focused on earning marginal profits by the dollar, Wal-Mart focused on marginal profits by the cents, which allowed them to attract large numbers of customers thus achieve a significant chunk of the market share. It has been stated that “Every seven days more than 130 million Americans shop at Wal-Mart—equivalent to 40 percent of the country. Each year, 93 percent of American households shop at least once at Wal-Mart.” Which is a clear proof that Wal-Mart –by focusing on earning marginal profits by the cents has attracted enormous crowds, in similar context it has been stated that “Wal-Mart is the largest retailer in both Mexico and Canada, and the second largest grocer in England.” (Fisherman, 2006). However the question still remains what is it that Wal-Mart has done, that caused them to be so successful? Cost Leadership paragraph
Wal-Mart from the very beginning has strived to bring its customers the best value by sticking to its core values, “Always low prices. Always.” as a matter of fact, Wal-Mart strives to charge 15% lower prices then its competitors. There are many factors that allowed Wal-Mart to provide that best value, or shall we say best bang for the buck. The first and foremost mentioned by Charles Fisherman in his article The Wal-Mart Effect and a Decent Society, mentioned that Wal-Mart strictly focuses on supplier costs and forces them towards value engineering, basically increasing value added activities and eliminating non value added activities, stating that “It reaches deep inside the operations of the companies that supply it and changes not only what they sell, but also how those products are packaged and presented”. By penetrating vertically into the supply chain Wal-Mart forces suppliers to eliminate even the tinniest non value added activities which save time, financial resources, and other resources that are used up in the manufacturing, packaging, shipping and selling of the product, that is magnified by the large volume of sales to make a significant difference. This applies pressure on the suppliers to keep costs low consistently, allowing them to be more effective and efficient with the resources. Mr. Fisherman also states that another element to keeping the prices low to keep customer value high is by keeping the employee wages low and the unions in control. In order to keep the salaries low Wal-Mart focuses on recruiting teens and students, who are more likely not to be financially burdened by being breadwinners of their families and those who are most likely not to require health...