Case study: Walmart

The story.
Arkansas’s Sam Walton founded Walmart in 1962, based on the idea of bringing big-city discounting to his corner of the rural American South. To make up for low profit margins, the company had to sell higher volumes in lots of big stores.

It lowered costs by dealing directly with manufacturers, investing in technology and logistics, and increasing worker productivity, while keeping labour costs low.

The challenge.
By 2004, Walmart topped the Fortune 500 list, both as the world’s largest corporation and the US’s biggest non-governmental employer. But it had endured years of criticism, for its impact on the environment and provision of healthcare for employees, to concerns about the effect of its stores on communities.

Walmart’s critics began to mount protest campaigns that resonated with an increasing portion of the public, including more affluent, middle-class urban consumers – a group the company had identified as its next key market if its growth rates were to improve.

The sustained criticism led to a loss of customers and delays in opening new stores.

The response.
Lee Scott, chief executive, decided to adopt a strategy to restore Walmart’s reputation. The company set up political campaign-style “war rooms” and embarked on an ambitious environmental sustainability initiative.

But then, when hurricane Katrina approached the US coastline in August 2005, came an opportunity to remind the public of the benefits of its basic value proposition – getting goods to people as efficiently as possible. Walmart already had an Emergency Operations Center, which it mobilised when news of the approaching storm was picked up by Walmart’s response team.

By accessing its vast customer database, the company could anticipate the needs of customers in hurricane-threatened areas with great accuracy and specificity. For example, Walmart had learnt that after an event such as a hurricane, there is a surge in demand for chainsaws.

Walmart’s warehouses were told to prepare high-demand items – such as bottled water, flashlights and portable electricity generators – for shipment to store managers, using the company’s vast trucking network.

When Walmart meteorologists noted that Katrina had changed course to head directly towards New Orleans, the company rerouted the goods to areas in the path of the storm.

Walmart drivers were greeted as heroes when its trucks reached the disaster area days before government relief efforts.

The Katrina response re-energised the beleaguered company, which received credit for exploiting core competencies: knowing what customers want and getting it to them fast and efficiently.

Key lessons.
The reputation of companies is not driven just by customer experience. Highly public events can have a significant impact on customer and stakeholder perceptions. Such events might be a “corporate crisis” or a natural disaster, but either can be opportunities for companies to leave a positive lasting impression.

At the time of a natural disaster, companies can show themselves competent and caring – and Walmart excelled in both areas. In addition, at such times, companies are not viewed as providers of goods and services, but as members of the community.

However, they should avoid anything that can be interpreted as self-promotion or self-interest. Walmart allowed store managers and truck drivers to tell their own individual stories of heroism.

Reputation management requires a tight connection with the core identity and strategy of a company. It also requires an ability to think strategically from the point of view of an increasingly sceptical public. Walmart embraced its success in responding to the Katrina challenge as an opportunity to demonstrate the positive social value of its core business model.
- Financial Times, 23 March 2011