The Ansoff Matrix was developed by a Russian mathematician Igor Ansoff. The objective of this matrix is to help business managers to analyze and devise business strategies in order to grow the business, using the existing products or by introducing new ones. The matrix describes four major dimensions in which the business can grow and helps in assessing the degree of risk involved. Ansoff Matrix is also called the Product/Market Expansion Grid; the figure below defines the four ways in which the business can grow.
Walmart Ansoff Analysis
The matrix suggests four different ways of business growth i.e. Market Development, Market Penetration, Diversification and Product development
As a part of Walmart’s Market development strategy they entered the Japanese market using lower end products and low price strategy. They had earned great success with this strategy in the US previously, so it was a tried and tested formula. It was remarkable that the company just after three years started losing money. The Japanese customers were not very obliged by the lower end products compensated with lower quality. The management has now decided to innovate with upscale products. A spokesperson from Wal-Mart said that the company was "surprised" by knowing the preferences of the Japanese customers. Wal-Mart did not take into account the cultural and geographical difference of the US and Japan. To avoid such surprises the company shall develop and execute a market development strategy properly.
The company’s marketing strategy focuses on abundant quantity and providing variety of products in one location. The company has come up with the idea of bringing McDonalds and Subway to have their placements at their stores which is definitely another attraction for the customer. In addition, a customer can get a hair cut, glasses prescription, and oil changed under one roof. They can buy jewelry and cosmetics on one side, and curtains and draperies on the other. The customers can do grocery and buy house hold items, electronics etc. Wal-Mart’s focus is on variety, they capture their market share by relying on providing so many single tings that can be done in one location.
Diversification involves moving into new markets with new products, this involves the highest degree of risk. Since Wal-Mart is not into production side it has worked on another dimension of this by redefining the art of marketing online. The company has entered the cyber market or the online shopping business and has shown impressive progress. With this the company had to face some negative criticism due to its bullying nature. However the company still enjoys biggest market share due to its immensely competitive price offers.
Wal-Mart offers lucrative deals to attract new products. Since the company is into retail business it can bring more and more variety that is better and convenient offering alternatives and solutions to every possible customer need. For this reason shopping at Wal-Mart is the first pick of the customers, where they can get cost efficient products and convenience at the same place.
Mckinsey Matrix of Wal-Mart
The McKinsey Matrix is a 3 x 3(9 cell) matrix used to analyze business portfolio analysis in order to determine where to invest their cash. The dimensions of business unit strength and industry attractiveness are used to do the analysis. BUS or Business unit strength is placed on the x axis and Industry attractiveness is placed on the Y-axis. The Mckinsey Matrix for Wal-Mart is given below.
Analyzing the company’s strengths the most attractive and in demand is their grocery section which contribute 22% in their total sales. According to the company’s financials the grocery section has been the top revenue generator; however this product causes the highest inventory cost as well. The company needs to adopt a cost efficient strategy to combat the situation.
Next are the hard items, like kitchen tools, electronics, furniture and the soft one like software, digital products and music files. These are known to be the ‘Cash Cows’ for the company. The supply chain for these is relatively less complex. As these are the ‘cash cows’ the company needs to constantly inject capital into this product line.
The health products, toys and pharmaceuticals are the products which do generate revenues but insufficient to compensate the funds. These are mostly supported by the funds generated from the Hard and soft goods. Costly inventory and multiple suppliers are the reason for the lower profits. Wal-Mart shall consider limiting the investment in these items by limiting the inventory so as to save the inventory expenses.
Since the company strives to make sure the availability of every possible service in their stores, sections like photo development, shoe products and jewelry are going in loss due to so many convenient options available next door for a customer. The company shall rethink on investing more on these items.
Porter’s Five Forces Analysis
In case of Wal-Mart the bargaining power of the consumers, barriers to the entry into new markets and barriers to exit; these three forces are very low. The bargaining power of the suppliers is somewhat moderate, the threat of substitution or rivalry is however quite high. Hence a mix frequency of the forces exists in the organization.
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