Over the years Wal-Mart Retail Stores have played a major role in managing every aspect of their marketing mix, from pricing to distribution. Their marketing mix strategies have made them the world’s leading discount retailer. This paper will highlight the history of Wal-Mart, its marketing strategy, early distribution model, and present distribution system. In addition, this paper will also identify the modification of Wal-Mart’s distribution system as they entered China and the reason for choosing distribution as the element of the marketing mix.
To successfully target a specific segment market, Multi National Corporation (MNC) must develop an appropriate marketing mix. The marketing mix includes decisions about the product, price, promotion and place. The mix influences the consumer behavior and is a combination of how to develop the firm’s product, how to price those products, how to sell those products and how to distribute those products to the customers. With those influences it is important for MNC to develop marketing strategies that are aimed at understanding the customers’ needs so that the product or service provides customer satisfaction and organization objectives. An excellent example is analyzed in Wal-Mart Store’s distribution system.
Wal-Mart Retail Stores’ History
Wal-Mart’s history is based on one man, Sam Walton about 40 years ago who was convinced that consumers would enjoy a discount store with a wide selection of merchandise and individual, friendly service. Through this philosophy, Sam Walton first store in Arkansas changed the course of retailing forever. Under his leadership, Wal-Mart has garnered more than 4,700 stores worldwide, 30,000 suppliers and more than $217 billion in annual sales which makes it the number one retailer in the United States (Busse, 2002).
Walton’s theory on what Wal-Mart should be is “a conveniently located one-stop shopping unit where customers could buy a wide variety of quality merchandise at discount prices.” As Wal-Mart grew, management sought a firm that was a “discount department store chain offering a wide variety of general merchandise to the customer.” It was on these values and philosophies that Wal-Mart expanded. Wal-Mart has grown tremendously in the U.S. market and has ventured to international markets. The company boasts at having stores in all 50 states, Puerto Rico, Canada, China, Mexico, Brazil, Germany, Argentina, Asia, Europe and South Korea (Busse, 2002).
Wal-Mart Marketing Strategies
Wal-Mart’s marketing strategies have given them a firm and distinctive competence that is difficult to match. Their initial approach to use new ideas, knowledge and experience coupled with geographical location in rural towns help to support their everyday low prices and maintain customer satisfaction. Their state of the art distribution and inventory tracking system has helped to position them as the number one retailer in both local and international markets. They have implemented key strategic features that support everyday low prices and increase customer, employee, and stake holder’s satisfaction (Busse, 2002).
Other marketing strategies include convenient location, wide range of products and services, great displays, and every day low prices. Wal-Mart marketing strategies target price conscious, time pressed consumers looking for good value and good service.
Early Distribution Method for Wal-Mart in United States
Wal-Mart, the number one retailer in the United States, is known for their superb distribution system. When Wal-Mart stores began to operation in 1962, the founder and owner Sam Walton was the distribution system. Sam and his family would drive or fly to get supplies for their stores. Since the 16 variety stores (including Wal-Mart) were not considerably far away the Walton family saved expensive transportation costs by doing the shipping themselves (Wal-Mart).
Once Wal-Mart became a public company and growing at an exuberant rate, it was difficult for Wal-Mart to keep the same distribution system. The introduction of an extensive distribution system was made which has been able to track merchandise and inventories across the company. The system was one of the first to the retail market. It involved a satellite, scanners in stores and new warehouse within 350 miles of most stores. The strategic placement of these warehouses is to provide maximum replenishment of inventory when a particular location runs low on an item (Wal-Mart).
Present Distribution System
Today, Wal-Mart is the largest retailing company in the world and most of the credit is due to the company’s distribution system. By realizing, early on that computer programs increase the rate at which stores can be restocked Wal-Mart has been able to surpass their competitors. According to an on line source, “Wal-Mart’s main strategy is a focus on developing cost structures that enable competitive pricing. To reach this goal, Wal-Mart focuses on the replenishment of inventory using the method of cross docking in cross docking; goods are delivered to the warehouses and immediately dispatched to stores without ever sitting in inventory.
This method of distribution helps avoid inventory and handling cost resulting in a reduction of cost of sales allowing lower prices to the customers. In order to effectively cross dock, Wal-Mart incorporates a complex system that links its distribution centers, suppliers and stores to guarantee that an order is processes and executed in hours. This efficiency is made possible by a private satellite-communications system and a fast and responsive transportation system” (Winne, Powe, Howard, 2003)
Supply Retail Link System
In addition, Wal-Mart’s has implemented a supplier’ retail link system that meets their supply chain management needs. The supplier-retail link is a system that is specifically designed to address the unique requirements of Manufacturers and Distributors who sell to Retail Chains. It also provides a decision support system that acts as a bridge between Wal-Mart and its vendors. Wal-Mart has focused on improving its supply chain efficiencies and has invested up to 4 billion in the retail link system. Currently there are more than 10,000 Wal-Mart suppliers who use Retail link to monitor sales and inventory for speedy replenishment if necessary. Vendors of the retail link can retrieve sales data, inventory data and Wal-Mart information on its development (Winne, Powe, Howard, 2003).
China’s Distribution System
The traditional distribution system in China is owned by the state. It is a multi-layer system that has four or five layers. This extended system increases the prices as each layer adds a margin ranging from 5-17%. In addition, suppliers have little control over prices, delivery quality, and the inefficiency of the inventory system. Also the technology is underdeveloped which creates a major set-back for foreign suppliers, who have to rely on the state distribution system (Chung, 2003).
At present, foreign firms are restricted in many ways in the distribution process. For example, foreign firms face political and legal restrictions to distribute imported products, or to manage the distribution networks. To get around these restrictions, many firms establish their own retail outlet, by forming joint venture or merger with local wholesalers. This was done by Wal-Mart and has been proven very successful (Chung, 2003).
Wal-Mart Entering China
Knowing the inefficiencies of China’s distribution system, Wal-Mart utilizes most of the same distribution strategies in their local market in China. However, several modifications on how they conduct business were implemented. First, their successful opening of the first five retail outlets in the nation capital of China, Beijing, became a reality through their merger with Shijingshan Agriculture, Industry and Commerce Corp. Through this merger a strong relationship was developed with Wal-Mart and other local partners. This created a local presence for Wal-Mart which helped to keep their name and projects in front of the many decision makers and help perform much of the necessary networking. In addition, Wal-Mart invested a considerable amount of time in understanding the Chinese culture which helped them to resolve differences as they arise and maximize their chances of success (www.chinatown).
Wal-Mart buys about US$4 billion worth of goods in China every year, for sale in its outlets across the globe. Indeed, the company has done so well sourcing from China that it has decided to move its global purchasing center to Shenzhen. In contrast to competitor Carrefour, which operates “hypermarkets,” Wal-Mart has been very careful to seek official approval for every move it makes in China. It has also expanded cautiously. As a result, Wal-Mart has earned a reputation as a well-behaved, law abiding corporate citizen (www.chinatown).
Modification to Distribution System in China
Wal-Mart has upgraded their supply chain system by selecting and implementing Atlas Metaprise software. This new software has helped the company enhance the functions of the retail link system by advancing its current global sourcing and collaborative business processes with its suppliers throughout China. The Atlas Metaprise software to Wal-Mart’s retail link represents an internet business application that lets global organizations work more efficiently with their network of suppliers and distributors. By focusing on the three areas of strategic sourcing, supply, and demand management and global commerce management, the atlas software reduce cost of goods while still ensuring consistent supply availability.
Wal-Mart Improved Inventory Tracking System
Wal-Mart’s inventory information system uses UPC scanners and hand held barcode scanners to track electronically the point of sale. This information is immediately communicated to the store’s computerized inventory system, which allows maximum efficiency in inventory tracking. It not only allows maximum efficiency but it helps to keep the cost down which is passed on to its customers.
Their “just in time” inventory delivery allows merchandise brought in by trucks to its distribution hub to be sorted and distributed within 24-48 hours, thus minimizing idle inventory. Wal-Mart’s electronic data interchange allows it to communicate with over 3,600 vendors regarding inventory orders, forecasting, planning, replenishing, and transferring electronic funds. Wal-Mart has maintained these activities as a tradeoff to maximize revenues and lower costs while maintaining a leadership position as the number one retailer. Not only does Wal-Mart use information technology to lower their inventory cost but also to lower their distribution cost (Busse, 2002).
Wal-Mart success story in the United States has extended to China and other parts of the global market not because they sell a bigger range of better products than their competitors at better prices or because they have the most elaborate distribution system, but because they sell a concept, a format and a lifestyle. They focus on their USP – Unique Selling Point. Wal-Mart’s management has recognized that transplanting a concept or a format in the global village is not enough. What are important are the complexities of local customs, tastes, preferences and culture which must be catered for. This sophisticated approach has earned Wal-Mart the position as the number one retailer both in the United States and in China.
Reason I chose Distribution
The distribution system is one of the most important marketing mixes and an integral part of the total marketing strategy. This system moves the product or service from the production line to the consumer in the most efficient manner. I love shopping at Wal-Mart because of their low prices, huge selections, convenient location, and the product availability. Wal-Mart has maintained these elements through their sophisticated and efficient distribution system and has been successful in the local and international markets. In addition, my experiences shopping at Wal-Mart has been pleasant. I can always count on Wal-Mart for low prices. Wal-Mart is able to maintain these low prices because of their sophisticated distribution system.
Wal-Mart’s modification of their distribution system has positioned them as the number one retailer in China and around the globe. They have maintained this position by easily adapting to changes in international markets to meet the needs of their customers. As they continue to expand, their distribution system both in the domestic and international markets they will maintain their position as the number one retailer, the best place to work and the first service company to rise to the top of the Fortune 500 companies. As they continue to maximize the use of their distribution system and further streamline their processes they will continue to better meet their customer’s changing needs in this global environment and establish a scalable global network that not only offers a sophisticated distribution strategy but will also maintain cost savings opportunities for its customers.