The phenomenal success of Sam Walton, founder of Sam’s Club and Walmart, now the largest retailers in the world, proves that customer service sells.
Walmart became America’s biggest retailer by offering what was a major improvement in customer service at the time.
Walmart stores are everywhere. Originating in the small town of Bentonville, Arkansas, Sam Walton’s stores are now found in most towns in the United States (although they are notably absent in New York City, Detroit, Seattle, San Francisco, and Boston). Over 90% of Americans are within driving distance of a Walmart.
Walmart operates under 71 trade names in 27 countries. It has sales that in 2015 will approach half a trillion dollars a year. Walmart employs 2 million associates in countries as different as Nigeria and Nicaragua, the United Kingdom and the United States, and China and Chile.
The children of Sam Walton continue to own the majority of the stock in the company through their family trust, and are among the wealthiest people in the world today.
Secrets to Walmart’s success
What was it about Walmart that has made it so successful? Sam Walton’s megacorporation was not the first chain retailer. During its expansion, Walmart typically bought and remodeled the properties of older chain stores. Walmart was not the first store to offer discount prices. Shoppers have always known where to look for lower prices, usually on goods of lower quality.
The distinctive contribution of Walmart in its time was that it offered not only lower prices but also a higher level of consumer choice. Shopping at Walmart in the 1950’s, 1960’s, or 1970’s was an entirely different experience from shopping at other stores—but in a good way.
Sam Walton was born in 1918 in Kingfisher, Oklahoma, where his parents had moved to set up a farm. When Sam was five, his mother and father decided that the farm did not generate enough income for their growing family, and his father rejoined his brother’s farm mortgage company.
The elder Walton made his living by repossessing farms from farmers who had met hard times, and the family, probably not the most popular people where they lived, moved from small town to small town throughout the Southeastern US for the next 10 years.
When Sam was in the eighth grade, he became the youngest Eagle Scout in the history of the state of Missouri. During his senior year in high school in Columbia, Missouri, he was named “Most Versatile Boy.” Entering the University of Missouri in 1936, Walton joined a secret society, QEBH, and then became a member of an ROTC honor society, Scabbard and Blade. Walton became the “permanent president” of a Bible study group of university students, a position of considerable influence with future Missouri leaders.
All of these accomplishments earned Walton a ticket to a job with the J. C. Penney Company, paying $75 a month until he was drafted to serve in World War II eighteen months later. Having a college degree, Walton was made an officer, and paid the heady salary of $150 a month.
Returning from a stint in Army Intelligence, Walton took $5,000 from his savings from his military pay and a $20,000 loan from his father-in-law to buy a Ben Franklin variety store in Newport, Arkansas. Before Walton took over the store, it had sales of $80,000 a year. Walton increased the variety of goods for sale, and increased sales to $255,000 a year in less than three years.
Beating the competition by offering choice
Why would increasing variety make such a huge difference in sales?
In the 1940’s, the country was not yet connected by a good road system. Most people still lived on farms or in small towns. Finding specialty items took time and effort, driving (or hitching a ride or taking a bus) over bumpy roads, changing and patching rayon tires that blew out as the car was driven over gravel and rocks, spending hours to find that special item that might or might not be found at the destination.
There was no Internet. It wasn’t even easy to get a copy of a local newspaper if you did not live in the town where it was printed. The “wish books” from Sears and Montgomery Ward only came once a year. A store that carried “everything” was a tremendous draw for shoppers.
Walton’s success didn’t go unnoticed. His landlord raised his rent so high that he had to sell the store and its inventory and find a new business. However, having a wide-ranging inventory was not in itself enough to ensure success. After all, nobody has ever heard of the great Newport Ben Franklin store chain. Variety was not enough.
Walton began scouting out a new location where he could own both his store and the building. He found a suitable existing store in Bentonville, Arkansas, 220 miles away, which he re-opened as Walton’s Five and Dime. Using the same approach, Walton increased sales from $72,000 to $175,000 in three years, and began buying out his competition all over Arkansas.
Walton’s marketing principles
The first “Walmart” didn’t appear until 1962. By this time, Walton had mastered the marketing principles that would drive his success. Some of Walton’s principles seem very obvious now, but they were novel in his time.
- Variety stores relied on clerks to bring customers what they asked for and then to make a sale. Walmart displayed a variety of goods that customers could look at without sales pressure while they found what they wanted.
- Grocery shoppers waited at a counter rather than walking up and down aisles as they put the items they wanted into their carts. Walton’s new approach made it possible for customers to buy on impulse rather than from lists.
- Walton built his stores in small towns rather than large towns, but made sure all of his stores were within a day’s drive of his warehouses. It was no longer necessary to take a trip to the big city to buy specialty items.
- And Walton famously drove hard bargains with his suppliers so he could offer the lowest possible retail prices for his customers.
Lessons for small businesses
We all know the rest of the story. Walton became the richest person in the United States in just twenty more years. These were the marketing principles that made Walmart a retail giant, although they are a little dated for the twenty-first century. But what can smaller marketers take from Walton’s experience?
- One-stop shopping is still valuable, whether you are providing goods or services. Make sure your customers return to you by being the one provider who can meet all their needs. Where you should differ from Walmart is that you endeavor to provide everything a few clearly identified customers need, not everything every customer needs.
- Variety is the spice of life the saying goes, and variety also keeps customers coming back to you. Always have something just a little unexpected, but valuable, to keep your customers and clients coming back to you.
- Squeezing your clients and customers for the best price is never a good idea. If someone is happy paying your price or your fee, take it, but when price is an issue, offer the lowest price at which you can earn a long-term profit. You don’t have to give your products or your services away, but your customers have to get a good deal too.