The current economic environment has caused many small business owners to rethink their overall strategies. Throughout this downturn, a lot of advice is floating around on formulating strategies that probably won’t work. You will find them all over the Internet. I want to share with you one that has proven to work. It works so well that it propelled a small business into the largest employer in the world!
I was reminded of this recently when I ran into Michael Bergdahl who shared the strategy used by Wal-Mart. If you are not “in the know”, you may wonder who Michael Bergdahl is and how Wal-Mart’s strategy could possibly work for a small business.
Michael Bergdahl is an international business speaker, author, turnaround specialist, and former Director of “People” for Wal-Mart’s headquarters office. Considered an authority on Wal-Mart Competition, Michael has appeared on CNN, CNBC, CNN FN, MSNBC, CNN International, CBS National Radio and Bloomberg TV. He is the author of “What I Learned from Sam Walton: How to Compete and Thrive in a Wal-Mart World,” and “The 10 Rules of Sam Walton: Success Secrets for Remarkable Results.”
When you read the highly “condensed” strategy contained in this article, you will realize that it has high value for any sized business. Therefore, you will no doubt want to read and understand the strategy in complete detail. Here’s a summary of Wal-Mart’s strategy, according to Michael Bergdahl.
As Wal-Mart has expanded its operations around the globe the local competitive environment has changed . . . forever! So, what lessons can be learned in a Wal-Mart World? Answers can be found by picking Wal-Mart’s POCKETS!
“P.O.C.K.E.T.S.” is the acronym Wal-Mart uses to describe its business strategies. The acronym stands for: P = Price, O = Operations, C = Culture K = Key Item Promotion/Product, E = Expense Control, T = Talent and S = Service. These are the seven key result areas used by Sam Walton and Wal-Mart that makes competition with them so difficult.
Price
The USP (unique selling proposition) of Wal-Mart is “everyday low prices”. Sam Walton’s low price strategy has forever changed the retail, manufacturing/supplier paradigm and by doing so he has forced competitors to think like discounters.
However, with almost 7000 stores around the world, local retailers don’t have the economies of scale to compete directly on price. The key for them to succeed against low price is “differentiation”.
Operations
Wal-Mart’s elegantly simple model relies on economies of scale, which allow for lower costs. Lower costs allow for lower prices, which, in turn, build sales and profitability. Greater sales and profitability finance the opening of more stores. More stores enable greater economies of scale. At Wal-Mart, operational efficiency is a never-ending mission to drive costs out of the system, which, in turn, allows the company to increase margins and pass more savings along to customers. For many small businesses there is still room in the market to offer higher value (cost vs. benefits) than their competitors.
Culture
“Our people make the difference” wasn’t just a catch phrase to Sam Walton; it was a hard-wired cultural belief shared by company leaders to this day. Sam believed that if you take care of your employees, your employees will take care of the customer and the business will take care of itself.
Entrepreneurial thinking is not only encouraged it is expected at Wal-Mart. The idea for door greeters was originated by employees. Now, door greeters are a mainstay at stores around the world! What great ideas do your employees have if you solicited their thoughts and suggestions?
Key Item Promotion/Product
Wal-Mart’s buyers and store managers do all they can to make sure the products in their stores meet the needs of customers at the lowest prices. This customer-centered focus leads customers to wonder, “Why shop anywhere else?”
As a small business, you are probably not buying at the lowest costs and as a result cannot profitably market at the lowest price. However, you can offer the highest value and make the purchasing experience most pleasurable.
Expense Control
Company profits at Wal-Mart are achieved through tough supplier negotiations and a fanatical focus on controlling costs. The goal at Wal-Mart is to reduce costs in every area of the company’s operation, including stores, home office, distribution centers and fleet.
Sam Walton used to say overhead is one of the most crucial things any business has to fight to maintain profit margins. The Wal-Mart cultural expense philosophy is that every dollar spent foolishly takes a dollar out of their customers’ pockets.
I have found that most small businesses have many opportunities to streamline and in many cases, automate much of what they do. Improved reporting and ordering can reduce “days turn” in inventory. There are literately dozens of ways most small business can lower their expenses.
Talent
Sam Walton had a unique ability to assemble a team of great leaders and to inspire them to focus on the achievement of a common cause. Wal-Mart’s Human Resources function, called “People” is guided by three components: hire the best, provide the best training, and be the best place to work.
If this is important for a company the size of Wal-Mart, wouldn’t it be even more important for a small business where there is less room for error? You cannot produce stellar results with under skilled and under motivated employees. When it comes to training, make sure you are training people with the “talent” and will to succeed. You can fertilize and water a rock forever but it will never grow. And lastly, the most talented people will leave and the others will become counterproductive if you create a less than great work environment.
Service
Sam Walton built Wal-Mart into the company that it is by living the philosophy, “There is only one boss, the customer, and he or she can fire everybody in the company from the chairman on down, simply by spending his or her money elsewhere.” In any size and type of business, you need your customers much more than those customers need you.
Focusing on the customer is and always has been the most important element of business success. Talk to your customers, find out what they want and buy to those perceived needs. Behemoth-sized competitors can’t possibly specialize to the extent that smaller businesses can. So, be sure to tailor your products and services to best meet the tastes and preferences of the customers in your locale.
In summary, if Wal-Mart’s arrival in town is a wake-up call to local businesses to improve customer service, it is in all likelihood too late. Once a big competitor arrives, it is too late to atone for past service sins. Not serving the customer is a fatal flaw in any business.
So, now that you know about POCKETS, how are you doing? Remember, you’ve only got one chance to make a first impression with your customers, so make it a good one!
If this strategy makes sense to you, you will no doubt want to want to read Michael’s book, “What I Learned from Sam Walton: How to Compete and Thrive in a Wal-Mart World.”
To contact Michael Bergdahl, email him at mbergdahl@aol.com, through his LinkedIn page or visit his website.
If you would like to contact me, you can do so by emailing me at mike.clough@bestbizpractices.org or visiting my LinkedIn page.
Posted by: Mike Clough
