Our investigation revealed several flaws in Walmart's approach to product mix because cultural differences and the impact of tradition were not addressed. Tradition may be particularly important in grocery and beverage items and the retailer did not adequately formulate localization strategies. These three markets had similar barriers to entry, including economies of scale, product availability, and supplier relationships—variables that are typically not limitations for the retailer's U.S. operations. Walmart experienced a pattern of difficulties with suppliers, including logistics access, access to products (e.g., fresh vs. frozen foods), and sourcing.

The merchandise Walmart needed to stock its shelves was not much different from what local competitors also needed. If Walmart was going to compete, it had to stock the same items, preferably at a lower price. But as it tried to purchase merchandise, especially in South Korea, Walmart found that the competitive environment and limited quantities prevented it from finding suppliers it could partner with to buy the right ethnic products at low cost. Consequently, the retailer was unable to satisfy local tastes advantageously and ultimately failed to gain market share that would allow it to put pressure on suppliers. Walmart jumped into the markets by overestimating its purchasing power and underestimating the competition. Even product packaging preferences were not tested for consumer acceptance. In Japan, Walmart currently faces a complex supply network that resists change. Walmart's supply chain simplification was resisted by Japan's multi-tier distribution system, where access to suppliers is limited to protect already thin profit margins.

Merchandising styles that were not translated

Germany

Walmart's merchandising style is to place premium products at eye level, and discounted items are harder to find. The Germans found this quite annoying. This included trying to attract Germans with packaged meats, when they prefer to buy from a butcher. Walmart was unable to take full advantage of its supply chain advantages in Germany because they were not large enough to force suppliers to meet their demands the way they could in the United States. Relations with suppliers were not good. As a result, they were unable to enforce their preferred logistics and supply chain demands, including access to suppliers' operations and quality control.

South Korea

Because Korean consumers have smaller households, they prefer small, compact packaging rather than large ones. Walmart's bulk packaging missed the mark. The marketing mix of dry goods, boxed goods, electronics and clothing did not appeal to Korean housewives who like to see fresh foods and drinks in stores. The main rival, E-mart, was popular with its entertainment style of active colorful screens and employees with food samples who clapped and used megaphones.

Japan

The big box store format and larger bulk packages popular at Walmart also don't match the shopping style of the Japanese. In this country, people think they are 'minimalist' in the utilization of space, especially with the small size of their homes. Small neighborhood stores close to home make the most sense for them.

Location: Convenience

Germany

In Germany, Walmart collapsed when it failed to enter into existing relationships with suppliers and then placed its supercenters outside the city limits (outside where the majority of the population lives). They found that consumers were not willing to travel to stores only to discover that they did not stock the desired products at the best prices. Walmart's purchase of Wertkauf and Interspar left them with unattractive real estate in bad locations. They only bought about one percent of the retail market with these acquisitions, and both were losing money at the time of the purchase. Meanwhile, zoning restrictions and a lack of large undeveloped land hampered Walmart's expansion into big-box store locations.

Germans like to shop efficiently and spend as little time as possible. Walmart uses the American marketing style of placing popular items in distant corners, forcing the customer to walk through a large amount of merchandise. Local customers did not like this retail scheme.

South Korea

Stores in South Korea were perceived as unattractive and inconvenient. Shelves were higher than usual for retail stores, prompting customers to walk up. Walmart's standard utilitarian design, in which the ceilings had exposed pipes and structures, turned off customers as ugly and cheap compared to local merchants. In South Korea, even low-cost retailers like E-Mart, which is the largest supermarket in South Korea, have attractive store spaces that do not convey low cost. Local customers prefer these types of stores, especially women shoppers. They don't like the warehouse atmosphere of a Walmart.

Japan

Walmart made a wise choice by retaining the existing name and infrastructure of the Seiyu store. It was a type of market entry that then worked even better and on a larger scale in the UK with the acquisition of ASDA.

Promotion: Communication

International audiences have very different perceptions that fuel their response to marketing communications. Walmart mistakenly adhered to Western-style advertising approaches that did not fit the cultural norm or were ineffective due to pricing and lack of product options. In Germany they faced price advertising restrictions. The South Koreans and Japanese were not interested in weekly sales circulars. As discussed, because Walmart could not stock the right products at the right prices, advertising became somewhat useless as a tool to drive market share and growth. If Walmart had investigated the cultural factors in these markets, it would have found the need to vary its mix country by country.

Germany

Since Walmart was unable to achieve cost leadership status in Germany, its promotional efforts were not helpful. Attempts to create promotional 'loss leaders', as would be found in the United States, crossed ethical and legal boundaries in Germany. American retail service culture was foreign to German shoppers (Helm, 2000). Walmart's 'ten foot rule' upset shoppers, especially when workers were trained to approach them smiling, which sends the wrong message in Germany. Even having a worker pack customers' purchases was perceived as a hassle.

South Korea

Walmart had only 16 stores, which contributed to its lack of brand recognition. There was only one store in Seoul, a city of ten million people.

Japan

Japanese customers did not find weekly circulars advertising stores' special offers useful. This method is not part of the marketing style in that country. Walmart's focus on low prices raises doubts among Japanese about the quality of merchandise.

Summary of Results

Exhibit 3 summarizes the findings of the cultural differences that affected the retailer. Our study found that Walmart did not adequately address the customer's four Cs of solution, cost, convenience, and customer communication. Ultimately, they had to exit two markets and fight in others. By correctly configuring the marketing mix according to local customs and preferences, the results may have been different.

Annex 3. Summary of findings

Marketing mix strategy	recommendations
Place	Germany: Store locations too far from population centers, consumers unwilling to travel for small price savings South Korea: lack of market presence (few stores) compared to rivals Japan: Joint venture with large local partner helped facilitate entry; still faces tough competition from family markets
Product	Germany: lack of ability to negotiate low prices with suppliers led to inability to compete for locally sourced products; is not able to offer the correct selection of products South Korea: encountered barriers to entry due to competition to purchase products; Rivals prevented supplier associations from getting the right/low-cost mix. Japan: complex and difficult to penetrate supplier network; limits access
Precio	Germany: very price-conscious consumers; the strength of existing competitors with already low prices hindered the ability to negotiate better prices with suppliers; did not achieve economies of scale South Korea: Total low-cost approach is not accepted because consumers prefer a general mix of low-cost and luxury items; failed to surpass local rivals in purchasing power, leading to higher prices on household goods; price is not necessarily the most important element compared to preferences in convenience, quality and choice; violated local regulations by regularly offering products below cost Japan: Consumers view low-priced merchandise as low quality
Promotion	Germany: Lack of competitive pricing made advertising useless in the face of competing value prices and wider product selection South Korea: Wrong to use Western-style marketing; failed to satisfy consumer preference for eye-catching in-store displays of soft versus hard products Japan: Low price advertising is ineffective due to quality concerns

In the three countries analyzed: Germany, South Korea and Japan, we found that Walmart's US retail model was not always a good fit and had to be adapted to local factors and conditions, mainly after entry had already occurred. Interestingly, even though the company had experience in international expansion, management did not make a proper assessment of the cultural differences that influence consumer behavior, especially in Germany and South Korea. A deeper analysis of customers and cultural norms in these markets would have provided critical insight into Walmart's readiness to expand here, which could have helped it avoid costly mistakes and political mistakes that ultimately led to its exit from these two countries.

The difficulties Walmart encountered in terms of pricing, product variety, and advertising demonstrated that it failed to anticipate differences between countries and their unique cultures, resulting in an ineffective marketing mix. Because it made little distinction between its U.S. marketing styles versus its international marketing approach, it clearly was not well positioned to influence buyer behavior, distribution channels, and overall sales. While they prefer to have the Walmart sign in stores, they have recently taken a balanced approach to international expansion in the intervening years through a mix of entry modes, sometimes in collaboration with local partners. The need for cultural adaptation should be emphasized as part of business planning and strategy development for companies to be successful in international expansion.

Given the information provided, how do you think it is both an advantage and a disadvantage to be as large as Walmart when entering a foreign market? Explain.