White Paper : Walmart Market Segmentation and Targeting

Introduction

The manner in which an organization divides its customers into a number of homogeneous groups is known as market segmentation. A company identifies the most appropriate market segment by carrying out a thorough research in order to determine the taste and preferences of customers. According to Armstrong and Kotler (2005), a section of customers that a company ascertains to sell its products and services to is known as a target market. The main aim of establishing a target market is to sell products and services to the right customers at a profit. Market segmentation and target market determine the success of any product in the market. This explains why market-based strategy is a very fundamental component of both market segmentation and target market.

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Wal-Mart’s background information

Founded in 1962 by Sam Walton, Wal-Mart has remained one of the most popular retail chains in America. Wal-Mart is the second largest public corporation globally and it has several retail stores all locates in several countries across the world. Currently, the company has close to two million employees working in its stores. Wal-Mart collects close to 258 billion United States Dollars from sales in the United States market. The company uses a number of brand names, with Wal-Mart mainly used in the United States market, Walmex being used in Mexico, Best Price in India, Seiyu in Japan, and Asda in the United Kingdom. Wal-Mart has been able to succeed in the global market due to proper choice of the target market and as a result of careful market segmentation (Armstrong and Kotler, 2005).\

Approaches used by Wal-Mart in target market selection and market segmentation

Target market selection and market segmentation is done using a variety of approaches namely; behavioral approaches, psychographic approaches, demographic approaches, and geographic approaches (Dann & Dann, 2004). As far as demographic approach is concerned, the features that are commonly used by Wal-Mart to select a target market include gender, age, ethnic group composition, and stage in the family life-cycle. Among these characteristics, age is one of the most commonly use demographic features that companies use to measure the size of their target markets and their market segments. Wal-Mart also uses gender to identify the most appropriate markets for their products. Usually, at each stage of development, the ability of people to buy goods and services as well as their buying behaviors change. This has a direct impact on a company’s sales. Additionally, the variation in households’ composition and size is associated with the buying behavior of customers. Different ethnic groups have varied tastes and preferences which determines the types and quantities of a company’s products they can purchase (Dann & Dann, 2004).

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Geographic approaches can be used by companies to measure the size of their target markets and market segments. Normally, product preferences vary from region to region, and companies like Wal-Mart strive to offer products that meet the needs of customers located in various geographic locations. Social class is the most commonly used behavioral approach for identifying a target market and for market segmentation. The amount of income earned by customers within a given locality reflects their purchasing power. According to Armstrong and Kotler (2005), when income of individuals increase, their rate of spending also increases. Wal-Mart also uses psychographic approaches or customer attitudes to establish the best customers for its products. Examples of psychographic approaches include loyalty, life-style, and values. People of different social classes and age may lead different life-styles, and Wal-Mart has learned to produce products that meet the needs of these life-styles.

Target market for Wal-Mart

The success of every marketing strategy depends on proper definition of the target market and the performance of every product in the market is determined by four variables of the marketing mix namely; people, product, place, promotion and price. Since Wal-Mart was founded, the company has struggled to offer products to customers at very low prices in order to increase sales and maximize profits. This has remained the company’s marketing strategy for quite a long time. The strategy has proved famous among Wal-Mart’s customers because it allows both the poor and middle-class in the society to purchase products that will satisfy their needs.

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For Wal-Mart to compete favorably in the retail industry, it must predict the needs of customers in the market and work hard to meet those needs. The company has realized that there is a very big gap between identifying customers’ needs and fulfilling them. Wal-Mart’s policy aims at helping customers to save their money by ensuring that it offers them quality products at relatively low prices. The company reaches out to the poor and middle-class income earners in the society who are interested in meeting their daily needs. This group of customers is the largest in the United States market an in all other countries where the company’s store are located. Wal-Mart has at least a retail outlet in many cities on the United States because of its policy of reaching out to the poor and middle-class income earners.

Since its inception, Wal-Mart has been able to perform better than its competitors in the United States market because the poor and middle class form a large part of the United States population (Ferrell & Hartline, 2008). This has enabled the company to obtain a larger market share than its competitors in the regions it dominates. Many customers in the United States market rank Wal-Mart as the retail outlet with the lowest product prices in the region. For this reason, the company has managed to will the loyalty and confidence of many customers for quite a long period of time.

Generally, Wal-Mart’s target market is simply a group of people: males, females and children, who are interested in saving money. These customers are located in all geographic areas where the company’s stores are located. These customers work hard to obtain income that they will use to purchase Wal-Mart’s products at relatively low prices. These customers are pleased with the quality products that Wal-Mart offers to them. The hardworking middle and lower class customers are grateful that they can purchase quality products from Wal-Mart’s stores located in several nations worldwide. Customers who need cloths, groceries, car parts, and household cleaners, save time and money by seeking to obtain them from Wal-Mart stores. The lower and middle-class appreciate Wal-Mart’s efforts of making them feel part of the company. To date, Wal-Mart is still driving more and more people who want to save money to its stores. Retailers keep coming back to Wal-Mart stores because of their low pricing (Armstrong and Kotler, 2005).

Market Segmentation for Wal-Mart

Wal-Mart applies market segmentation in order to identify the most appropriate environments for opening its retail outlets and for determining the best items to stock in its stores. The company largely applies two forms of segmentation strategies namely geographical segmentation and demographic segmentation. Under geographical segmentation, Wal-Mart groups its customers based on their physical location. According to Noel and Hulbert (2001), Wal-Mart does not stock snow shovels in cities that hardly experience snow-fall like San Diego. It only stocks snow shovels in cities where there is frequent snowfall. Under demographic segmentation, Wal-Mart stocks its products based on age of customers in a given region. In this case, Wal-Mart stocks its stores with items that meet the tastes and preferences of customers depending on their age. Wal-Mart’s marketing strategies have always been successful because the company used a good approach to define its market segment. The company focuses on extensive marketing research with the aim of understanding customers’ opinions (Armstrong and Kotler, 2005).

Currently, Wal-Mart has three operating business segments including Wal-Mart stores, SAM’S CLUB, and International operating segments. As far as Wal-Mart Stores are concerned, the company operates Neighborhood markets, Discount stores, and Supercenters in 12 states, 50 states, and 45 states of the United States respectively. In all Wal-Mart stores, customers can get access to a variety of merchandise both physically and through on-line sales. The Discount Stores and Supercenters stock cloths for infants, men, girls, and women. Additionally, small appliances, sporting goods, automotive accessories, toys, and cameras, are also available in Wal-Mart’s Supercenters and Discount Stores. Grocery items in Wal-Mart’s Supercenters and Neighborhood markets include bakery, meat, dairy, deli, and frozen foods. Sales in all Wal-Mart stores are on a cash and carry basis which enables the company to maximize sales while minimizing expenses (Graff, 2006).

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Wal-Mart also operates SAM’S CLUB in 48 states of the United States. This operating segment offers name-brand products including soft goods, hard goods, software, toys, stationery, jewelry, and sporting goods. In its International operating segment, Wal-Mart has its stores located in several countries around the world. The items stocked in these stores vary by country, with others offering groceries and others selling a combination of clothing and groceries. Wal-Mart’s stores in the United States act as the most important segment for the company because they contribute to 60 percent of the Company’s sales in the country. In the United States alone, Wal-Mart controls approximately 33 percent of the market share. Wal-Mart generates about 12 percent of its revenues from the SAM’S Club operating segment (Graff, 2006).

Despite the variation in revenue earned from different Wal-Mart operating segments, all the three segments are equally important for the company. Wal-Mart has used its international stores more wisely when it comes to space than it has used its local stores. This is because internationally, there are high real estate prices in the emerging markets. Additionally, smaller stores in the United States market assist Wal-Mart to connect with customers easily. It seems that the company has opened very many stores in the United States, and if new strategies are not implemented, new stores may end up attracting customers from other Wal-Mart stores. It is still anticipated that Wal-Mart can still do well if it considers re-organizing its current stores instead of expanding its stores that are already established within the United States (Graff, 2006).

Selection process for Wal-Mart’s Target Market

Wal-Mart uses five steps to select the most appropriate segmentation variables to use as well as its target market. The steps include identification of the best targeting strategy, determination of the most appropriate segmentation strategy, development of market profiles, evaluation of relevant market segments, and identification of a specific target market. In the first step of target market selection, Wal-Mart analyzes a number of features such as market characteristics, the company’s resources, product’s attributes, and the company’s marketing objectives. In order to determine the most appropriate segmentation strategy to use, Wal-Mart focuses on the variables that are used to divide customers into groups. The variables that the company uses to divide customers include behavioristic, geographic, demographic, and psychographic variables (Graff, 2006).

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