Walmart Case Study

Many retail stores are created by an owner that has a very creative idea for marketing products. Not all stores seem to stay in business partly due to the lack of interest shown in later years of the business's growth. The chains that tend to succeed are of course financially backed but the owner of the stores stays creative and innovative in their ideas to keep promoting the chain. One of the best examples of an entrepreneur succeeding in their idea for success lies in one man: Sam Walton, creator of Wal-Mart.

At the heart of Wal-Mart's growth is the unique culture that "Mr. Sam" built. His business philosophy was based on the simple idea of making the customer No. 1. He believed that by serving the customer's needs first, his business would also serve its associates, shareholders, communities and other stakeholders. The goal at Walmart.com is to bring Mr. Sam's culture and philosophy from Wal-Mart stores to the Internet. Sam Walton had three basic beliefs the company was built on. Sam Walton built Wal-Mart on the revolutionary philosophies of excellence in the workplace, customer service and always having the lowest prices. They have always stayed true to the Three Basic Beliefs Mr. Sam established in 1962:

1. Respect for the Individual

2. Service to Our Customers

3. Strive for Excellence

Sam Walton always knew he wanted to be in the retailing business. He started his career by running a Ben Frankling franchise store and learned about buying, pricing and passing good deals on to customers. He credits a manufacturer's agent from New York, Harry Weiner, with his first real lesson about pricing:

"Harry was selling ladies' panties for $2 a dozen. We'd been buying similar panties from Ben Franklin for $2.50 a dozen and selling them at three pair for $1. Well, at Harry's price of $2, we could put them out at four for $1 and make a great promotion for our store. Here's the simple lesson we learned ... say I bought an item for 80 cents. I found that by pricing it at $1.00, I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough. But this is really the essence of discounting: by cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail than you would have by selling the item at the higher price. In retailer language, you can lower your markup but earn more because of the increased volume." Sam's adherence to this pricing philosophy was unshakable, as one of Wal-Mart's first store manager's recalls:

"Sam wouldn't let us hedge on a price at all. Say the list price was $1.98, but we had paid only 50 cents. Initially, I would say, 'Well, it's originally $1.98, so why don't we sell it for $1.25?' And, he'd say, 'No. We paid 50 cents for it. Mark it up 30 percent, and that's it. No matter what you pay for it, if we get a great deal, pass it on to the customer.' And of course that's what we did." And that's what we continue to do - work diligently to find great deals to pass on to our customers. Thanks to the legacy of Sam Walton, Wal-Mart is a store you can count on every day to bring you value for your dollar. And that's why at Wal-Mart, you never have to wait for a sale to get your money's worth!

Wal-Mart Stores are an irresistible (or at least unavoidable) retail force that has yet to meet any immovable objects. They follow three pricing philosophies: Every Day Low Prices, Rollback, and Special Buy. Bigger than Carrefour, Royal Ahold, and Kroger combined, it is the world's #1 retailer, with more than 4,500 stores, including discount stores (Wal-Mart), combination discount and grocery stores (Wal-Mart Supercenters), and membership-only warehouse stores (Sam's). Most of its stores are in the US, but Wal-Mart is expanding internationally; it is the #1 retailer in Canada and Mexico. Wal-Mart also has operations in South America, Asia, and Europe. Founder Sam Walton's heirs own about 38% of Wal-Mart.

The difference between Wal-Mart and KMart is very telling. In 1991, Joseph Antonini, then Kmart's chief executive officer, spent some $80 million on an advertising campaign to convince consumers that he and the company believed in customer service. Few consumers believed him, however, and Kmart's sales increased by only 3 percent. During the same year, sales at Wal-Mart, which not only brags about its customer service but also actually provides it, increased by 26 percent. In 1993 and 1994, Kmart spent $3 billion on capital renovations, hoping to entice customers back. This was ill-spent money. Customers didn't flock to Kmart; they went to its competitor, Wal-Mart, which had undergone no expensive renovations, preferring instead to continue to provide the best possible service to its customers. Kmart's dismal bottom line is directly related to its lack of customer service and its out-of-control operating costs. If the company had taken just 10 percent of its advertising or renovation budgets and used that money to train its employees in the art of customer service, Kmart might have realized profits similar to those of Wal-Mart.

Sam Walton, founder of Wal-Mart, realized that customer service is critical to the success of any business. He stressed to his employees that they should do whatever it takes to satisfy the customer, and he believed that a dollar saved is a dollar passed on to the customer. Too many other companies, including Kmart, believe that a dollar saved is a dollar passed on to their executives.

Many people think Wal-Mart has the best customer service. For example, here is a letter written by a Wal-Mart customer.

To: Wal-Mart

I believe in letting people know when they've done a good job, which is why I'm writing this letter. I wanted to tell you about a recent experience that made me quite happy. Specifically, I am writing about your returns. I purchased two different dog harnesses made by Rose America Corporation. (I cannot find them here or on the Internet; perhaps you can pass this along.) Neither harness fit the dog for which it was intended, although I had measured the dog each time and bought the appropriately labeled harness. I finally gave up, returned them, and wrote to you via the Wal-Mart web-site about this.

Several days later, I got an e-mail from Sarah Bell at Rose America. She was very sorry about my frustration, and offered to send me a replacement harness. I gave