Amazon and Walmart are two of America’s largest discount retailers. Walmart has been America’s predominant bricks and mortar store for many years, while Amazon is the biggest online retailer. Loyal customers of either want low prices and convenience. Amazon is the new upstart vying against the Walmart old guard. This may ultimately result in Amazon surpassing Walmart as consumers shop online in increasing numbers, but success depends on strategy. The three articles chosen all address the online strategies of both companies.
Literature Review
The main strategies for success employed by these two companies include undercutting the competition by offering the lowest prices, appealing to consumers by speeding up delivery of merchandise, and choosing different paths for appealing to investors. Each strategy has been modified by each company over time with advances in technological tools.
Both companies engage in price wars, not only with each other, but with other online retailers such as Target and Best Buy. According to Clifford (2012), retailers will undercut each other by as little as two cents. This may seem counterintuitive to maximizing profits, but the strategy actually makes sense on a couple of levels. Once a consumer has been attracted by a popular item at a discount price, they are likely to buy other items for the same shipment, or make impulse buys while they are in the bricks and mortar store, thereby increasing sales. When the prices of these items are also kept low, even though not so low as the item that brought them to the store, the company gains in its reputation as the place for the thrifty consumer. In the future, consumers may return to that store without checking widely for price comparisons, further increasing sales. An additional strategic advantage from such an approach is that this helps place the company at the top of Internet search results. Currently, making these price adjustments takes little or no human work. There are now sophisticated computer programs that can keep track of the competition’s prices and respond in minutes. Retailers provide the computer with a decision algorithm so that it can go ahead and adjust prices based on the competition, and/or alert management as instructed. While rapidly changing prices can frustrate consumers who want the lowest price, when consumers complain about overpaying, they are offered price adjustments that keep them happy and loyal.
The next big area that both Amazon and Walmart have focused upon as a competitive strategy is shipping. According to Bustillo and Fowler (2009), Walmart uses their ship-to-store policy as a competitive advantage. They can ship items ordered online directly to local stores using their existing longstanding supply chain. Particularly during the Christmas season, when consumers are making many purchases in a last-minute rush, this extremely quick turnaround, usually overnight at no cost to the consumer, is viewed extremely favorably by Walmart’s customers. Year round, shipping to the store is always free. On the other hand, Walmart’s customers who request the ship-to-store option have to go to the store to pick up their items. Amazon will ship free if consumers join Prime for an annual fee. They have taken and continue to take steps to speed delivery. Famously, they are interested in the use of drones to deliver packages to homes. They point out that shipping to home allows consumers to avoid crowds, which is of course a different sort of competitive advantage particularly around the holidays. Nevertheless, Walmart believes that it is the ship-to-store aspect of their online business that provides their competitive advantage. Walmart beats Amazon in e-commerce as far as online traffic, but online sales were about 5% of Amazon’s.
Both companies are also strategizing regarding the best way to appeal to investors. According to Kelleher (2015), in 2012, Walmart had 16 times the revenue of Amazon. But Amazon is quickly catching up. After battling for consumers as online sales grew, Walmart is now only five times the revenue of Amazon. Amazon has three times the revenue per employee as Walmart, suggesting excellent prospects for faster growth relative to Walmart. Walmart is an aging company that continues to struggle in a nimble economy, while the relatively young Amazon continues to grow. Walmart has decided to appeal to investors by paying regular dividends and buying back shares, while Amazon does neither. Instead, Amazon reinvests, which has resulted in annual growth of approximately 20%. Walmart has focused on trying to turn around their decline by building smaller “neighborhood markets,” and by better integrating online and offline sales. But this could take years. When Amazon encounters slowing growth, they push into new areas. Walmart is a value stock with steady dividends. Amazon is a growth stock, investing in new ambitious projects that will pay off in the long term.
Analysis
All three articles reviewed were written by business writers for the mainstream press. As such, they appear to be objective. They vary in their focus on what they believe determines success for Amazon versus Walmart. The two main consumer considerations that have been the target of management strategies at Walmart and Amazon are price and convenience. However, most Americans consider both companies to be large, impersonal companies with a host of problems interacting with real human beings. Customer service horror stories regarding both companies are legion. In all likelihood, consumers with money would shop smaller, more personalized retailers. Therefore, price is currently the biggest attractant for the American consumer. Furthermore, in the online market, price comparisons are relatively simple. Among other methods, just Google the product desired, click “shopping”; and stores, prices, and reviews are displayed instantly. It is doubtful that either company will be able to achieve online consumer loyalty given consumer familiarity with computers. Whatever company sells the product for the least amount of money will win, and consumers are not adverse to changing stores with each major purchase, to find the best price.
There are a couple exceptions. Amazon has heavily advertised their Prime brand. The appeal is that once the consumer buys a membership, shipping is free. It is unknown how popular the payment of a membership fee will be, but for customers anticipating many purchases, this may prove to be an attraction, since the per-shipment fee could end up being quite low, particularly for rapid shipping. Knowing in advance that there will be no further charge for shipping, customers who have paid their Prime fee are likely to seek to buy products at Amazon. This compares to the ship-to-store advantage of Walmart. Particularly for consumers who live near a Walmart, for whom in-store pickup is not difficult, obtaining their items the next day without paying extra will also be attractive. Different consumers are likely to be more attracted to different options depending upon their personal circumstances. For many consumers who work outside the home and are not home to receive packages during the day, they will probably find it more convenient to stop in at Walmart and pick up packages on their way home. Furthermore, obviously Amazon cannot deliver packages instantly. Bricks and mortar stores will continue to have the advantage for items that are needed or desired immediately. For that portion of the market, Walmart continues to provide the best solution for the thrifty consumer because a basket of goods is priced the lowest in the retail market, beating other discount stores such as Target.
As far as can be determined, neither company has considered the strategic advantage that they might derive from better treatment of their own workers. For extremely-price-conscious consumers, probably the treatment of the companies’ employees does not make or break the deal. However, it may explain why neither company has consumer loyalty as soon as prices change. Considering that high-wage workers probably do not shop either company, their consumers are someone else’s employees, and will have a certain amount of sympathy for Walmart and Amazon employees. Walmart’s treatment of employees has been memorably in the news for low wages, insistence upon part-time work, high percentages of employees on food stamps and other government assistance, and particularly for the time they held a food drive so that their own employees could afford their own Thanksgiving dinners. They have also been accused of discrimination by race and by gender. Amazon famously forces their warehouse employees to sign out of work, then stand in line to be searched for contraband for 30 minutes or more, before finally allowing them to go home after work. Employees sued, but the courts said that this was legal; because the search was not part of their employment duties, they did not have to be paid for the time it took. While consumers can understand that Amazon is trying to diminish theft, which will help keep prices low, most consumers will feel that taking so much time to conduct a search every day is inefficient and demeaning, and at the very least the employees should be paid for their time. If Amazon chooses not to do that, they could make use of improved technology or employment strategies such as staggered shifts to increase the efficiency of the process. No employer should be asking their employees to give them 30 or more minutes of unpaid free time because the employer is inefficient.
Conclusion
There are many ways in which retailers can compete. Certainly they compete on price, which provides them with multiple advantages. Modern technology can allow companies to effortlessly respond to competitors’ prices within minutes. However, prices are not the only item that drives consumer behavior. Both retailers recognize that convenience also is a powerful determinant of whether or not consumers will buy from a particular retailer, and consumers always reward speed.
One competitive area unrecognized by either company is the treatment of their employees. While a minimum of consumers may sign petitions or boycott stores because of this treatment, virtually every consumer is watching. If one of these companies decides to pay living wages and treat their employees with more fairness and dignity, they may be pleased with the resulting customer loyalty, and may surge ahead on this competitive advantage.
- Bustillo, Miguel, & Fowler, Geoffrey A. “Wal-Mart Sees Stores as Online Edge”. Wall Street Journal.
Dow Jones & Company, 15 Dec. 2009. Web. 12 Apr. 2016. - Clifford, Stephanie. “Retail Frenzy: Prices on the Web Change Hourly”. The New York Times. The New
York Times Company, 30 Nov. 2012. Web. 12 Apr. 2016. - Kelleher, Kevin. “This is Why Amazon is Dominating Walmart Now”. Time. Time Inc., 18 Sept 2015.
Web. 12 Apr. 2016.
