The time when Wal-Mart opened its stores in Germany was marked by complicated economic conditions exacerbated by adverse demographics and strict governmental regulations imposed on store owners. The laws governing general commercial activities were not conducive to opening a retailing business. Regulation of store hours and restrictions on “loss leader pricing” created a highly demanding environment for Wal-Mart (Lascu 162).
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Moreover, the company’s distinguished strategy called every day low pricing (EDPL) was deemed illegal and rendered useless their unique selling proposition (Lascu 162). According to the German legislation of that time, in order to put a product into the EDPL category, it should be marketed at a lower price for two months. Furthermore, a long list of retailers such as Aldi and Lidl, Globus, Real (Metro), Kaufland, and Toon (Rewe Group) offered a sound competition for Wal-Mart (Lascu 162). The rivals’ strategy of zone pricing allowed them to outmaneuver the company and block its clear price leadership (Lascu 162).
Wal-Mart failed in Germany because of its inability to properly calculate the risks related to competition that had better geographic penetrability. The company was also mistaken in its belief that the German market is not different from that in the United States. Moreover, the leadership of Wal-Mart was not able to understand the cultural differences between German and American consumers (Lascu 162).
Walmart wanted to use the high quality of service as leverage in competition on the market. The company believed that providing their customers with shopping bags and packing service free of charge would give them a competitive advantage (Lascu 162). They also trusted in the strategy of focusing on low pricing while shifting consumers’ center of interest to the quality of service. However, buyers in America and Germany are different in many significant respects and do not respond to the same incentives (Lascu 162).
Those differences can be described using the Hofstede dimensions. Germans tend to be more individualistic in their purchasing behavior. They are willing to “hunt” for bargains themselves and enormously enjoy the process (Lascu 162). Moreover, in view of German consumers, the store’s offers did not seem cheap but rather created the perception of luxuriousness. This illustrates their difference in the Indulgence vs. Restraint (IND) dimension (Lascu 134). Furthermore, German consumers are loyal to national brands, and it is hard to convince them to switch to other retailers.
Wal-Mart also miscalculated the extent to which the German employee culture differs from that in the United States (Lascu 163). German workers were not willing to accept the American customer-service traditions and, in spite of the encouragement of their managers, did not want to adopt a habit of cheerfully greeting their customers. There also was a massive backlash against the rules prohibiting relationships at work (Lascu 163).
Walmart should have pushed against regulations limiting store hours. Moreover, it would be wise to consider how the two cultures differed across all Hofstede dimensions. Because any discrepancies in power distance index, individualism vs. collectivism, uncertainty avoidance index, masculinity vs. femininity, long-term orientation vs. short-term orientation, and IND can translate into a significant loss of profit (Lascu 134).
Even though the company’s marketing mix was quite effective in the United States, it should have been changed to better fit Germany. Walmart needed to concentrate on better penetrability into local markets. Their element of the promotion mix should have been corrected to reflect the expectations of German consumers better. Wal-Mart should have accommodated their pricing strategy to the existing regulations in order not to lose its EDLP selling point.
Lascu, Dana-Nicoleta. International Marketing (5th ed.). Mason: Cengage Learning, 2008. Print.