Introduction
The major objective of any business organization is to make profits. Businesses need to have a large share of the market to increase their sales and make high profits. As a result, they have to be well-positioned in terms of competition. In other words, they should have a competitive advantage over their rivals (Ahlstrom & Bruton, 2010). The best way a business can gain a competitive advantage is by satisfying their customers. Resultantly, a business should craft a good strategy that will help it to offer the best services, as well as products that will meet the needs of the consumers. There are different types of strategies that a business organization can adopt. The business-level strategy is a major strategy that helps businesses gain a competitive advantage.
Business level strategies refer to the actions that a business organization should take to offer maximum value to their customers that will help it gain a competitive advantage (Griffin, 2007). In devising these strategies, a business organization should explore its core competencies, its service markets, as well as individual products. Once it explores these aspects, the company should then identify the areas that it has more strength and capitalize on them while trying to improve the weak areas (Braun & Latham, 2014). It is imperative to note that customers are the main foundations of a company’s business-level strategies.
As such, the management should define who the business is targeting to serve, what it needs to do to serve its customers or other what the customer needs, and how these needs will be addressed. Four generic strategies can be adapted to establish a competitive advantage; namely, cost leadership, differentiation, focused differentiation and focused low cost. This paper explains the business level strategy of Wal-Mart by determining whether Wal-Mart employs any of the generic strategies or best value and whether it addresses a broad or a narrow market.
Wal-Mart Business Strategies
Wal-Mart is one of the largest organizations in the retail industries in the world. The company is located in the United States of America and specializes in retailing grocery, but it also sells other products. Wal-Mart has been ranked as the largest retail chain in terms of revenue. Wal-Mart operates in many countries across the world and has many branches that are under different names. One of the major factors that have contributed to Wal-Mart’s success is the business strategy that it has adopted. The company has been able to perfectly identify its customer needs and derive the best ways to offer and satisfy these needs (Hill & Jones, 2010).
As a result, Wal-Mart has managed to satisfy its customers hence gaining a competitive advantage over its rivals. Discussed herein are the Wal-Mart generic strategies that it has incorporated in its business-level strategies.
Cost leadership
This has been the main tool of competition for Wal-Mart. Under cost leadership generic strategy, a company sells its products at low cost, as well as offers low-cost services. The main basis of the organization’s competitiveness is its prices. It should be noted that an organization should not compromise quality for low-cost production. Customers are always willing to pay the lowest possible price for a product or a service, but they need value for their money.
As a result, quality is paramount in the competitive business world. Therefore, firms should ensure that they attain internal efficiency so that they can be in a position to have a profit margin that will not only offer low cost to the customers but will also give the business above-average returns. Wal-Mart has been able to master the art of cost leadership (Kreitner & Cassidy, 2011).
The company’s slogan is “always low cost.” The term ‘always’ assures customers that they will get goods and services at a low cost at all times. Its products are relatively cheaper compared to those of its competitors. The company has a high level of internal efficiency, which facilitates low costs without compromising the quality of its products and the quality of the services it offers. Its goods are acceptable to many customers, which further facilitates the success of this strategy. Among the reasons why the company has been able to sustain low cost is the fact that it enjoys the economics of scales due to its ability to purchase goods in high quantity.
Through its cost leadership, Wal-Mart has been able to remain competitive even when the level of rivalry is too high. The company operates in a highly competitive industry, but it has been able to edge out the competition (Braun & Latham, 2014).
The rival companies prefer to avoid price wars because Wal-Mart has the efficiency to sustain low costs and make profits ahead of its rivalries even when they compete. Moreover, Wal-Mart has been able to remain profitable in cases when there are many new entrants, substitute products, suppliers, and buyer power. Its efficiency to reduce profits makes it difficult for new entrants to penetrate the market (Hill & Jones, 2010). Wal-Mart buys goods in bulk, which enables it to win the trust and confidence of suppliers. Finally, customers are not likely to go for substitute products because the low cost they are offered at Wal-Mart entices them to remain at the company.
Differentiation
Under this strategy, a company focuses on the value of products and services it offers; the competition is based on value. The company offers unique products that can satisfy the needs of a certain segment of customers. This is a class of customers who are not very concerned with the price, but they are concerned with the quality of the product they get, the unique features of that product, and the quality of services they get (Ahlstrom & Bruton, 2010).
With great effectiveness, Wal-Mart has been able to offer certain products that have unique features and can satisfy a given class of customers. In most cases, these products are relatively expensive. However, their special features are the main concern of the customers. Wal-Mart has the financial power to add value to products and services so that it can be satisfying to customers. Even though Wal-Mart has been employing differentiation as a competitive strategy, cost leadership is its major business level strategy (Ireland, Hoskisson, & Hitt 2012). The main reason why Wal-Mart has adopted a differentiation strategy is to enable it to cover a wide range of customers.
The differentiated products are relatively cheaper compared to similar products in other companies. Resultantly, the company can incorporate cost leadership in differentiation, a factor that further gives it an advantage ahead of its rivals.
Market focus
Cost leadership and differentiation give the company a wide range of customers; hence, Wal-Mart has been able to focus on a broad market (Ireland et al., 2012). First, through its cost leadership, the company can win the mass market that is mostly comprised of middle and low-income customers. This class of customers makes the majority in any market and guarantees high sales for any business organization that wins it. Secondly, through the differentiation strategy, the company has been able to win the high-end market that is mostly comprised of high-income earners and partially by middle-income customers. Therefore, the two strategies have enabled Wal-Mart to cover all classes of customers. As a consequence, Wal-Mart has been able to get high sales, which translates to high profits. This has put the company at the top rank in terms of revenue and financial strength. The financial ability further gives it a competitive ability as Wal-Mart can broaden its investments.
Conclusion
The business-level strategy has a high ability to give a competitive advantage to any organization. Wal-Mart has been able to adopt a business level strategy that has given it a high competitive advantage. The company is a cost leader in the industry, but it has also employed differentiation. Wal-Mart has been able to broaden its market focus through these two strategies, coupled with the wide range of products and services that it offers. It has created a large consumer base, which translates to high sales and profits respectively. Wal-Mart has the efficiency to maintain low cost and above-average returns.
References
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Braun, M., & Latham, S. (2014). Mastering strategy. Santa Barbara, CA: ABC-CLIO. Web.
Griffin, R. W. (2007). Fundamentals of management: Core concepts and applications. Boston, MA: Houghton Mifflin. Web.
Hill, C. W. L., & Jones, G. R. (2010). Strategic management theory: an integrated approach. Boston, MA: Houghton Mifflin. Web.
Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2012). Understanding business strategy: concepts plus. Mason, OH: South-Western Cengage Learning. Web.
Kreitner, R., & Cassidy, C. (2011). Management. Mason, OH: South-Western Cengage. Web.