Wal-Mart and Porter's Five Forces Model
Wal-Mart and Porter's Five Forces Model
Wal-Mart's competitiveness can be interpreted in terms of Porter's five forces model very well. Here we focus on Wal-Mart's position as a retail giant and competes with fellow retail chains or online stores such as K-mart, Target and Amazon. For an introduction to porter's five forces model, read this.
• The threat of the entry of new competitors: Low
o Entry barriers are relatively high, as Wal-Mart has an outstanding distribution systems, locations, brand name, and financial capital to fend off competitors.
o Wal-Mart often has an absolute cost advantage over other competitors.
o Cost to build retail enterprise like Wal-Mart is formidable.
• Rivalry Among Established Competitions: High
o Currently, there are four main incumbent companies that exist in the same market as Wal-Mart: Sears, K-Mart, Amazon.com and Target. Target is the strongest of the three in relation to retail.
o Target has experienced tremendous growth in their domestic markets and have defined their niche quite effectively.
o Customers have low royalty to Wal-Mart. Wal-Mart's relationship with its clientele is always on edge. If it loses cost-advantages, it loses customers.
o Mature industry life cycle.
• Buyer Power: Medium
o The individual buyer has little to no pressure on Wal-Mart.
o Consumer advocate groups have complained about Wal-Mart’s pricing techniques.
o Consumer could shop at a competitor who offers comparable products at comparable prices, but the convenience is lost.
• Supplier Power: Medium
o Since Wal-Mart holds so much of the market share, they offer a lot of business to manufacturers and wholesalers. This gives Wal-Mart a lot of power because by Wal-Mart threatening to switch to a different supplier would create a scare tactic to the suppliers.
o Wal-Mart could vertically integrate.
o Wal-Mart does deal with some large suppliers like Proctor & Gamble, Coca-Cola who have more bargaining power than small suppliers.
• The threat of substitute products or services: Low
o When it comes to this market, there are not many substitutes that offer convenience and low pricing.
o Online shopping proves another alternative because it is so different and the customer can gain price advantages because the company does not necessarily have to have a brick and mortar store, passing the savings onto the consumer.
o Suppliers of goods need to have innovative products to attract customers.
o For the most part, complementors do not affect Wal-Mart’s business model.
• The threat of the entry of new competitors: Low
o Entry barriers are relatively high, as Wal-Mart has an outstanding distribution systems, locations, brand name, and financial capital to fend off competitors.
o Wal-Mart often has an absolute cost advantage over other competitors.
o Cost to build retail enterprise like Wal-Mart is formidable.
• Rivalry Among Established Competitions: High
o Currently, there are four main incumbent companies that exist in the same market as Wal-Mart: Sears, K-Mart, Amazon.com and Target. Target is the strongest of the three in relation to retail.
o Target has experienced tremendous growth in their domestic markets and have defined their niche quite effectively.
o Customers have low royalty to Wal-Mart. Wal-Mart's relationship with its clientele is always on edge. If it loses cost-advantages, it loses customers.
o Mature industry life cycle.
• Buyer Power: Medium
o The individual buyer has little to no pressure on Wal-Mart.
o Consumer advocate groups have complained about Wal-Mart’s pricing techniques.
o Consumer could shop at a competitor who offers comparable products at comparable prices, but the convenience is lost.
• Supplier Power: Medium
o Since Wal-Mart holds so much of the market share, they offer a lot of business to manufacturers and wholesalers. This gives Wal-Mart a lot of power because by Wal-Mart threatening to switch to a different supplier would create a scare tactic to the suppliers.
o Wal-Mart could vertically integrate.
o Wal-Mart does deal with some large suppliers like Proctor & Gamble, Coca-Cola who have more bargaining power than small suppliers.
• The threat of substitute products or services: Low
o When it comes to this market, there are not many substitutes that offer convenience and low pricing.
o Online shopping proves another alternative because it is so different and the customer can gain price advantages because the company does not necessarily have to have a brick and mortar store, passing the savings onto the consumer.
o Suppliers of goods need to have innovative products to attract customers.
o For the most part, complementors do not affect Wal-Mart’s business model.
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