Case Study Walmart

I. Introduction

Wal-Mart is a world-wide active American retail trade company and currently the largest retail company in the world. Beginning in 1962, Wal-Mart has made the transition from a small firm in Arkansas to the largest employer with 3, 800 store units in the United States with record revenues today. But nevertheless, since Wal-Mart launched its online branch, it had to suffer from substantial setbacks from competitors such as Amazon.com or Ebay.

The intention of this case study is to evaluate Wal-Marts.com's profitability of success regarding its situation in 1999.

II. Discussion Questions

II.1 What is the impact of Wal-Mart.com on customer-borne transaction costs?

Wal-Mart's business philosophy is based on the simple idea, Sam Walton had in mind, when he first founded his business Ð'- making the customer No. 1. It is Wal-Mart.com's goal to bring this culture and philosophy to the Internet.

Wal-Mart.com is very ambitious to combine technology and world-class retailing in order to give customers a wide product assortment, "every day low prices", guaranteed satisfaction, friendly service, and convenient shopping hours 24/7.

With the launch of Wal-Mart.com consumer-borne transaction costs can be reduced:

(1) By minimizing the expenditure of time consumers would spend on driving to a Wal-Mart store in their surrounding area, the time spent in line and the time needed to return to their homes. We all know that time is money and so this economy of time stands for a considerable reduction of consumer-borne transaction costs.

(2) By implementing a product search engine, which will make it easier to find the desired products and

(3) by offering the possibility to pick-up and to return products that were ordered online at any nearby Wal-Mart store, which implies cutbacks in negotiation efforts.

Although Wal-Mart.com has the opportunity to reduce consumer-borne transaction costs in different ways, it has to keep in mind that consumer-borne transaction costs will slightly rise through the extra time spent on getting used to online-shopping procedures.

II.2 Do you think that Wal-Mart.com is likely to create additional value?

Applying our knowledge about Economics of Strategy, we know that there are different ways to create additional value:

(1) To lower production costs or producer transaction costs. Wal-Mart.com is able to lower production costs due to the fact that the number of employees, rent and advertising costs will be respectable lower for the business online than for a discount store. Instead of intermediate warehousing, Wal-mart.com will directly deliver the ordered number of products and in this regard lower its producer transaction costs, which will shift its supply curve to the right, causing a right shift of the demand curve as well.

(2) By implementing policies to reduce consumer transaction costs, for example, lowering the expenditure of time of customers and other possibilities as discussed above, resulting in a shift of the demand curve to the right and

(3) by taking actions other than reducing consumer transaction costs and through devising new products and services. Wal-Mart.com will offer products from all 25 categories you can find in a regular Wal-Mart store. To create additional value, it will offer a richer choice of high quality products, for example DVD players and cameras. But not only will it offer these higher-priced items, it will also offer them as complements, which means that Wal-Mart.com for example will sell DVD players with a set of the latest DVDs.

Working together with experienced online businesses will help to ensure efficiency.

II.3 Is it likely that Wal-Mart will capture any value created by Wal-Mart.com?

Amazon.com and Ebay have been a threat to Wal-Mart.com ever since it was launched. Nevertheless, Wal-Mart has considerable advantages in brand recognition, buying power, and technology. According to the article from Wendy Zellner none of the other e-tailing leaders have the financial heft Wal-Mart possesses. Burt P. Flickinger III of Reach Marketing states that "Wal-Mart can take tremendous volume discounts that it gets and apply that to an Internet pricing model that no current or future Internet company could possibly hope to challenge."(When Wal-Mart flexes its Cyber muscles, W. Zellner, ll.31-32)

Wal-Mart.com will be able to secure Wal-Mart's position as a price setter creating higher barriers to entry in the off- and online retail sector,