However, given the size of its operations, none of these buyers are big enough to exert any significant bargaining power on Wall-Mart. In terms of buyers’ price sensitivity: * Retail spending is a relatively important item in total household spend, therefore individual customers are price sensitive in this category. However, Wall-Mart is already attracting these price sensitive customers with Its value proposition. * As he availability of discount store alternatives Increased and difference between these stores decreased, buyers face almost no switching costs and become more price sensitive.
Which also worked In favor of Wall-Mart. In terms of relative bargaining power: As ten size Ana concentration AT Dryers – even ten larger ones Like Dull Dryers – are very limited, the cost of losing any specific customer and therefore its relative bargaining power is minor. * As the availability of information on sellers and their prices and costs increased through online resources, customers became better educated and in return have higher bargaining power.
Because of their value proposition, these substitutes argue higher-end of the market such as affluent/elite. However, as Wall-Mart is targeting more price sensitive part of the market, these substitutes have only low to moderate threat on Wall-Mart’s business model. Another substitute to Wall-Mart stores can be online retailers. Online retailers, especially the ones specialized in certain product categories can provide some price advantages, passing the savings of non-brick-and-mortar store structure to customers.
However, as retail online shopping is still not very popular, the threat from these retailers is limited in the tedium-term. THREAT OF ENTRY The threat of new entry is limited in discount general merchandise business given the high entry barriers Key underlying factors behind the low threat of entry are: * Capital requirements to enter into the industry is relatively high given the high working capital and initial investment requirements, which reduces threat of entry. There is significant potential for economies of scale in discount general merchandise industry with large players benefiting from high bargaining power on appliers; nation-wide supply chain network; company-wide IT systems, employee training modules, and other systems and tools; and learning curve effects. These factors also lead to absolute cost advantages for big players and create significant disadvantages for small new comers which in turn decrease threat of entry.
Product differentiation in the industry mainly comes from price advantages, convenient store locations, product variety, and service levels. In this sense, players differentiated themselves as Wall-Mart being the low cost provider with large product rarity vs. Target attracts higher-end of the market with higher service levels and stores located more in affluent regions of the country. This also creates some entry barriers for new comers, as the industry already offers different alternatives attracting different customer segments. As retail stores are the main distribution channels for discount retailers, access to channels of distribution is relatively easy when compared to other industries where companies are competing for the limited shelf space. However, there are still some obstacles for the new entrants in terms of access to distribution such as availability of convenient store locations and high initial capital requirements. There are no major governmental or legal barriers Tanat Locknut general mercurialness race, wanly causes some Increase In eaten AT entry. * Given the consolidated and competitive structure of the discount general merchandise retailers, the probability and potential impact of retaliation from existing firms against new entrants is very high and reduces threat of entry even further. * Lastly, the effectiveness of barriers to entry is very high given all the factors above.