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Product/ service failure

Wal-Mart planned to introduce a sophisticated customer service program which threatened many of its competitors because German discount supermarket chains often do not provide good customer service. Therefore, good customer service, combined with low prices, could have been a new market niche in Germany. One part of Wal-Mart’s customer service program was called the “ten foot rule”. Every ten feet, a service employee offered some help to the customer (Knorr and Arndt 2003). However, the customer reaction was rather negative, because customers who normally do their grocery shopping in discount supermarket chains are used to self-service. They do not necessarily expect to talk with employees. Therefore, the “ten foot rule” was perceived as rather annoying and did not result in a reputation for providing good customer service.

Wal-Mart also imported the idea of placing a “greeter” at the entrance to the store. Again, German customers were not used to this custom, and they did not adopt this “service” with any enthusiasm.

Conclusion of Wal-Mart Mini-case

Wal-Mart tried to apply its US success formula in an unmodified manner to the German market. As a result, they didn’t have sufficient knowledge about the market structure and key cultural / political issues. In addition, structural factors prevented Wal-Mart from fully implementing its successful business model. Also, there were some instances of product or service failure. The final outcome was that Wal-Mart had to abandon its offerings in Germany

Product failure: examples from Wal-mart's investment in Germany
Reasons for Failure Examples of Wal-Mart in Germany
Insufficient demand (MS / BM) Wal-Mart’s low price strategy didn’t create any competitive advantage since many German local retailers were already using that strategy.
Existing competitors are too strong (MS) Wal-Mart’s biggest competitor, Metro, took specific counter-measures to prevent Wal-Mart from executing their expansion plan.
Failure to develop and communicate unique selling propositions (USP) (BM) The profit margins in the German retail industry were already low before Wal-Mart entered. Wal-Mart was not able to convince German consumers that their prices were really that much lower than the competition.
Unexpected change in the environment— Economic downturn N/A for Wal-Mart case
Competing new technology successfully introduced N/A for Wal-Mart case
Change in culture (i.e. change in corporate culture, change in consumer taste or fashion) (C) Wal-Mart did not adapt well to the German corporate culture.
Changing standard of government regulations (P) Managers were not familiar with German laws and regulations, so there were violations. In general, Wal-Mart’s anti-union policies conflicted with the strong German union. Wal-Mart also tried to sell their products below manufacturing costs, which is illegal in Germany.
The price is too high, so trial is discouraged N/A for Wal-Mart case
Poor promotion/communication plan (C) Language barrier between English-speaking managers and older German business people who don’t speak English.
In retailing, failure to secure attractive sites (MS) There were not enough appropriate locations for Wal-Mart stores available in Germany.
Product failure (PF) tores were often located far apart. As a result, logistics costs were high. One of Wal-Mart’s main success factors is to minimize costs, but this goal was restricted by high logistical costs.
Poor service quality—during or after sales (PF) ome of Wal-Mart’s methods for providing service were not accepted by German customers. For instance, the customers did not like the concept of the “greeter”.
Failure to get corporation from key supply-chain members (BM) Several key suppliers refused to supply goods, for fear of tarnishing their corporate image.
Notes for Table 4: The reasons for deletion are divided into five categories according to the following legend:MS: Market structure; BM: Business model; C: Culture and communication; P: Politics and regulation; PF: Product failure

Questions & Answers

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Source:  OpenStax, Business fundamentals. OpenStax CNX. Oct 08, 2010 Download for free at http://cnx.org/content/col11227/1.4
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