Almost everyone in the world knows about Walmart. Renowned for the relatively low prices, Walmart continues to undercut small stores within the retail industry.
As such, most customers often wonder how Walmart manages to set low prices on items and raises the question, what is Walmart’s cost leadership strategy? Here’s what I discovered about the matter!
What Is Walmart’s Cost Leadership Strategy In 2022?
Walmart’s cost leadership strategy effectively helps the company offer low prices and provide quality merchandise as of 2022. This strategy attracts a significant market share since most potential customers find the low pricing appealing. Consequently, the method helps Walmart combat aggressive competition and maintain its market dominance.
If you need more insight into Walmart’s cost leadership strategy, what the process entails, and much more, keep reading!
What Type Of Strategy Does Walmart Use?
Walmart uses the cost-leadership strategy to remain cost-competitive within the retail industry.
Using this strategy, Walmart offers a wide range of products at lower prices than what competitors offer.
Thus, the store can attract more customers, maintain a large customer base and consequently maintain a favorable market position.
Further, to successfully implement the cost leadership strategy effectively, Walmart utilizes several cost-cutting methods translated to low prices.
How Did Walmart Manage To Get The Cost Leadership Advantage?
Walmart managed to get the cost leadership advantage by maintaining relatively lower prices than other retail stores.
That said, the cost leadership strategy is made effective by implementing secondary strategies that help Walmart keep its cost down and transfer the benefits to its consumers.
Further, below are some of the reasons behind Walmart’s cost leadership advantage:
Low Pricing Strategy
With Walmart’s Everyday Low Prices (EDLP) approach, the company maintains its commitment to offering a wide range of products at the lowest possible prices.
Then, the low pricing strategy helps the store maintain a competitive advantage over other rivals in the industry, increasing Walmart’s market share.
Low Operation And Production Costs
To achieve the cost leadership advantage, Walmart maintains low operation and production costs.
For example, the company strives to keep overhead expenses low by employing strategies such as offering minimum wages to workers and setting up stores in low-rent areas.
Also, the company controls production costs and limits the costs located for outsourcing, advertising, distribution, research, and development.
This way, Walmart can afford to save money and set low prices for merchandise.
Effective Supply Chain Management
Walmart maintains an effective supply chain management technique that helps keep prices low.
With that, it strives to maintain tight regulations on transport, logistics, and inbound supplies to avoid extra expenses.
Additionally, the company exerts a high bargaining power with suppliers, enabling it to purchase high volumes of items at wholesale prices and maintain its low pricing strategy.
By effectively using the technique of cross-docking, Walmart manages the transportation of goods by utilizing its own fleet of trucks.
This way, the company ensures that products are delivered to different stores through a network of distribution channels within the shortest time possible.
Furthermore, the technique helps eliminate intermediaries who would incur more costs for the company.
In the long run, cross-docking eliminates storage, inventory handling, and warehousing costs, which results in low prices on products.
What Are The Advantages Of Walmart’s Cost Leadership Strategy?
The main advantage of Walmart’s cost leadership strategy is that it promotes customer conversion, retention, and loyalty, which ultimately increases profit margins.
However, other advantages of Walmart’s cost leadership strategy include the following:
Creates Market Dominance
Walmart’s cost leadership strategy attracts more consumers and promotes customer loyalty due to the low prices of a wide variety of products.
As a result, the company gains market dominance with the retail industry.
Furthermore, the market dominance of Walmart as a cost leader tends to discourage new firms from entering the market and matching the pricing strategy of the company.
Ultimately, the cost leadership strategy helps Walmart oppress emerging businesses and maintain its dominance within the retail industry.
Maximizes The Profits
Among the significant advantages of Walmart’s cost leadership strategy is the maximization of profits due to high sales volumes.
When the company sets low prices, more customers are attracted to shop and, hence, higher profits.
In addition to this, the strategy helps cut down extra costs that save the company more money.
Increase The Ability For Market Expansion
The coast leadership strategy immensely contributes towards the market expansion strategies implemented by Walmart both in domestic and international markets.
With the low prices exhibited at Walmart, the company entices customers in new markets and becomes an effective tool for market expansion.
Ultimately, the company maximizes its market presence in new and existing markets.
Increases General Business Resilience
Walmart’s cost leadership strategy helps improve the company’s business resilience.
When disruptions hit the market, a company bearing cost leadership is more likely to mitigate through the impacts of the market swing.
Therefore, Walmart maximizing the cost-leadership strategy minimizes extra operational costs and maximizes profits, which come in handy when adapting to market disruptions.
How Successful Is Walmart’s Cost Leadership Strategy?
Walmart’s cost leadership strategy has gained success by the commitment to keeping prices of merchandise lower than most of its competitors to encourage customer loyalty and retention.
Driven by a promise of “Every Day Low Prices,” Walmart maintains lower profit margins to sell merchandise at competitive prices.
As a result, Walmart makes up for the lower profit margin by high sales volumes and cost-cutting and generates considerably high profits.
In the long run, Walmart manages to create stable cash flows, more significant margins, and high revenues.
To maintain the low pricing strategy across all stores, Walmart exercises dynamic pricing to keep up with competitors’ pricing strategies.
That said, the company uses dynamic pricing to keep up-to-date with pricing trends and analyze the pricing patterns of competitors so that it can set competitive prices that promote customer conversion.
In addition to the low pricing strategy, Walmart gives customers access to a one-stop-shop that creates convenience for the consumers.
In conclusion, Walmart uses a cost leadership strategy to deliver the “Every Day Low Prices” promise to customers and sell its products at competitive prices.
Further, Walmart’s low prices encourage customer loyalty while preventing new companies from entering the retail industry.