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Job Creation or Destruction? Assessment Example

Pages: 14

Words: 3951

Assessment

Executive Summary

Walmart is a multi-national organization that is well-known for their inexpensive products and widespread customer reach. It is important to consider that to make these operations possible, the company must collaborate with many different organizations, both locally and overseas. As a consequence, it exports most of its labor to manufactures oversea, which allows the organization to obtain labor for reduced costs. It is valuable to analyze Walmart’s demographic overview in order to gain a greater understanding of the locations and people that the corporation serves. Its low prices attract specific clientele. It is essential for competitive businesses to understand Walmart’s strategy in terms of demographics.

It appears that Walmart is concerned with outcompeting other organizations on both a local and international scale, requiring it to significantly alter its practices both domestically and overseas. Unfortunately, there are many businesses that compete with Walmart by targeting their business to different subsections of the population or by attempting to directly compete with the low prices and product availability that Walmart and its partner companies offer. Overall, it would be beneficial for the organization to carefully consider their current business practices and determine which actions they could take to their ability to compete with regards to their target demographics and the demographics of relevant competitors. This is expected to promote their ability to market themselves more effectively, enhancing profit as a result.

Introduction

Understanding the demographics of its customers in addition to the needs of people worldwide is an important component of Walmart’s business practices. Since it is a multi-national corporation, company executives must gain a comprehensive understanding of populations that allow the organization to become successful both within individual countries and across their boarders. While the corporation is an American company, it is essential to understand that a majority of its manufacturing practices occur overseas. In addition, the transport and logistics process for each product is complex; a product may reach as many as three countries to be assembled before it finally reaches the consumer. This process allows Walmart’s products to be manufactured cheaply and sold cheaply. As a result, Walmart shoppers are those that are most eager to find low prices. These individuals typically live near a Walmart store, have heard of the value of the store from either a Walmart promoted commercial or through word of mouth, and tend to earn a lower income bracket.

At the beginning of fiscal year 2015, the company was reported as making approximately 486 billion dollars in profit. Walmart’s business practices revolve around determining new locations to open stores to bring in greater profit. While many new stores are currently under construction in the United States, the corporation also wishes to spread its influence to other continents. Currently, Walmart stores are located on six continents, although the branding in these locations differ. In addition, a majority of its profit is earned through its United States enterprise. Walmart is willing to expand its practices to areas on the basis of where its target demographic is present. If people are attracted by low cost product or comprise a low income community, Walmart is more likely to build a store in this area.

Walmart is conventionally known as a brick and mortar retailer, although it has recently started several online retail chains. The company is best known for its “supercenter”, which contains a grocery store, non-perishable products, and even services such as a hair salon, pharmacy, and optician. However, the amenities offered at each store vary based on the location and the size of the institution. Recently, Walmart has attempted to expand its online product delivery services in order to more quickly reach its target demographic and to compensate for the lack of physical presence that the store has in some municipalities due to legal restrictions. In the United States, the company operates as Walmart Global eCommerce. Recently, the company has acquired Vudu, a Silicon Valley based company that produces Blu-ray players. It is important to consider that Walmart participated in these internet expansions because they are aware that this will be considered to be a popular move among their target customers. Walmart customers like to buy inexpensive products, often in bulk. Walmart made this experience even more convenient by allowing customers to shop from the comfort of their own homes. In doing so, the store showed that it truly gains an understanding of who its customers are. Management was able to increase the profitability of the organization by acting on this simple understanding.

Walmart is highly concerned with its ability to compete with other large stores, such as Target. However, the two organizations attempt to sell their products to two different groups of individuals; Walmart targets low income individuals that would benefit more significantly from the deals it offers, while Target is more attractive to middle class families. Despite this, Walmart is trying to expand its reach in terms of geography, as it believes that reaching more customers will allow it to become more profitable overall. As such, Walmart constantly creates brands to appeal to different demographics. It’s “Sam’s Club” brand, for example, is meant to appeal to shoppers who wish to acquire bulk discounts. These shoppers are more likely to be considered middle class families and have a need for a larger amount of products over a shorter period of time, indicating that the size of their family is large.

Findings

Demographic Factors of Walmart Shoppers

It is evident that Walmart conducts extensive research to determine where it should build its newest location. To do so, it uses census data to determine the population spread in areas where there is land available for building a store from the ground up or installing the store in an already existing structure. Hicks (2008) found that demographic factors that relate to average individual or family income, population density, and distance from competitors are used by Walmart to determine where it should build its newest stores. It is also important to consider that on an international scale, the country in which Walmart stores are established are relevant because this creates proximity to areas that Walmart receives many of its raw materials or finished products from, thereby reducing Walmart’s trade expenses.

Walmart has shown to attract a majority of its customers due to the impact it has on their ability to save money while continuing to purchase the same types of products that they would have otherwise (Princeton Survey Research Associates International 2005). The survey conducted by the Princeton Survey Research Associates found that price is the top reason that at least half of Walmart customers selected to explain why they shop at these stores. Therefore, Walmart correctly targets clients that prioritize price. Approximately 30 percent of respondents on the same survey reported that they enjoyed the wide selection of items available at Walmart stores in addition to the convenience of its locations. By building new Walmart locations in areas close to individuals that tend to shop at this category of store, Walmart is therefore able to expand its business. Furthermore, adding a broader selection of items to its shelves has also been shown to be beneficial for this purpose. Other findings of the studying indicated that a majority of people who shop at Walmart earn less than $30,000 each year. Very few people that earn more than $50,000 self-reported themselves as Walmart shoppers. This shows the importance of Walmart using surveys of its customers to gain a better understanding of where to build its stores and how to expand its practice as a result.

Just as Walmart uses customer demographics to direct their practices, consumers have been shown to use a reflective algorithm to determine where they shop. Chiou (2009) reported that some customers prefer to shop at Walmart compared to its competitors because this is a brand that these individuals have learned to trust and they consider it to be more convenient than alternative options. The author of the study conducted a statistical analysis that found that the average male customer, a 35-year-old individual that is also a parent, has a college education, and a salary that is reflective of the median income of his area, would be more likely to purchase an expensive electronic product at Walmart even if it is the same price at another store. It is possible that the individuals that prefer to shop at Walmart affiliate the store with a sense of trust. Even though Walmart’s competitors are likely to have the same refund policy and perhaps even similar prices, people are more driven to shop at Walmart due to the effective job that its workers have done in creating branding for the organization.

The Impact of Walmart on Competition

On a broad scale, it can be said that Walmart has two different types of competitors. First, there are small independently owned businesses. These types of stores are wiped out almost immediately after Walmart enters their area because it is impossible for them to offer the same diversity of items at competitive prices (Basker 2007). Statistical studies analyzing this effect have shown that there are generally two to three less general shops in areas with a Walmart compared to areas that do not have a Walmart (Jia 2007). A lot of stores have closed down over the past several decades due to the prevalence that Walmart has in some areas. As a consequence, it is challenging for small stores to compete with Walmart in any way. Because Walmart stores know that they should open in areas in which there are more individuals that meet their target demographic, they are appealing to members of the population and detracting them from going into smaller stores, where they will pay higher prices and may not find the item that they are looking for.

The interactions that Walmart has with larger corporate competition are somewhat different. This is mostly because other large organizations are also able to market effectively towards the same market demographic as Walmart. As a consequence, it becomes necessary for the company to implement a greater diversity of strategies in order to accommodate this enhanced needed for marketing.  K-Mart and Target, for example, use the same business practices as Walmart (Basker 2007). Furthermore, these organizations look to determine where Walmart’s are located in order to determine where they should place their new stores. This shows that discount superstores all attempt to market to the same target demographic. Thus, Walmart and similar corporations can use data that has been acquired by their competitors in order to more effectively contribute to practice and meet other organizations at the same competitive level.

Last, it is important to consider that Walmart’s online presence has had an interesting impact on its competitors in the online shopping world. Basker (2007) found that the types of books that individuals purchase from online vendors like ebay.com and amazon.com are different in areas in which Walmart stores are present. If Walmart carries book that are considered to be popular in both its physical and online sale, sales of the same book are likely to decrease on these online shopping websites. Overall, it appears that customers continue to be more trusting of Walmart’s in-store practice than they are of popular online vendors, even when these vendors can promise to deliver the desired item the next day.

Walmart’s Entry into Mexico

As a company that equates expansion with profit, Walmart’s business strategy primarily involves a focus on opening stores in new locations. In some instances, this requires Walmart to brand itself in a manner that is more appealing to locals in the areas that it is trying to target. As mentioned previously, Walmart currently has stores in six continents and stores in 28 different countries. Since a majority of the American public are already aware of the brand, many Walmart executives believe that the best way to continue building its profit is to open a greater portion of its stores overseas.

Despite their intention to do so in an ethical manner, Walmart has found that it has violated the Foreign Corrupt Practices Act for bribing Mexican officials in a manner that would promote their ability to open a store in their country. While this legal concern began in 2005, the company is still trying to actively defend itself for breaking this act, which has amounted in “large fees and fines” (Savage 2012). Even though it is apparent that the organization broke the law, which was established after the Watergate scandal to enforce ethical business practices, very few companies had been accused of breaking this law prior to this occurrence with Walmart. Professionals attribute this legal response to an enhanced concern with white collar crimes in light of this age of globalization. Today, decisions made by the heads of corporations have the ability to positively or negatively influence the general public. Therefore, federal law enforcement has become more concerned with protecting both the government’s and the public’s interests.

This and similar situations have impacted the ability of Walmart to be successful in some countries, including Mexico. The Walmart brand is primarily strong in the United States, even though the store has subsidiaries across the world. This demonstrates that Walmart has the ability to be successful in areas in which it is considered trustworthy and a better option compared to the other types of stores, on the internet or physical, that are available.

Conclusion

It is apparent that Walmart understands its customers well and uses this information in order to target its business practice. Overall, the organization preferentially targets new locations based on the demographics of the individuals that live there. Income level, population density, and location are important factors that impact the company’s decision to open in a new location. To supplement the success of the company, Walmart has expanded to engage in online practices in order to continue competing with similar organizations that have also increased their accessibility by expanding to having an internet store. In spite of the intents of the company to continue to direct business practice in a manner that allows individuals to shop online or in the store, a majority of Walmart customers prefer to go to the store because it is more closely associated with the comprehensive branding that the company has put forth. As a consequence, there is a degree of trust in the organization compared to small businesses and other corporate competitors. This competition allows Walmart to be aware of how its competitors are targeting the shared marketing demographic and allows the company to use the same strategies as these individuals to remain ahead. Overall, Walmart’s understanding of demographics as it pertains to business is beneficial because it allows the organization to remain more competitive in the modern setting.

Recommendations

Demographic Factors of Walmart Shoppers

In terms of competition, it is important for Walmart to continue marketing itself in a manner that is effective. Thus, it is valuable for the organization to continue targeting similar demographics in different parts of the world. While the Walmart brand is established primarily in the United States, the company could engage in successful expansion by spreading its influence by enhancing its subsidiary brand in foreign countries. These could become brands that the populace will trust. Furthermore, it is important for the company to continue targeting individuals from primarily low income communities in areas in which other large discount superstores are present. Walmart currently exists in a majority of the locations that it is currently able to in the United States in terms of both legality and affordability. However, expanding to overseas will introduce the company to new markets, which will ultimately allow it to grow its profitability.

The Impact of Walmart on Competition

It was previously mentioned that Walmart and similar corporations can use data that has been acquired by their competitors in order to more effectively contribute to practice and meet other organizations at the same competitive level. Therefore, it is important for Walmart to conduct analyses to determine the competition that is present in local areas and countries that it has not previously entered. While Walmart has a comprehensive understanding of the competition present in the United States, it needs to become more familiar with international brands to determine how it will implement its brand in a new location.

In particular, it would be beneficial for the organization to study the census data of these locations, just as it does when it attempts to find a new location for a store in the United States. This will allow the organization to understand which areas have a large population density in addition to those that are home to individuals that are primarily low income compared to the median earnings of other individuals living in the area. It would not be necessary to consider small businesses as a threat to the organization, although it is important for Walmart to consider the strategies that are being implemented by large corporations in the area. Just as Walmart, K-Mart, and Target tend to build their practices from one another, it would be beneficial for Walmart to continue acting in this fashion in implementing new stores at the international level.

Walmart’s Entry into Mexico

Many business law professionals believe that the government went too far in its claims that Walmart legislation by entering Mexico and other new territories. In order for Walmart to continue gaining profit, it is important for them to put forth an effort and ensure that they are entering countries in a manner that will uphold their reputation and prevent them from experiencing financial damages. When Walmart moved into Mexico, it was fined for several billion dollars for violating international trade code. In this case, it is important for Walmart as a company to understand that it is in the eye of the public, so it is necessary to act with caution. While many Americans are fans of the superstore, there are also those who would wish to have it removed from existence. As long as the company is able to engage in both ethical and legal practices, however, it shouldn’t be concerned with this opposition. If it is not able to do so, the company leadership needs to understand that there are those who will take immediate action to ensure that the organization suffers the appropriate consequences.

It is especially important for Walmart to consider that building itself in a new country is contingent upon its ability to market itself as a trustworthy company. Publicizing scandal is a way that Walmart’s ability to compete on the international level can be minimized. Thus, it is also important for Walmart to gain an understanding of the perceptions that people in different areas in the international arena have with regards to Walmart and whether they would welcome a store in their area. It is simply to design a survey to achieve this purpose and doing so may provide Walmart with a more constructive understanding of where it should build its new locations.

4.4 Other Factors Impacting Demographics and Competitiveness

At this point in Walmart’s success, it appears that the organization will reach the law of diminishing returns. As the company gains more prevalence around the world, it is inherently reducing the ability of citizens to maintain income, which will ultimately require them to become dependent upon the company for support. Currently, Walmart’s business practices are requiring a greater degree of people to become dependent upon the company, which means that it will ultimately prevent itself from being able to gain profit. There are many individuals who disagree with the company’s business practices in terms of their use of their employees for enhanced profit in addition to the overall organization of the store and lack of support during the Walmart shopping experience. It is therefore beneficial for the company to consider how it can appeal to a greater number of individuals living across the world. Individuals of medium and high socioeconomic backgrounds, for example, tend to avoid Walmart stores because they would prefer to pay higher prices for good if it means that there will be a greater degree of accommodations during the shopping experience. Specifically, Walmart shopping often means disorganization and long lines that people who are able to shop in other locations wish to avoid.

In addition, there are many activists that are strongly opposed to the company’s business practices because they do not offer their employees a living wage. Furthermore, several employees report that they have been fired and rehired by their stores because they were due for a raise and the store did not wish to provide it to them. In order for Walmart to be continually successful, it needs to consider the humanitarian aspect of its business practices. Since its store employees are essentially the representatives of their organization, it is important for them to be treated with dignity and respect to encourage shoppers to keep coming back to the store. Furthermore, if these individuals are treated well, it will help detract from the negative press that the company has received in the past several years. This is beneficial for the company if they wish to remain competitive. While Walmart has a high income, Target isn’t far behind, and their business practices are more desirable for middle and high income families.

Walmart would benefit by incorporating a cultural understanding of the individuals that tend to shop at its stores in addition to the individuals in the areas in which it wishes to establish a new location. By doing so, the store will be able to create a version of itself that has a greater appeal to individuals living in different parts of the world. While individuals in certain parts of the United States are satisfied with Walmart due to the low prices that it offers in addition to its convenience in terms of location, some European states would not welcome the store due to the low income that it is known to pay its employees. For the store to be welcome in areas that offer higher wages to their workers, it would be necessary for Walmart to recraft its practices in order to meet local finance standards. Provided that Walmart is able to make this kind of adjustment, it is likely that it will be able to be successful abroad. However, low income individuals in the United States and low income individuals in other parts of the world are intrinsically different due to the presence of different cultures and the need to establish stores in a new location. Walmart can take advantage of this understanding by offering a shopping experience that is unique for a particular area, offering low prices while still maintaining culturally and legally relevant requirements for the areas in which it intends to expand its business.

Bibliography

Basker, E 2005, ‘Job Creation or Destruction? Labor-Market Effects of Wal-MartExpansion’, Review of Economics and Statistics vol. 87, no. 1, pp. 174:183.

Basker, E 2007, ‘The Cause and Consequences of Wal-Mart’s Growth’, Journalof Economic Perspectives, vol. 21, no. 3, pp. 177-198.

Chiou, L 2009, ‘Empirical Analysis of Competition between Wal-Mart and Other Retail Channels’, Journal of Economics and Management Strategy vol. 18, pp. 285-322.

Coates, D. (2015). Trade Policy: Countering the Walmart Effect. [online] The Huffington Post. Available at: http://www.huffingtonpost.com/david-coates/trade-policy-countering-t_b_1008084.html [Accessed 21 Jul. 2015].

Gustafson, K. (2014). Wal-Mart defends employee food drive. [online] CNBC. Available at: http://www.cnbc.com/2014/11/20/wal-mart-defends-employee-food-drive.html [Accessed 21 Jul. 2015].

Hicks, MJ 2008, ‘Estimating Wal-Mart’s Impact in Maryland: A Test of Identification Strategies and Endogeneity Tests’, Eastern Economic Journal, vol. 34, pp. 56-73.

Lindberg Ln, Scheingold Sa. (1971). Regional Integration: Theory and Research. Cambridge: Harvard University Press.

Mitchell, S. (2005). Wal-Mart and the WTO. [online] Available at: http://www.ilsr.org/walmart- and-wto/ [Accessed 21 Jul. 2015].

Princeton Survey Research Associates. (2005). Why PSRAI. [online] Available at: http://www.psrai.com/why.shtml [Accessed 18 Oct. 2015].

Savage, C. (2012). With Wal-Mart Bribery Case, More Attention on a Law. [online] Nytimes.com. Available at: http://www.nytimes.com/2012/04/26/business/global/with-            wal-mart-bribery-case-more-attention-on-a-law.html [Accessed 21 Jul. 2015].

Truth And Action, (2013). Monsanto, Walmart influence secret International Trade agreement – Truth And Action. [online] Available at: http://www.truthandaction.org/monsanto-walmart-influence-secret-international-trade-agreement/ [Accessed 21 Jul. 2015].

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