INTRODUCTION
In this article, we are going to discuss the Walmart Cost Leadership Strategy and learn ways to achieve it effectively.
- Walmart is the world’s largest company by revenue. The main strategy Walmart uses to remain cost-competitive is cost leadership, which means they offer products at lower prices than their competitors.
- They keep their prices low to attract more customers and maintain a favorable market position. Despite its large size and dominant market share, one of the challenges Walmart faces is maintaining this position while still delivering good customer service and keeping costs low enough to turn a profit.
- Walmart’s strategy of competing on price involves using various cost-cutting steps. Walmart controls the costs of its products by using fewer employees than its competitors, providing low-cost health insurance, and restricting store hours.
- These policies enable them to keep their overhead costs low, which keeps their prices low as well. Walmart also maintains a large share of its business from repeat customers by offering everyday low prices all year long as opposed to competitors who only offer discounts during certain seasons.
WHAT IS A COST LEADERSHIP STRATEGY?
- Cost leadership in marketing strategy refers to gaining a competitive edge by having the highest costs of running in the market.
- Organization effectiveness, scalability, structure, ambition, and accumulated experience are frequently used to drive cost leadership (learning curve).
- A cost leadership strategy seeks to leverage productive capacity, well-defined scope, and other advantages while manufacturing highly formalized goods with sophisticated equipment.
- In current history, an increasing number of businesses have adopted a contributor to the success to attain a leadership position.
- These characteristics include premium pricing, great customer service, and marketing innovation all at the same time. Such themes include premium pricing, outstanding customer service, and product excellence all at the same time.
- Walmart has achieved global success as a result of its cost-cutting approach. The firm has reduced inefficiencies at every stage of manufacturing, allowing it to supply consumers with high-quality items at affordable rates. Cost leadership is not the same as price strategy.
- A firm may be the cheapest manufacturer yet not provide the smallest goods and services. If this is the case, the performance of the business would be above ordinary.
- Cost leader firms, on the other hand, charge higher prices and are extremely effective at it due to their low-cost management and implementation.
WALMART: COST LEADERSHIP STRATEGY
Its first Walmart shop, established by Sam Walton, appeared in Rogers, Arkansas, in 1962. After seventeen years, projected sales had surpassed $1 billion. Wal-Mart Companies, Inc. was indeed the world’s leading manufacturer at the end of November 2002, with $218 billion in annual sales.
Walmart’s winning approach in the United States was to sell branded items at affordable prices. Approximately 100 million people visited a Wal-Mart shop somewhere else in the globe on weekly basis. Through further than 3,200 stores throughout the United States and far more than 1,100 outlets in México, Costa Rica, Ontario, Argentina, Brazil, China, Korea, Germany, and the United Kingdom, the business engaged over than 1.3 million colleagues globally.
Around 2001, Forbes magazine declared Wal-Mart the second best-regarded business in the US, and the Economic Times and PricewaterhouseCoopers placed it ninth on the planet. The next year, Wal-Mart was awarded the Forbes 500’s top one company and received the Ron Browns Honor for Business Excellence, a presidency medal that acknowledged corporations for excellent success in worker and community engagement.
In the bargain retail business, Wal-Mart held 50 percent of the market share. Among its approximately 3,000 vendors were Procter & Gamble, Clorox, and Johnson & Johnson.
Though Wal-Mart was the largest client for consumer goods makers, it made a conscious effort to avoid becoming overly reliant on any particular source; no single company accounted for further than 4 percent of its total buy quantity.
Approximately 85 percent of the products sold by Wal-Mart were transported toward its shops via its distribution model. On aggregate, opponents provided less than half of the product to its store outlets through their regional warehouses. The firm has over 3,000 vehicles and 12,000 trailers in its inventory.
Wal-Mart has installed a cellular communications network that enabled intelligence to be exchanged throughout the industry’s massive array of shops, distribution facilities, and providers. The technology aggregated customer demand, allowing the firm to purchase larger shipments amounts without suffering storage expenditures.
DIFFERENCE BETWEEN COST LEADERSHIP AND PRICE DOMINANCE
Price dominance and cost leadership are two distinct marketing techniques that are sometimes misunderstood. For example, price leadership denotes a company selling its items at lower or lower prices. However, cost leadership implies that a company benefits from lower operating costs. A firm that strives for cost leadership doesn’t inevitably have reduced product pricing.
Price Dominance: Price dominance denotes a company that operates at lower or lower pricing for its items. This does not imply that the firm’s manufacturing costs are reduced as well. Having said that, the company may be selling its items at incredibly thin profit margins.
In reality, businesses may occasionally offer their products at a loss or break-even threshold to get maximum market penetration. Online retailers, for example, are a prime example of a price approach to leadership.
To get the greatest share in the market, they frequently operate at cheaper pricing with smaller profit margins. These businesses increase their earnings by expanding their sales volume. As a result, rather than being cost leaders, they are pricing rulers.
- Leadership in Costs
A firm that is cost-leadership involves minimizing manufacturing or long-term value creation. The company’s products may even be sold at market-competitive pricing. In other words, the firm charges the same pricing as its counterparts.
This indicates that the firm is making a lot of money even at a comparable market pricing. Nonetheless, cost leadership is most effective when combined with a price leadership approach. For businesses operating in price-driven marketplaces, cost leadership is a typical approach. However, a firm can attain minimal operating expenses and offer its products at cheaper pricing.
WAYS TO ACHIEVE COST LEADERSHIP STRATEGY
It is not simple to understand the true advantages of the cost leadership technique. However, this does not imply that anything is unimaginable. As previously stated, a cost leadership strategy concentrates on lowering manufacturing or operating costs or gaining a competitive advantage.
Large-scale production has become an efficient strategy to reduce operating costs. Expenses are classified into two types:
- Constant costs (salaries, property taxes, insurance, depreciation, building rents, etc.)
- Costs that change (utility cost, direct labor cost, material costs, etc.)
If a company’s industrial output grows, it may simply lower its fixed expenses. Regardless of the overall quantity of production, the building’s rental, real estate taxes, or wages of administrators, directors, and others will stay constant. As a result, lowering fixed costs is a fantastic method to lower the cost of production. Aside from that, technical improvements might assist a company in optimizing manufacturing size.
Numerous more cost-cutting techniques might assist a company in reaching its final goal:
1. Scale economies
An extremely effective manufacturing process usually lowers the costs of production. By decreasing production costs, businesses can benefit from economies of scale. However, it is only achievable for huge corporations that use a large-scale manufacturing process.
2. Advantage of Size
A huge corporation indicates that a company has a lot of buying power. When a company manufactures large amounts of a product, it requires large volumes of raw materials. Of course, when you buy a large number of raw materials, you get a discounted price from the vendor.
3. Technological Advancement
Introducing better and more efficient technology solutions is also a fantastic way to save money. In the long run, a firm’s eagerness to adapt to technical innovation may assist it to sustain a cost leadership edge.
4. Methods of Operation That Are Effective
The term efficient refers to making full use of resources. A firm may achieve cost competitiveness by making effective use of its resources. Employing a productive and result-oriented staff, eliminating waste, and increasing productivity may drastically cut manufacturing costs.
5. Obtaining Raw Materials
Possessing easier access to raw materials aids cost leadership in reaching its ultimate aim. A supplier also offers raw materials with a profitability ratio or may raise prices as necessary. Nevertheless, if a company can gain direct access to raw materials or decrease its dependence on a third person, it can lower its operational expenses.
A company can do this by having full access to the actual resource. Alternatively, acquiring raw materials from various vendors can help to decrease reliance. This enables the companies to bargain with the suppliers.
ADVANTAGES OF ACHIEVING COST LEADERSHIP STRATEGIES
1. Profit maximizing: The first and most obvious advantage of cost leadership is an improvement in profit margins. Because the business can drastically cut manufacturing costs, it can maximize earnings.
2. Market Expansion: The cost leadership technique not only assists businesses in an expansion economic, but it is also an excellent method for market expansion. To attain maximum market presence, a company may temporarily or permanently decrease its pricing.
3. Improve Business Resilience: In the business sector, market swings are typical. A cost leader, on the other hand, can mitigate the impacts of a dry market time.
CONCLUSION
This is the way many companies adopt a cost leadership strategy to achieve higher returns and stay in the market for the long run. It has been adopted by Walmart, Amazon, and McDonalds, etc.
