Professor Jeff Dyer An Introduction to Strategic Management Session: Wal-Mart; creating and sustaining competitive advantage

Professor Jeff Dyer FIRST MOVER ADVANTAGE AT WALMART (Wal-Mart Cost Structure vs Industry in 1993) How Does Wal-Mart Do It?

Professor Jeff Dyer FIRST MOVER ADVANTAGE AT WAL-MART (Wal-Mart Cost Structure vs Industry in 1985) How Does Wal-Mart Do It?

Professor Jeff Dyer How Wal-Mart’s First Mover Advantage Pays Off Wal-Mart is first to locate discount stores in cities with less than 50,000 population. Wal-Mart targets greater than 25 percent of all retail purchases in those cities. In 1987, 33% of Wal-Mart’s stores are in “single store” towns with no direct competitors compared to 12% for the industry. In 1993, W-Mart has 22% of stores without competition from either K-Mart or Target; K-Mart & Target do not compete with W-Mart in only 18% and 15% of markets, respectively. Wal-Mart’s store prices are 6 percent higher in “no competition” markets than in markets with direct competitors (for every 10 percent more stores without competition, W-M makes.06% higher overall profits, or.10 x.06) In 1987, 1.3% of W-Mart’s higher profits [.21x.06] are due to no competition. Wal-Mart incurs lower advertising costs, wages, and rents by locating in small town markets.

Professor Jeff Dyer Why Wal-Mart’s Advantage is Sustainable n Competitors rationally refuse to enter Wal-Mart towns because: – Wal-Mart is first in the small town with a minimum efficient scale (MES) store – There is no feasible way to increase local demand (relatively fixed demand) – If the second mover builds a store (makes a MES investment, which is necessary to compete successfully) it will create substantial overcapacity; neither firm will make money. n Wal-Mart’s advantage is sustainable due to a natural geographic monopoly. This has more to do with strategy and positioning than operational efficiency.

Professor Jeff Dyer MULTIPLE LEVELS OF STRATEGIC ANALYSIS CorporateStrategy Business Unit Strategy R&D Strategy Operations/ Manufact. Strategy Sales/ Marketing Strategy Human Resource Strategy Strategies and tactics of the functional units should align with and support the overall business unit strategy. Indentifies what business we are, and should be, in. Provides guidance for managing and allocating resources to distinct business units. Indentifies the key sources of competitive advantage in the areas of cost or differentiation theory of success Provides a “theory of success” and a plan which guides functional strategies