Industry Analysis and a Competitive Analysis
Industry Analysis
Industry analysis involves an analysis of the five competitive forces by Michael Porter, which will enable Wal-Mart to distinguish its competition in the industry.Using this tool, Wal-Mart will be able to determine its capacity to compete successfully in the industry. Porter's five force analysis entails the analysis of rivalry among competitors in the industry, threat of new entrants, bargaining power of buyers, bargaining power of suppliers, and the threat of substitutes.
Rivalry among competitors
In a situation where the number of competitors in the industry is small, then rivalry tends to be weak; on the other hand, many competitors are likely to cause an increase in competition and cause the market to become less attractive. In the case of Wal-Mart, the competition is likely to remain moderatebecause it has the ability to expand its operations and products (Martens, 2006).
Threat of new entrance
If there are barriers to entry into a particular market, then it becomes less attractive to new entrants. New firms usually find it difficult to enter into a particular market if the barriers to entry are high as the costs involved are usually high. Wal-Mart has a well established brand image, which makes it quite difficult for new firms to enter the market. If a new firm enters into the market, it is likely to face numerous challenges because there are several big competitors in the market such as Costco Wholesale Corp andTarget Corp (Mallon, n.d.).
Bargaining power of buyers
If Wal-Mart fails to effectively differentiate its products, then buyers are likely to switch to other retailers because they tend to become moresensitive to prices. If the products in the market are quite similar, buyers are likely to compare prices offered by differentsuppliers. This increases the competition, often leading to lower prices and profits. In this case, Wal-Mart uses a powerful pricing strategy, which promises buyers to get its products at extremely low prices, always(Mallon, n.d.).
Bargaining power of suppliers
In some situations, suppliers may tend to be quite influential; for instance, suppliers are likely to be quite powerful when there are a few substitutes available. The suppliers may also be influential if they have more effective or unique products. This situation may also happen when the costs associated with switching from one supplier to another are high. Wal-Mart holds a significant part of the market and suppliers are well aware of that fact. This means that suppliers are not very powerful in the case of Wal-Mart.
Threat of substitute product
Customers oftenseek to have quality products at low prices. This means that if the cost associated with switching a
product is low, then the threat of substitutes tends to increase. Some of thefactors that are likely to influence the customer to switch to a different productinclude price and performance. However, the threat of substitution tends to reduce significantly if customers are loyal to a product (Malon, 2015). Wal-Mart's pricing strategy;"Every Day Low Price" is quite effective in attracting and maintaining many loyal customers.
Competitive Analysis
Despite being one of the companies with the largest market share in the industry, Wal-Mart still faces stiff competition from other companies such as Target and Costco. Wal-Mart operates in a highly competitive market, which requires the company to come up with highly effective and innovative business strategies. For instance, this market requires Wal-Mart to develop highly effective pricing and marketing strategies. The company has expanded its operations to many different countries, which means that it has competitors both domestically and internationally. Some of the local competitors that Wal-Mart has to fight with include Costco and Target, which can also be classified as direct competitors. The direct competitors to Wal-Mart pose significant threat to the company because they are quite large as well as because they use effective strategies to push for the sale of their products. For instance, Costco has the capability to compete with Wal-Mart because it is the largest discount wholesaler. However, Wal-Mart manages to fight the competitors by offering high quality products at extremely low prices as well as ensuring to have numerous stores in the U.S. and abroad. This distribution strategy helps to ensure that the company has a presence in virtually all parts of the U.S. and in other large markets abroad. Besides, the company undertakes powerful commercials that help to boost the image of the company, which makes the consumer to perceive the brand as the leading one in the market. Based on net income figures, Wal-Mart leads, followed by Target and then Costco where the companies managed to make $17 billion, 3 billion, and 1.96 billion respectively (Gandel, 2013). Target also pursues a low price strategy just like Wal-Mart does, which means it is likely to pose significant competition at virtually all levels. This means that Target is likely to eat into part of Wal-Mart's market share such as the grocery items business line. Wal-Mart also faces indirect competition from Dollar Stores, comprising of Dollar General, Dollar Tree, and Family Dollar although these are quite small in size when compared to Wal-Mart. These companies pose some level of threat to Wal-Mart although they lack the capacity to provide a wide range and quality of products and services as Wal-Mart.