Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 33

A Case in Competitive Strategy: Wal-Mart and Target

These questions are intended for open discussion and expression of differences of opinion. Here we have a preforma of some thoughts on these competitive issues, combined with some of the most recent news reports available at the time of publication.

Most would argue that Wal-Mart is a cost leader because of its focus on low prices. Its operating efficiencies and persistent pursuit of low costs from its suppliers help Wal-Mart to achieve these low prices; the slogan says it all about that firm, “Save Money, Live Better.”

Target also values low prices, but competes somewhat differently. As the company Web site states, the firm has a “promise of differentiation and value” and “upscale, fashion forward.” Moreover, the Target financial report to the SEC (10K) states that, for Target, the competitive focus is “brand recognition, customer service, store location, differentiated offerings, value, quality, fashion, price, advertising, depth of selection, and credit availability.” These statements point to a differentiated firm, even though low price is an element of the contribution. Another difference is that Target’s advertising budget is somewhat larger, at 3% of sales, relative to 1% at Wal-Mart.

Perhaps another indicator: where do the richest 10% of Americans shop? For these wealthy Americans, Home Depot, Target, and Costco are the three most popular retailers (Costco is another low-cost retailer, with fewer customers—and a different customer base)

At the time of this writing, April 2009, Wal-Mart has had a stock price decline of 11% over April 2008, while Target’s stock priced has fallen by 27% in the same period. Why? A major reason is that the decline in the economy and customer expectations during this period drew more cost-conscious shoppers to Wal-Mart, while in contrast, the upscale message of Target is losing traction. Further, a Citigroup study found that, while Target’s prices are within 1–3% of Wal-Mart, 87% surveyed shoppers said they shopped at Wal-Mart because it is the cheapest. The conundrum for Target at this time of economic decline is that shoppers place a much higher value on the reputation of Target over Wal-Mart. A study reported by BusinessWeek in July 2007 indicated that if Wal-Mart had the reputation among shoppers that Target had, Wal-Mart’s stock price would increase by an estimated 5%.

Step 1 of 2

Cost leadership is a strategy adopted by company where they sell products at lower price than the competition. Differentiator is a strategy where the company try to produce goods and services which are considered different and unique in some aspects in eyes of the customer.