Effectiveness of Walmart's Business Model


This article uses Wal-Mart as an example, combining the concepts of business model canvas precisely collaborate how Wal-Mart excavate innovation opportunities and how it exert them to the elevation of organization value. The first part briefly articulates the introduction of Wal-Mart's incremental innovation adoption and the prevailing milieu which usher in the current reform. The second part provides the business model canvas of Wal-Mart as well as analyzes from each aspect to further discover how they apply innovative ideas to various significant factors and what the influence of such innovation brought to Wal-Mart's development as well as the potential risks it may confront. The third highlights how Wal-Mart will innovate its business model in the future to respond to changes in the external and internal environment. The final conclusion critically and comprehensively discusses the effectiveness of Wal-Marts business model and its outstanding performance on appropriating efficacious strategies.

1. Introduction

Wal -Mart has been the pioneering company in the retail industry showing a strong competitive advantage against it components which is partly due to the sharp insight to the market need and continuous improvements of existing products and services. It exploit incremental innovation strategy and integrate it to its original development, which by contrast to the radical innovation, Wal -Mart did not introduce a downright new product or service. The impact of the traditional physical retail industry on the e-commerce wave is unprecedentedly fierce. In recent years, Wal-Mart has invested a lot of funds in the development of the e-commerce business. It did not employ radical innovation but based on the existing business pattern, Wal-Mart expand its customer realm and exert differentiated strategies towards both upstream and downstream. However, an appropriate such an innovation approach can still bring risks to the company. Wal-Mart has expanded online businesses in different countries including China, Brazil, and the UK. There are huge discrepancies in economic development levels, national cultures, policies, Internet penetration, infrastructure, and intellectual property protection in different countries, which pose a certain threat to Wal-Mart's entry into the global market. Therefore, the development of Wal-Mart's e-commerce internationalization must consider the variances between different countries, thereby decreasing the risk of opening up foreign markets.

2. Wal-Mart's business model canvas

The business model canvas describes the basic principles of how an organization captures and creates value which as well articulates the different aspects considering how the company integrates its strategy to the innovation process.

Key Partners

  • Strategic partners
  • Information sharing
  • Predigest order placement process
  • Mutual benefit Key Activities
  • Cost control
  • Combined operations of entities and networks. Value Propositions
  • The 'everyday parity' price strategy
  • rich product categories: groceries, entertainment, health, clothes

Customer Relationships

  • high quality and inexpensive goods
  • swift deliveries
  • personalized services

Customer Segments

  • identify target customers
  • different services to opportune customers
  • precise positioning

Key Resources

  • Cohesive corporate culture
  • Cutting-edge information system
  • Mass logistic network Channels
  • supermarket, discount shops, community stores
  • modern social media and technology
  • 'omni-channel retail' model

Cost Structure

  • Distribution costs
  • Labor costs
  • Construction costs Revenue Streams
  • Retail sales
  • Merchandising
  • Membership fees

2.1. Key Activities &Key Resources

Wal-Mart's business philosophy is embodied in three core values: respect for the individual, customer service, and the pursuit of excellence. Take 'everyday low price' as a slogan, advocate low cost, low-cost structure, low price management philosophy, and benefit consumers. Based on the concept of 'everyday low prices', the mall is made up of 36 non-food divisions of Wal-Mart's discount stores. Sam's club is like a purchasing agent for its members, whose favorable prices provide companies and individuals with an incredible brand of value. Wal-Mart's business model of large packaging and low profit enables customers to enjoy low warehousing prices. In addition to its full range of brands, low prices, and high quality, Sam's Club also offers seafood, vegetables, fruits, pastries, and other food and non-food items.

2.2. Key Partners

Wal-Mart has always placed the establishment of mutually beneficial relationships with suppliers as an important position. An important part of Wal-Mart's corporate culture is to maintain a good partnership with suppliers, and it is more willing to give more market profits. With suppliers and maintain good collaborative relationships with them to reduce To reduce the operating costs of suppliers. Wal-Mart regards suppliers as strategic partners and proposes the cooperation concept of 'trust and destiny sharing'. It shares information with suppliers from now and then, establish strategic partnerships, reduce sales agents that exclude manufacturers from trading links, cusand place orders directly with manufacturers. Wal-Mart leverages the advantages of direct-to-consumer channels to provide suppliers with information on sales trends and inventory levels through information sharing, bringing suppliers closer to Wal-Mart's stores. In addition, it provides suppliers with tools and data to forecast sales demand, enabling them to make production plans and transportation plans more efficaciously and accurately. Wal-Mart’s active participation in new product development and quality control of upstream suppliers render it transcends most components, innovating and optimizing from the provenance.

2.3. Customer Segments

Determining the target consumer group positioning is the paramount task of the business model, and companies must clearly identify the target consumer group to effectively allocate core resources. Wal-Mart's customers can be divided into three groups: 'brand chasers', low-income people who are obsessed with brands; brand 'price-sensitive people', wealthy people who like discounts; 'value chasers' who like low prices but cannot bear to afford high price crowds. In order to segment the target customer group, Wal-Mart directed the target consumers through the combination of physical formats such as shopping malls, Sam's member stores, and community stores, as well as online stores such as 'quick purchases' and Wal-Mart App. Wal-Mart Shopping Mall is aimed at middle-income people who have a certain purchasing power and focus on the quality of life. Sam's membership store targets high-end family consumers, government agencies, and corporate group customers. Wal-Mart's e-commerce target group is consumers with shopping convenience and internet consumption habits.

2.4. Customer Relationship

Wal-Mart provides customers with high-quality and inexpensive products, guaranteeing customers with excellent services. Customers' satisfaction and loyalty are the most of time-driven services. It requires companies to keep up with constant needs and update their service models. It has a large number of stores around the world, and consumer consumption information provides Wal-Mart with rich customer data. Its big data analysis platform Wal-Mart Labs, can accurately predict consumer demand and carry out differentiated and precise marketing for consumers in order to provide consumers with personalized services. Meanwhile, social media is used to accumulate extensive data, data mining, research customer needs, and improve online and physical store sales. Wal-Mart has more than 130 warehouses and distribution centers spread all over the world and has established an efficient logistics network system. By integrating and optimizing powerful offline logistics resources, it has provided Wal-Mart with a strong guarantee for the development of e-commerce. Wal-Mart's precise positioning approach allows it to maintain its edge in the fierce e-commerce competition.

2.5. Value Propositions

Aiming at different business types and target groups, Wal-Mart's shopping malls adopt a differentiated profit model, which usually reaches tens of thousands of products. The rich product categories can meet the needs of diffe27rent customers to the greatest extent, and realize 'one-stop shopping'. The profit of the shopping mall mainly includes two aspects: front-end profit and back-end profit. Front-end profits mainly include channel fees such as entrance fees, bar code fees, and promotional fees charged to suppliers. Back-office profit mainly refers to earning a profit on commodity spreads. The warehousing Sam membership store, which targets the mid-to-high-end consumer groups, does not charge entry fees to suppliers. The main source of profit is the sales of the goods themselves and membership fees. There are only about 4,000 to 6,000 types of goods in member stores. The reduction of categories can effectively lower the labor costs of stores, reduce the store's requirements for shelf and site area, and form a 'single product driven' feature. Simultaneously, a moderate membership fee is charged each year, and by doing this, Wal-Mart can screen out the target customer group that meets the positioning of Sam's Club.

2.6. Retail Channel

At present, Wal-Mart's e-commerce distribution channels are mainly composed of online sales plus mobile terminal sales and offline stores. However, it innovates from the forms of e-commerce as well as the offline shopping pattern, including Wal-Mart's online mall, Sam's member store's online mall, No. 1 store, and O2O platform 'Quick Purchase' and Wal-Mart App. As for Wal-Mart's offline stores mainly have four business formats: shopping malls, mountain clubs, discount stores, and community stores. Wal-Mart has more than 10,700 retail outlets in various formats. Because of its extensive network and large scale, Wal-Mart is in a better position in the field of e-commerce. Walmart can use its stores and branches to build an efficient and large online order supply chain network. Due to the tremendous number of offline stores and the extensive distribution of physical stores, it has launched a series of distinctive delivery services: mobilizing mass delivery, allowing consumers in physical stores to incidentally carry some goods for online customers, thereby enjoying a certain discount. Another 'cash payment' service which makes customers are able to place an order online without a savings card or credit card, then go to a physical store to pay cash and pick up the goods. Wal-Mart's “omni-channel retail” model of online plus offline plus mobile enables Wal-Mart to integrate online retail business with offline physical store business. Compared with pure e-commerce companies, the most evident advantage of Wal-Mart's combination of online and offline is the user's experience and evaluation of the product before buying. “”

2.7. Cost Structure

For Wal-Mart's online business, costs mainly include the construction cost of network platforms and network terminals, operating costs, procurement costs, marketing costs, and logistics and distribution costs. As there is a bunch of cutting-edge technology taking off, platforms' construction and operation, and maintenance are becoming smaller and smaller in the total cost. As a traditional retail giant, Wal-Mart uses direct purchases from existing stores to purchase goods, which effectively reduces procurement costs. It has established a good brand reputation over the years. The brand advantage has laid a good foundation for Wal-Mart to develop e-commerce and effectively reduce its e-commerce promotion costs. The stickiness of the network terminal makes the user acquisition cost of e-commerce relatively controllable, cutting back marketing and promotion costs. Corresponding to the advanced retail pattern, the 'cash payment' service employs the existing supply chain logistics distribution network to exert a variety of distribution forms, thereby reducing distribution costs.

2.8. Revenue Streams

Aiming at different business types and target groups, Wal-Mart's shopping malls adopt a differentiated profit model, which usually reaches tens of thousands of products. The rich product categories can satisfy the needs of various customers to the greatest extent, and realize 'one-stop shopping'. The profit of the shopping mall mainly includes two aspects: front-end profit and back-end profit. Front-end profits mainly include channel fees such as entrance fees, bar code fees, and promotional fees charged to suppliers. Back-office profit mainly refers to earning a profit on commodity spreads. The warehousing Sam membership store, which targets the mid-to-high-end consumer group, does not charge entry fees to suppliers. The main source of profit is the sales of the goods themselves and membership fees. There are only about 4,000 to 6,000 types of merchandise in member stores. The reduction of categories can effectively cut back the labor costs of stores, lower the store's requirements for shelf and site areas, and build a 'single product driven' feature. Aside from all that, a moderate membership fee is charged each year, by doing this, the company can screen out the target customer group that meets the positioning of Sam's Club which simultaneously facilitate Wal-Mart’s capability to precise customer positioning and construct a virtuous promotion effect on its long-term development.

3. Effectiveness of Wal-Mart's business model

Wal-Mart's business model is a cost-oriented business model. Key suppliers have also become business partners, sharing technology and business risks, and this business model is very profitable. Competitors want to replicate this business model, but because Wal-Mart is constantly adjusting and improving their processes, it is difficult to replicate it completely. Although its size and economies of scale are a competitive advantage, it also has disadvantages. Consumers are concerned about the “cost of low prices”, the so-called “Wal-Mart effect”.

First, Wal-Mart eliminated competition in the local retail industry and created a monopoly effect. Often, this effect can be summed up in the fight against local competitors, which means reducing local employment, and Wal-Mart's job creation does not always fully offset its resulting unemployment.

Secondly, in the relationship with the supplier, the end result is that there is no room for improvement in efficiency. The only way to reduce costs is to produce in countries or regions outside the United States because these local labor costs are lower, and the labor compensation and environment fewer special regulations are required, which means that Wal-Mart's suppliers have a weaker social responsibility than Wal-Mart. Consumers are increasingly aware of Wal-Mart's responsibility in the era of globalization and the bottleneck of US economic development.

Third, Wal-Mart's cost control means that Wal-Mart is almost only improving effectiveness, it will not consume any resources to improve the customer experience.

4. Recommendation

Wal-Mart's success is based on its low price and meeting customer needs, but this business model is easily imitated by competitors. Wal-Mart must constantly modify its competition strategy and develop its business model to maintain its competitive advantage in the global market.

In addition, continuously uses information and communication technology to more effectively respond to consumers in the decision-making process and control the logistics process.

From top management to shop assistants, all Wal-Mart employees are treated as partners, and employees can make comments on the operation of the store at any time. In recent years, however, the issue of incentives and compensation has been widely reported. Therefore, Wal-Mart must continuously try and implement financial incentives and other forms of incentives to ensure the satisfaction of each partner.

5. Conclusion

Wal-Mart's keen insight into timing makes it focus on socialized and mobile retail transformation models. It maintains the same pace of innovation as the times. Its advanced information management system and rapid logistics distribution network is exactly the product of modern e-commerce development trends. The most important innovation of Wal-Mart is that it analyzes the market situation and introduces daily low-cost, one-stop shopping sales methods. This innovation has transformed the way people buy daily necessities into a Wal-Mart way. Its business model supports this strategy, focusing as much as possible on all elements with minimal resources to increase efficiency. On the other hand, Wal-Mart's success is based on every activity under this business model, that is to say, every detail is essential. The sustainability of Wal-Mart's business model will depend on its ability to adapt to a constantly changing environment to meet customer needs and maximize value. Consequently, Wal-Mart must modify its activities and create a socially responsible corporate image to further elevate its value.


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07 July 2022
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