Wal-Mart has several unique competitive advantages that enables them to perform above it peers. The two key competitive advantages are technology and a low cost culture that drives delivering a low price value proposition to customers.
Technology: Wal-Mart has a technological superiority over its competitor by investing more in the right technology to improve productivity. In 1993, Wal-Mart invested 1.5% of discount stores sales versus direct competitor investing 1.3% of store sales into technology. By investing more into technology versus it peers, Wal-Mart put the money in the right technology to get ahead of its peers. Wal-Mart adapted electronic scanning of UPC early on to help capture real time inventory data at the store level and communicate it to Bentonville. They invested in $700 million on having its own satellite communication network, computers, and equipment. This gave Wal-Mart an edge on managing its data in real time and making effective decisions by adapting to the changing consumer trends.
Low Cost Culture: Sam Walton created a culture within the organization that drove the focus on managing cost and delivering the cost savings to the customer through low pricing. An example is trip expenses not exceeding 1% of the purchases. This practice ensures that each business trip creates some kind of value and cost is maintained. Wal-Mart’s overall operating expenses as a percent of sales is at 18.1% compared to the industry average of 24.6%. Wal-Mart had a competitive advantage on a lower overall cost structure than its competitors. Wal-Mart is able to drive cost out of every aspect of the business from controlling expenses to driving out cost at the vendors level. Wal-Mart started negotiating with suppliers directly and eliminated manufacturers’ representative, which cut cost by 3-4%.
How sustainable are these advantages?
Technology: Wal-Mart’s technological advantage is very sustainable as...
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