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1.Wal-Mart Case Study Wal-Mart is the worlds biggest food retailer. In some nations, it is a great success. However, it has failed in some countries (e.g. Germany, South Korea). Here, we will describe Wal-Marts failure in Germany, and use its experiences there to illustrate some key principles relating to product failure and deletion. There is fierce competition in the German grocery industry, and thus, low profitability in the food retail sector; profit margins range from 0.5-1%. The main feature of Wal-Marts business model is to continuously cut costs and so offer lower prices than its competitors. Wal-Mart also continuously pressures its suppliers to cut costs. In 1997-1998, Wal-Mart acquired over 95 stores from existing German supermarket chains, making it the fourth biggest supermarket operator in Germany. The objective was to expand to 500 stores. However, Wal-Mart never grew from the original 95 stores. By 2007, it was bought out by one of Germanys largest retail groups. Ultimately, Wal-Mart left the German market with a loss of one billion dollars before tax. There are four key issues related to Wal-Marts failure in Germany: (a) market structure and business model; (b) cultural and communication; (c) politics and regulation; and (d) product/service failure. Market structure and business model A retailer that wants to follow Wal-Marts strategy of low prices needs to expand rapidly. In Germany, there were not enough appropriate locations to support such expansion. Wal-Mart did not build their own stores, but took over existing supermarkets that had a completely different business model they were very small and had a limited range of goods. They were also located far apart, which resulted in high logistical costs. With their strategy of everyday low prices, Wal-Mart is very successful in the United States and elsewhere. However, due to the extreme competition, Germans are accustomed to the low prices that are offered by numerous discount supermarket chains. For this reason, Wal-Marts low price strategy did not create sufficient competitive advantage. Cultureand communication When products are introduced, it is important to consider cultural factors. Wal-Mart decided to operate its German locations from the UK. Thus, its corporate language was English. However, many of the older German Wal-Mart managers did not speak English. Some managers did not stay on after the Wal-Mart acquisition. Key business connections were lost, which resulted in the loss of major suppliers. It would have been far better to retain and communicate effectively with the German managers who had know-how about the local market. Politics and regulation Wal-Marts managers violated German laws repeatedly, simply because they were unfamiliar to them. For example, Wal-Mart always stays union-free, but Germany has a history of strong, politically powerful unions. Ver.di, one of Germanys biggest unions, sued the company for failing to publish key financial statements in 1999 and 2000. A fine, as well as much negative press, harmed Wal-Marts reputation. After its expansion strategy failed, Wal-Mart began a price war to drive small competitors out of business. One part of the price war was to introduce a private label called Smart Brand and sell most of these products below manufacturing costs. The reaction of many competitors was also to decrease their prices, which led to a profit setback for the entire industry. Finally, the Federal Cartel Office interceded and stopped the price war. Product/service failure Good customer service, combined with low prices, could have been a new market niche in Germany. One part of Wal-Marts customer service program was to ensure someone was always there to help. However, customer reaction was negative, because customers who normally do their grocery shopping in discount supermarket chains are used to self-service. They found this annoying, and it did not create a reputation for providing good customer service. Conclusion Wal-Mart tried to apply its U.S. success formula in an unmodified manner to the German market. As a result, they didnt have sufficient knowledge about the market structure and key cultural / political issues. In addition, structural factors prevented Wal-Mart from fully implementing its successful business model. The final outcome was that it had to abandon its offerings in Germany. Had Wal-Mart paid careful attention to these issues prior to entering the German market, it could have had a very different outcome. Questions: 1) Critically analyze the Marketing Strategy of Wal-Mart in Germany highlighting the strength and weaknesses. 2) Suggest an effective STP for Wal-Mart that could have enhanced their scope of success in Germany

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