The value wedges illustrated above depict differences between willingness to pay and costs amongst Wal-Mart and its major competitors, K-Mart and Target. One product was observed with three different prices from the companies in order to grasp a better understanding and comparison of the different value wedges. An actual comparison of Colgate Cavity Protection Twin Pack Toothpaste emphasizes value captured. Prices were found as follows: Target $6, Kmart $5. 49, and Wal-Mart $3. 38. Wal-Mart’s success is characterized by “Everyday Low Prices.
Always. ” Our price comparison clearly shows Wal-Mart’s impressively lower prices! (Up to 45% lower) The Discount Retailing Industry focuses on capturing the most value for buyers. Our diagrams show that Wal-Mart customers will attain the best value compared to Target and Kmart. Wal-Mart’s WtP and Supplier opportunity costs are placed slightly lower and substantially lower, respectively than the industry average based on several concepts. Wal-Mart guarantees the lowest prices and offers price matching if otherwise.
Thus, Wal-Mart shoppers already expect lower prices when they walk into the store. Wal-Mart is a powerful buyer when it comes to negotiating prices with suppliers because it holds a large amount of the market share, has numerous alternative suppliers, and has enough capital to enter other industries. The case describes Wal-Mart for bargaining hard and capturing prices that did not even include additional costs incurred by suppliers. With this advantage, Wal-Mart has the ability to achieve costs of goods sold at the lowest price because suppliers still gained from being their supplier.
Wal-Mart successfully takes the cost-leadership approach through its ability to sustain competitive advantage through lower costs. Kmart’s value wedge appears similar to the Industry Average of WtP because it does not have as much power as Wal-Mart, yet we set its Supplier opportunity costs equal to that of Wal-Mart since it makes attempts to imitate the same prices. It is obvious from its toothpaste price that Kmart does not come close to Wal-Mart’s price, which brings its COGS higher than Wal-Mart’s but not more than the Industry Average since it still manages to gain cost savings.
As for Target, our highest priced toothpaste, indicates that Target’s value wedge will appear higher than the two comparative firms. Target focuses on a “more upscale assortment and extensive advertising that supported a 10%-15% price premium. “ Therefore, additional product promotions raise WtP along with actual price. Target still manages to buy its supplies at cheap prices being that its COGS is only slightly higher than K-mart’s.
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