HOW TO CREATE MONOPOLY IN

BUSINESS?

Replicating a successful business idea of others is an old-

fashioned way of doing business, which may not every time give
you, expected results. A business should be so unique and
powerful that no one dares to enter into it. 
You should create a monopoly in the market create an entry
barrier for competitors entering into it. 

Implementing the below given tips on how to create monopoly in

business will certainly help you become king of the market by
creating an entry barrier for competitors.

INTELLECTUAL PROPERTY PROTECTION

You can create a trade secret of your business that no one knows
in the market except you. For Example:

 Coca Cola created a trade secret of their beverage that no

one could copy in the market so far. Coca Cola didn’t reveal
the method of preparing their beverage, which prevented
others from producing it.  

 KFC also created similar trade secret with their recipe for
making a chicken burger, which created an entry barrier for
others and scaled up their business across the world.
PATENT AND LICENSING
Patenting and Licensing gives you special right that prevents your
competitors from making a similar product. It gives you a
monopoly over pricing as it is produced by you only while barring
others from entering into the market.

For Example: 

 In the pharmaceutical sector, two types of medicines are

produced- Generic and Molecule.

 Generic medicines can be made by anyone without any

patent rights. Whereas, molecule medicines are those
specific medicine made by a company through their research
and development. 
DISTRIBUTION NETWORK
A strong distribution network gives you an upper hand over your
competitors in monopolizing the market. For Example:

Though Nokia’s had a huge distribution network across the

country, it didn’t build good relations with retailers, as it gave them
very less margin which made their survival difficult. 

When retailers were unsatisfied with Nokia, Chinese

manufacturers Oppo and Vivo made a remarkable entry in the
Indian market and snatched the tag of the largest distribution
network from Nokia.
Retailers became loyal to Oppo and Vivo as they gave them the
highest margin in the market, which automatically became an
entry barrier for competitors.

EXCLUSIVE RIGHTS
Getting exclusive rights to sell an international product
automatically creates a monopoly in the market by creating an
entry barrier for others. For Example:

 Flipkart and Amazon have exclusive rights to selling

products of some of the biggest international brands in India,
which disrupts the business of others. Flipkart has 70%
exclusive rights of selling international products, while
Amazon possesses 30% exclusive rights of such products.
Only they get exclusive rights of special sales and deals in
India.
ECONOMIES OF SCALE
Another powerful method to monopolize the market is increasing
your sales so high that it automatically finishes the competition in
the market. Although it reduces your margin, it increases overall
profitability massively on the sale of products. For Example:

 Wal-Mart, D-Mart and Big Bazaar work on this model, where

they purchase a huge amount of inventory on heavy
discounts, and sell it at very lower prices, without decreasing
their profitability. This method gives them an advantage over
others, who don’t work on economies of scale.

HIGH CAPITAL INVESTMENT

This technique is used by conglomerates to monopolize the
market through massive investment in innovative products. For
Example:

 Reliance Jio used this technique by investing 2.5 lakh crore

on new technology which incumbents didn’t have. It left
competitors working on old technology out of business. Jio
monopolized the mobile networking market so extensively,
that, it led many companies to merge with each other’s to
save their existence, reducing the total number of mobile
networking companies from 13 to only 3.
PROPRIETARY TECHNOLOGY
The problem-solving technology that only you have in the market,
without significant efforts make you only in the market. For
Example:

 With a 90% gross margin, Bill Gate’s Microsoft Windows has

90% market share in the world.  Nobody could make
windows that could compete with Microsoft for decades.

EXCELLENT CUSTOMER SERVICE

Domino’s Pizza, with more than 60% market share in the
organized industry, has emerged as an excellent customer
service provider through its “30 minute or free” offer in India. 
This excellent experience by Domino’s created an entry barrier as
no Pizza company could compete from it so far. 

BRAND EQUITY
Synonymous branding is a unique way of registering your
product’s image into the customer’s mind that it comes up first
when they talk about that particular product. For Example:

 M-Seal, although its product’s name is epoxy compound,

became massively popular among customers as M-Seal,
through ad campaigns that its name became synonymous to
product type.

TRUST BEYOND LOGIC

In some particular region or community, loyalty beyond logic can
be created by providing the products and services that connect
with their belief system. For Example:

 The health care company Hamdard became so famous

among practitioners of Islam in Hyderabad, that they never
used products of other companies, even when they sold at
discounted rates. Once when Hamdard stopped making
products due to strike, although they began using products
of Baidyanath, returned to Hamdard as soon as it restarted
manufacturing products due to their loyalty beyond logic.

NATIONAL SENTIMENTS
A significant barrier to entry is also created when people start
associating your product/service as a benefit to the nation as a
whole. For Example:

 Patanjali by Baba Ramdev

PRODUCT DIFFERENTIATION
(PRICE/DURABILITY/STYLE/QUALITY)
It is when you create a differentiator for your product in the form in
the form price, quality, style or durability. For Example:

Apple Inc is known for its quality whereas Xiomi is known for its
reasonable price.

MANUFACTURING EFFICIENCY
For Example: Toyota cars and Dell computers.

HIGHLY COMPETENT AND SKILLED

MANPOWER
Chinese labor is very productive and skilled from Indian labor and
rest of the world so Chinese goods turn out to be cheaper due to
operational efficiency despite above average salaries paid to
them.
CONTINUOUS INNOVATION AND INCREASED
VALUE TO CUSTOMERS

Don’t focus on competing, focus on delivering more value. Every

improvement you make to your Value Stream makes it harder for
your competition to follow. Every benefit you deliver and every
customer you serve makes it harder for competitors to replicate
you.

Think of a company like Apple-there’s no other company in the

technology world that focuses less on keeping up with what other
companies are providing. Instead, they focus on building
something completely new and Remarkable, then perfecting it as
much as possible.
After Apple launched the iPhone in 2007, Blackberry scrambled to
create the Storm, which replicated many of the same features. By
the time the Storm launched, the iPhone had already gone
through several Iteration Cycles, making it very difficult for
Blackberry to compete. To date, Apple has sold over 50 million
iPhones worldwide.
In the same vein, instead of trying to compete directly with
commodity laptop manufacturers like Asus, HP, and Dell in the
netbook category (small, low-powered computers designed for
portability), Apple conspicuously avoided the market for years.
That changed when the iPad was launched in 2010 - an offer that
redefined the market instead of competing with pre-existing
netbooks on features. In the first two months of its existence, the
company sold over 2 million units.
By choosing to innovate instead of compete, Apple successfully
captured a leadership share of a very competitive market.
 PORTER’S FIVE FORCES MODEL
It is an analysis tool that uses five industry forces to determine the
intensity of competition in an industry and its profitability level.
These forces determine an industry structure and the level of
competition in that industry. The stronger competitive forces in the
industry are the less profitable it is. An industry with low barriers
to enter, having few buyers and suppliers but many substitute
products and competitors will be seen as very competitive and
thus, not so attractive due to its low profitability. The tool is very
useful in formulating firm’s strategy as it reveals how powerful
each of the five key forces is in a particular industry.

The Five Forces Are As Follows:

1. THREATS OF NEW ENTRY

Consider how easily others could enter your market and threaten
your company’s position. Answer the following questions:

 How much is the capital requirements and how long does it

take to enter your market?
 What are the barriers to entry (e.g. patents, trademark,
exclusive rights)?
 What does it take to get control of distribution channels?
 Have you protected your key technologies?
 How strictly is your market regulated?

If competitors can enter your market with little money and effort,
you will need to adapt your strategy to handle any potential rivals.
2. THREAT OF SUBSTITUTION
This section of the Five Forces asks you to determine the
likelihood that your customers will replace your product or service
with an alternative that solves the same need. Answer these
questions:

 What are the differentiators between your product/service

and the substitute?
 How many substitute products are available in this market?
 What is the cost of switching to a substitute product?
 How difficult would it be to make the switch?
 What products or services can you offer that might substitute
a market leader?
 What aspects of your products/services can your customers
do manually?
Think of what the iPod did to the CD market. The iPod used
new technology to fulfill the same need that the CD filled for
years—giving customers a portable way to listen to music.
Price isn’t always the reason that customers switch to a
substitute product. After all, the iPod was much more
expensive than a CD player, but people were willing to pay a
higher price for a device that held thousands of songs.
3. BARGAINING POWER OF SUPPLIERS
This section analyzes how easily suppliers could increase their
prices and thus affect your bottom line. Answer these questions:

 How many suppliers does your company have?

 How unique is the product or service that they provide?
 How many alternative suppliers can you find? How do their
prices compare to your current supplier? How expensive
would it be to switch from one supplier to another?

Remember that your supplier will think strategically, just as you

are. If your supplier understands that few other companies could
fulfill the same need, they could charge you’re more for their
unique service.

4. BARGAINING POWER OF BUYERS

On the other end, you also need to determine whether buyers
have the power to drive your prices down. Answer these
questions:

 How many buyers control your sales?

 How large are the orders you receive?
 Could your buyers switch suppliers—and how much would it
cost for them to switch?
 How important is your product/service to your buyers (i.e.
what is the ROI of your product/service)?
5. COMPETITIVE RIVALRIES
The four previous forces largely affect this last one. You need to
look at the number and strength of your existing competitors.
Intense rivalry can play out in various ways like Price competition,
advertising battles, R&D competition and distribution network etc.
Answer these questions:

 How many competitors do you have?

 Who are your biggest competitors?
 How does the quality of their products or services compare
with yours?
 What distinguishes your company from the competition?
 What will it cost one of your customers to switch to a
competitor?
Domino’s Pizza Porter Five Forces Analysis
Example

Threat of New Entrants

 The economies of scale are fairly difficult to achieve in the
industry in which Dominos Pizza operates. This makes it easier
for those producing large capacitates to have a cost advantage.
It also makes production costlier for new entrants. This makes
the threats of new entrants a weaker force.
 The product differentiation is strong within the industry,
where firms in the industry sell differentiated products rather a
standardized product. Customers also look for differentiated
products. There is a strong emphasis on advertising and
customer services as well. All of these factors make the threat
of new entrants a weak force within this industry.
 The capital requirements within the industry are high,
therefore, making it difficult for new entrants to set up
businesses as high expenditures need to be incurred. Capital
expenditure is also high because of high Research and
Development costs. All of these factors make the threat of new
entrants a weaker force within this industry.
 The access to distribution networks is easy for new entrants,
which can easily set up their distribution channels and come
into the business. With only a few retail outlets selling the
product type, it is easy for any new entrant to get its product on
the shelves. All of these factors make the threat of new entrants
a strong force within this industry.
 The government policies within the industry require strict
licensing and legal requirements to be fulfilled before a
 company can start selling. This makes it difficult for new
entrants to join the industry, therefore, making the threat of new
entrants a weak force.

How Dominos Pizza can tackle the Threat of New

Entrants?
 Dominos Pizza can take advantage of the economies of
scale it has within the industry, fighting off new entrants through
its cost advantage.
 Dominos Pizza can focus on innovation to differentiate its
products from that of new entrants. It can spend on marketing
to build strong brand identification. This will help it retain its
customers rather than losing them to new entrants.

Bargaining Power of Suppliers

 The number of suppliers in the industry in which Dominos
Pizza operates is a lot compared to the buyers. This means that
the suppliers have less control over prices and this makes the
bargaining power of suppliers a weak force.
 The product that these suppliers provide are fairly
standardised, less differentiated and have low switching costs.
This makes it easier for buyers like Dominos Pizza to switch
suppliers. This makes the bargaining power of suppliers a
weaker force.
 The suppliers do not contend with other products within this
industry. This means that there are no other substitutes for the
product other than the ones that the suppliers provide. This
makes the bargaining power of suppliers a stronger force within
the industry.
 The suppliers do not provide a credible threat for forward
integration into the industry in which Dominos Pizza operates.
This makes the bargaining power of suppliers a weaker force
within the industry.
 The industry in which Dominos Pizza operates is an
important customer for its suppliers. This means that the
industry’s profits are closely tied to that of the suppliers. These
suppliers, therefore, have to provide reasonable pricing. This
makes the bargaining power of suppliers a weaker force within
the industry.

How Dominos Pizza can tackle the Bargaining

Power of Suppliers?
 Dominos Pizza can purchase raw materials from its
suppliers at a low cost. If the costs or products are not suitable
for Dominos Pizza, it can then switch its suppliers because
switching costs are low.
 It can have multiple suppliers within its supply chain. For
example, Dominos Pizza can have different suppliers for its
different geographic locations. This way it can ensure efficiency
within its supply chain.
 As the industry is an important customer for its suppliers,
Dominos Pizza can benefit from developing close relationships
with its suppliers where both of them benefit.
Bargaining Power of Buyers
 The number of suppliers in the industry in which Dominos
Pizza operates is a lot more than the number of firms producing
the products. This means that the buyers have a few firms to
choose from, and therefore, do not have much control over
prices. This makes the bargaining power of buyers a weaker
force within the industry.
 The product differentiation within the industry is high, which
means that the buyers are not able to find alternative firms
producing a particular product. This difficulty in switching makes
the bargaining power of buyers a weaker force within the
industry.
 The income of the buyers within the industry is low. This
means that there is pressure to purchase at low prices, making
the buyers more prices sensitive. This makes the buying power
of buyers a weaker force within the industry.
 The quality of the products is important to the buyers, and
these buyers make frequent purchases. This means that the
buyers in the industry are fewer prices sensitive. This makes
the bargaining power of buyers a weaker force within the
industry.
 There is no significant threat to the buyers to integrate
backwards. This makes the bargaining threat of buyers a
weaker force within the industry.
 How Dominos Pizza can tackle the Bargaining
Power of Buyers?
 Dominos Pizza can focus on innovation and differentiation to
attract more buyers. Product differentiation and quality of
products are important to buyers within the industry, and
Dominos Pizza can attract a large number of customers by
focusing on these.
 Dominos Pizza needs to build a large customer base, as the
bargaining power of buyers is weak. It can do this through
marketing efforts aimed at building brand loyalty.
 Dominos Pizza can take advantage of its economies of scale
to develop a cost advantage and sell at low prices to the low-
income buyers of the industry. This way it will be able to attract
a large number of buyers.

Threat of Substitute Products or Services

 There are very few substitutes available for the products that
are produced in the industry in which Dominos Pizza operates.
The very few substitutes that are available are also produced by
low profit earning industries. This means that there is no ceiling
on the maximum profit that firms can earn in the industry in
which Dominos Pizza operates. All of these factors make the
threat of substitute products a weaker force within the industry.
 The very few substitutes available are of high quality but are
way more expensive. Comparatively, firms producing within the
industry in which Dominos Pizza operates sell at a lower price
than substitutes, with adequate quality. This means that buyers
are less likely to switch to substitute products. This means that
the threat of substitute products is weak within the industry.

How Dominos Pizza can tackle the Threat of

Substitute Products?
 Dominos Pizza can focus on providing greater quality in its
products. As a result, buyers would choose its products, which
provide greater quality at a lower price as compared to
substitute products that provide greater quality but at a higher
price.
 Dominos Pizza can focus on differentiating its products. This
will ensure that buyers see its products as unique and do not
shift easily to substitute products that do not provide these
unique benefits. It can provide such unique benefits to its
customers by better understanding their needs through market
research, and providing what the customer wants.

Rivalry among Existing Firms

 The number of competitors in the industry in which Dominos
Pizza operates is very few. Most of these are also large in size.
This means that firms in the industry will not make moves
without being unnoticed. This makes the rivalry among existing
firms a weaker force within the industry.
 The very few competitors have a large market share. This
means that these will engage in competitive actions to gain
 position and become market leaders. This makes the rivalry
among existing firms a stronger force within the industry.
 The industry in which Dominos Pizza is growing every year
and is expected to continue to do this for a few years ahead. A
positive Industry growth means that competitors are less likely
to engage in completive actions because they do not need to
capture market share from each other. This makes the rivalry
among existing firms a weaker force within the industry.
 The fixed costs are high within the industry in which
Dominos Pizza operates. This makes the companies within the
industry to push to full capacity. This also means these
companies to reduce their prices when demand slackens. This
makes the rivalry among existing firms a stronger force within
the industry.
 The products produced within the industry in which Dominos
Pizza operates are highly differentiated. As a result, it is difficult
for competing firms to win the customers of each other because
of each of their products in unique. This makes the rivalry
among existing firms a weaker force within the industry.
 The production of products within the industry requires an
increase in capacity by large increments. This makes the
industry prone to disruptions in the supply-demand balance,
often leading to overproduction. Overproduction means that
companies have to cut down prices to ensure that its products
sell. This makes the rivalry among existing firms a stronger
force within the industry.
 The exit barriers within the industry are particularly high due
to high investment required in capital and assets to operate.
The exit barriers are also high due to government regulations
and restrictions. This makes firms within the industry reluctant
to leave the business, and these continue to produce even at
low profits. This makes the rivalry among existing firms a
stronger force within the industry.
 The strategies of the firms within the industry are diverse,
which means they are unique to each other in terms of strategy.
This results in them running head-on into each other regarding
strategy. This makes the rivalry among existing firms a strong
force within the industry.

How Dominos Pizza can tackle the Rivalry Among

Existing Firms?
 Dominos Pizza needs to focus on differentiating its products
so that the actions of competitors will have less effect on its
customers that seek its unique products.
 As the industry is growing, Dominos Pizza can focus on new
customers rather than winning the ones from existing
companies.
 Dominos Pizza can conduct market research to understand
the supply-demand situation within the industry and prevent
overproduction.
COMPETITOR ATTACK STRATEGIES

FRONTAL ATTACK
The frontal attack is the direct attack, wherein the market
challenger matches with the competitor’s product, price,
advertising, and promotion activities. The market challenger can
even cut the price of the product, provided he convinces the
customers that the quality is not compromised and is as good as
the high priced products.

E.g. Amul adopted this strategy when it launched Amul Kool and

Amul Masti Dahi at a low price with the same level of the quality
as that of other competitors in the market.

FLANK ATTACK
The flank attack means, attacking the competitor on its weak
points. The challenger finds the areas where the competitor is
under performing and then pushes its marketing strategies in that
area.
The challengers can attack the leader by following any of the
strategies viz. Expanding into the untapped markets, diversifying
into the new products or modernizing the existing product with
technology or through innovation.

IMITATOR ATTACK
It is a strategy of product imitation. The innovator bears the
expense of developing the new product, bringing in the
technology, breaking entry barriers and educating the market.
However, another firm copies some features from the leader but
maintains differentiation in terms of features, packaging,
advertising, pricing, or location and keeps on improving it.
Although it probably will not overtake the leader, the follower can
achieve high profits because it did not bear any of the innovation
expense.

NICHE MARKET ATTACK

This strategy involves avoiding competing with large firms by
targeting specific needs of small markets that are not well served
which are low volume but highly profitable. Marketers usually
identify niches by demographics and psychographics. Customers
in the niche have a distinct set of needs. They will pay a premium
to the firm that best satisfies their needs. The niche is not likely to
attract other competitors easily.
E.g. L.G has successfully made use of this strategy by introducing
the color TV “Sampoorna” for the rural people and outshines the
other colored TV players who had a less focus on these areas.

VALUE CHAIN ANALYSIS

A value chain concentrates on the activities starting with raw

materials till the conversion into final goods or services. Value
chain analysis is a process where a firm identifies its primary and
support activities that add value to its final product and then
analyze these activities to reduce costs or increase differentiation.
Its goal is to recognize, which activities are the most valuable (i.e.
are the source of cost or differentiation advantage) to the firm and
which ones could be improved to provide competitive advantage.
A business can gain a competitive advantage in one of the
following areas.

 Cost Leadership
The goal of a cost leadership strategy is to become the lowest-
cost provider in your industry or market. Companies who excel
with a low-cost strategy have extreme operational efficiency and
use low-cost materials and resources to reduce the overall price
of their product or service.
Cost leadership examples: McDonald's and Walmart
  Differentiation
With a differentiation strategy, the competitive advantage is
gained by offering a unique or highly specialized product or
service. The business needs to dedicate time and resources to
innovation, research, and development. A successful
differentiation strategy allows the business to set a premium price
for its product or service.
Differentiation examples: Starbucks and Apple
Most organizations engage in hundreds, even thousands, of
activities in the process of converting inputs to outputs. These
activities can be classified generally as either primary or support
activities that all businesses must undertake in some form as
follows:

PRIMARY ACTIVITIES
Primary activities relate directly to the physical creation, sale, and
maintenance of a product and after sales service. They consist of
the following:

 Inbound Logistics – Bring raw material from source to the

company. The value chain can be enhanced in this step by
improving the quality of raw material as well as optimizing the
cost of inbound logistics. Your supplier relationships are a key
factor in creating value here.

 Operations – Converting the raw material to finished goods

is the job of Operations. The customer value is increased
majorly in this step if the operations are up to mark and the
product is manufactured in the right manner and meets quality
standards. 
 Outbound Logistics – Sending finished goods from
manufacturing point to distributors and retailers. The value
chain receives a boost if the out bound logistic activities are
carried out in time with optimal costs and the product is
delivered to end customers with minimum affect to the quality of
the product.

 Marketing And Sales – These are the processes you use to

persuade clients to purchase from you instead of your
competitors. The benefits you offer, and how well you
communicate them, are sources of value here.

 Service – These are the activities related to maintaining the

value of your product or service to your customers, once it's
been purchased and also includes customer after-sales service
and complaint handling.

SUPPORT ACTIVITIES
These activities support the primary functions above. For
example, procurement supports operations with certain activities,
but it also supports marketing and sales with other activities.

 Procurement (Purchasing) – This is what the organization

does to get the resources it needs to operate. This includes
finding many different vendors and suppliers and negotiating
best prices.

 Human Resource Management – This is how well a

company recruits, hires, trains, motivates, rewards, and retains
 its workers. People are a significant source of value, so
businesses can create a clear advantage with good HR
practices.

 Technological Development – These activities relate to

managing and processing information, as well as protecting a
company's knowledge base. Minimizing information technology
costs, staying current with technological advances, and
maintaining technical excellence are sources of value creation.

 Infrastructure – These are a company's support systems,

and the functions that allow it to maintain daily operations.
Accounting, legal, administrative facilities, and general utilities
are examples of necessary infrastructure that businesses can
use to their advantage.

Value Chain Analysis Steps

Below are the general steps it takes to create a value chain
analysis:
1. Determine your company’s primary and support activities.
Together, the primary and support activities make up the value
chain. And they include each action required in the development
of a product or service, from raw material to final product.
2. Analyze the opportunity for value creation and cost
reduction related to each primary and support activities
identified for your business.
Brainstorm ways to identify any opportunity for value creation or
cost reduction in each of your primary and support activities of
your business. Compare the activity to the competitive advantage
you're trying to achieve (cost leadership or differentiation) and see
if it is practical and viable to implement. Analyze your competitor’s
value chain properly if possible.
After the value analysis is complete, take a look at the cost of the
activities. Does the labor and employees need more training for
specific crucial tasks? How much does X raw material cost?
Could we bring new technology for increased productivity? Asking
questions similar to these will help identify which activities are
cost-effective and which are not. This where areas for
improvement can be identified.
3. Implement the necessary action plan and strategies for
differentiation and cost leadership identifies in step 2 and
regularly monitor, take feedback and take corrective actions
where required urgently.
Value Chain Analysis of Walmart
Example:

Firm infrastructure

There are 2485 Wal-Mart stores all over the world. This includes
682 Supercentres, 457 Sam’s Clubs, 5 Wal-Mart Neighborhood
Markets and 1007 units of Wal-Mart International. Wal-Mart
serves over 100 million customers weekly worldwide. There are
1035000 associates, and the company is America’s largest
private employer.

• Wal-Mart is run from a national headquarter. The headquarter

takes care of orders, and every local store has to report to the
headquarter. The local store is responsible for satisfying the local
customer.
• Every associate is challenged to reduce the cost of doing
business, ranging from reduced paper use to making suggestions
that can save millions of dollars. This challenge is met every day
because associates understand that the savings they create are
passed to the customer in low prices.

Human Resource Management

 Almost 60% of all managers in Wal-Mart stores started as

hourly associates. This indicates that Wal-Mart gives
employees the opportunity for career advancement. The
employees are encouraged to communicate openly, offer
new ideas, take risks, strive for excellence and have fun.
Wal-Mart has been ranked as one of America’s 100 best
companies to work for in recent surveys.
 Employees are getting competitive wages and
comprehensive benefits. These benefits include both full-
time and part-time people. Some of these benefits are; profit
sharing, stock purchase program, medical coverage,
vacation, holiday pay, leave of absence, private counseling,
scholarship program and dental coverage.

Technology

Wal-Mart uses computer-based technology. As a product’s bar

code is swiped at the checkout aisle, information is
instantaneously sent to Wal-Mart’s data warehouse. The data
warehouse projects when the item needs to be replenished and
then places the order directly to the vendor or to a Wal-Mart
Distribution Center. This “just-in-time” inventory management
reduces overhead associated boxes of unneeded merchandise
sitting in warehouses and stock rooms.

• Information links all aspects of supply chain

 • E-business – replacement of physical business processes with
electronic ones

• Electronic data interchange (EDI) – a computer-to-computer

exchange of business documents

Operations

Walmart runs operations in a global scale with more than 11,000

stores in 27 countries serving nearly 260 million customers each
week. In general, the range of Walmart’s business operations
includes supercenters, supermarkets, hypermarkets, warehouse
clubs, including Sam’s Clubs, cash & carry, home improvement,
specialty electronics, restaurants, apparel stores, drug stores and
convenience stores, as well as digital retail.
Walmart operations are divided into the following three reportable
segments:
1. Walmart US: The largest operating segment comprises
three primary store formats, as well as digital retail in all 50
states in the United States. About 60 per cent of the total net
sales were generates from this segment.
2. Walmart International: This segment comprises Walmart’s
retail, wholesale and other business operations in 26 countries
outside of the US. Approximately, 28 per cent of the total net
 sales generates from this segment. This segment grows primarily
via acquisitions of other businesses.
3. Sam’s Club. Consisting of membership-only warehouse
clubs, Sam’s Club operates in 48 states in the U.S. Membership
income is the largest source of revenue of this segment and the
segment contributed to about 12 per cent of the total Walmart
revenues every year on average.

 Recycling is a high priority at Wal-Mart. Wal-Mart has

recycling programs for cardboard, plastics, aluminum cans,
car batteries and paper products. They also work to reduce
waste by encouraging vendors to reduce packaging.

 Wal-Mart stores have advanced energy management

systems to regulate and reduce energy use.

 They also strive to provide a safe shopping experience for

our customers and a safe work place for our associates.

Inbound logistics

It has been estimated that more than 50 per cent of Walmart

products in the US come from overseas suppliers and about 75
percent of walmart.com sales come from non-store inventory.
Generally, Walmart inbound logistic practices are based on the
following three principles:
1. Using the minimum amount of links in the supply chain.
Starting from 1980s, Walmart began to ruthlessly eliminate
traders in its supply chain opting to work with manufacturers
directly. Such a strategic decision proved to have a positive
impact on the bottom line after a few years. Specifically, “in 1989,
Wal-Mart was named Retailer of the Decade, with distribution
costs estimated at a mere 1.7% of its cost of sales – far superior
to competitors like Kmart (3.5%) and Sears (5%)”. The efficiency
of Walmart supply chain practices has further improved since in
a consistent manner.
2. Forming strategic partnerships with vendors. Walmart
imposes strict conditions on various aspects of the business
when negotiating with potential suppliers. The company also
attempts to purchase for the lowest prices applying its huge
bargaining power in order to be able to maintain cost leadership
competitive advantage. However, once a potential vendor is
contracted as a supplier, Walmart offers a strategic partnership
for long-term perspective and engages in high volume
purchases, although for lower prices.

3. Using cross docking as an inventory tactic. Cross

docking implies “the direct transfer of products from inbound or
outbound truck trailers without extra storage, by unloading items
from an incoming semi-trailer truck or railroad car and loading
these materials directly into outbound trucks, trailers, or rail cars
(and vice versa), with no storage in between”.

Marketing and Sales

Walmart marketing strategy attempts to associate the brand
image with abundant assortment of products, highly competitive
price and convenient access to stores via carious channels. The
marketing budget of the company equaled to USD2.4 billion for
both fiscal 2015 and fiscal 2014 and USD2.3 billion for the fiscal
year of 2013.
Walmart utilizes both, online and offline channels in an integrated
manner for marketing and sales with a steady shift towards online
channels. This is because the use of online channels to
communicate the marketing message to the target customer
segment and facilitate sales is more cost effective and it
contributes to the sustainability of Walmart’s cost leadership
business strategy.
Outbound Logistics
Due to the scope and size of its operations as discussed above,
Walmart runs complex outbound logistics operations. In total
dedicated Walmart e-commerce websites have been launched in
11 countries and the average size of 4 new U.S. e-commerce
fulfillment centers opening in FY 16 is equal to 1.2 million square
ft. Walmart strives to optimize its outbound routing and load
building operations in a systematic manner in order to increase
the overall efficiency of these operations and achieve cost
reduction. For example, optimization of outbound loads via the
implementation of ORTEC‘s routing and load-building solutions in
the US in 2013 has resulted in saving 4 million gallons of diesel
fuel by driving 28 million fewer miles while carrying 65 million
more cases.

Services
Opening hours at Wal-Mart generally range from 7.00 a.m. to
11.00 p.m. six days a week, and from 10.00 a.m. to 8.00 p.m. on
Sunday. All Wal-Mart stores maintain uniform prices, except
where lower prices are necessary to meet local competition.
Sales are primarily on a self-service, cash-and-carry basis with
the objective of maximizing sales volume and inventory turnover
while minimizing expenses. Bank credit card programs, operates
without recourse to the Company, and is available in all stores.

• The replenishment system also helps the store adjust to

customers demands. The stores are organized the same way all
over the world, so the customers will recognize the stores
wherever they go.

Walmart Value Chain Flow Chart

 Customer made a purchase

 Point-of-sale system captures data in real-time
 Data is transmitted to warehouses for Inventory
Management.
 Orders are generated from previous-day sales
 Merchandise is loaded onto trucks using cross-docking
 Merchandise is delivered to the store
 The store will restock the shelves with merchandise
 Retail Link transmits data to supplier
 Merchandise is manufactured based on historical and real-
time data
 Merchandise is shipped to warehouses

Differentiation and Cost Leadership through

Primary Value Chain Activities
Walmart can individually analyze the primary activities from all
aspects and create differentiation basis by identifying the
following sources:

Inbound Logistics:

 Procure high quality inputs to offer high quality finished

product
 Effective incoming input handling to reduce damage

Operations:

 Flexible manufacturing system

 Wide product range
 Improved product appearance
 Prevention of product pre-mature failure
 Quick response to unique specifications
 Improved customer satisfaction through lower defect
rate
 Improved product performance due to conformance to
technical specifications

Outbound Logistics:

 Effective handling and better shipping to reduce product

damage
 Timely product delivery
 Flexible delivery capabilities
 Effective order processing procedure
Marketing and Sales:

 Improved relationships with suppliers and customers

 Enhanced communication with customers by offering
high quality information.
 Brand awareness, reputation and image development
due to extensive and effective advertising.
 Effective coordination among product, research and
marketing departments.
 Wider sales force coverage.

Services:

 Superior service quality

 High quality technical assistance
 Reliable and quick repair/maintenance service